Financial planning and analysis is a critical task for every business, no matter the size. Finance teams and CFOs use monthly close processes and budget allocations to project cash flow and working capital levels. Despite its critical nature, corporate financial planning and analysis (FP&A) tends to suffer from inefficiencies.
Manual reconciliation processes are often to blame. Technology has advanced, but many companies rely on Excel to complete financial tasks, creating manual processes. Statista highlights that over 730,000 companies use Microsoft’s Office 365 suite and Excel as an extension. You can’t really work with business financial data without Excel, but it does have its limitations.
While manual processes pose a challenge, there are others companies have to deal with. Here are four corporate FP&A issues and how companies can solve them.
FP&A tends to get lumped together with other financial functions such as accounting and expense management. However, the reality is that today’s CFOs expect the FP&A role to involve a growing emphasis on projecting trends into the future. As such, employees who work in this function need to be familiar with analytical processes.
They must also understand the path the business wishes to take.
The typical FP&A team gathers data from multiple sources and uses it to project a business’s future cash flows. This process requires the team to make many assumptions, many of which can be loaded with biases. Thus, the job requires much more than mere financial literacy. Professionals in this area have to familiarize themselves with data analysis principles.
Recently, the launch of Corporate FP&A certifications around the world has helped mitigate the problem. For instance, Singapore’s Certified Corporate Treasury credential has helped companies quickly identify people with the right skills. While other parts of the world have yet to catch up, no doubt seeking professionals with relevant credentials will allow companies to hire people with the right skills.
On-Demand Continuous Planning
Many companies currently rely on static FP&A models due to their reliance on manual processes. Part of the problem is the way Excel is ingrained into financial departments.
Professionals who work in these functions are taught to use Excel from an early stage, and this creates inertia that can be hard to shake. Thus, despite the advent of specialized FP&A software, many departments stick to Excel, which is why next-generation tech integrates with your existing spreadsheets.
Keeping your Excel sheets disconnected from your databases, however, can lead to many workflow problems, despite Excel’s ease of use. For instance, manually updating data while ensuring data integrity is close to impossible in real-time when using Excel.
Most companies use a few massive shared files that multiple departments update. The data in these files are collected by the FP&A team for further analysis. In the interim, if a variable changes, updating the entire chain of files is tough, and locating the source of change is close to impossible.
This workflow makes it impossible to run reports dynamically, and companies resort to running key reports quarterly or annually. However, today’s fast-paced business environment makes it impossible for companies to rely on such static models.
Another issue that these processes create is that reports cannot dive into issues on an ad-hoc basis. For instance, analysts cannot present data in multiple ways to the CFO unless formats were agreed upon beforehand. This provides limited visibility into data that hampers financial efficiency.
Rigidity in Processes
The lack of ad-hoc reporting ability points to a deeper flaw in organizations. As long as internal processes are dominated by rigidity, companies cannot understand how their finances work. Manual processes place limitations on when and how financial data can be collected and traced.
For instance, a manual process can’t keep track of real-time changes. The only way to impose order and avoid data corruption is to fix data collection times. However, what if changes take place between collection times? The lack of real-time visibility leaves companies catching up all the time instead of reacting proactively to challenges.
Some organizations have reacted to these issues by uploading Excel-based data to analytics software. However, the uploading process is a technical one, since data has to be correctly formatted. The result is IT intervention, which costs time. Any errors in data are painful to correct, since IT cannot spot financial errors due to a lack of relevant expertise.
Error handling thus requires both sets of teams to execute the process from scratch. All the while, the CFO is waiting for insights that never seem to arrive on time. Some systems require technical knowledge to run queries which also poses a barrier. Thus, FP&A teams are not as empowered as they ought to be, and the company suffers for it.
Disparate Data Sources
A company’s FP&A reports are only as good as the data that underlines them. The average organization draws data from multiple sources and this leads to problems, given the rigidity that dominates organizations. For instance, multiple departments updating the same file lead to formatting errors and even incorrect data being uploaded.
Expecting an FP&A team to clean data, upload it, and verify it for integrity leaves them with little time to run analytics and dig deep into data. Essentially, the FP&A team becomes an offshoot of an IT team and the company ends up wasting resources.
Solutions that automatically connect multiple sources and integrate them onto a single platform exist currently.
The issue is that most of them don’t integrate with Excel. The ones that do provide teams with the ability to switch between Excel and the software seamlessly, thus giving them the best of both worlds.
FP&A is still far from being a cohesive function in organizations. A lack of team structure and definition are major issues, but the hesitancy to adopt electronic solutions is also a problem. However, technology now offers companies creative solutions that go a long way towards mitigating these issues.