What Is Your FP&A Playbook?
On a recent job application, I was asked “What is your FP&A Playbook?” As I stared at the small, limited character box, I immediately thought like an economist “All else being equal”, this is how it is done. In fact, the answer is, it depends.
The reason it depends is because each FP&A organization is different.
There are a number of factors which much be examined in order to know which playbook to use. The current state of affairs in your FP&A organization determines the strategic and tactical steps for building and leading an FP&A department. It is only in understanding the gaps in the FP&A Team and how it is serving the company’s leadership that an effective playbook can be executed.
- The Quality of Your Data and Effectiveness of Systems
Companies operate FP&A organizations in the context of systems and data. There is typically a high correlation between the maturity of the organization and the quality of its data and systems. Earlier stage organizations struggle in this area whereas larger organizations tend to have made the requisite investments in systems that deliver a single source of the truth and minimize manual work and data manipulation. One way to think about this is how the team is spending their time. Less mature organizations will spend 80% of their time gathering and assembling data while more mature organizations will spend 80% of their time analyzing the data. In fact, this is the goal of any FP&A team and is truly why FP&A professionals are compensated. Providing recommendations for senior leadership to drive profitability in the business only comes from thorough analysis. In a world of perpetual time constrains, data quality makes all the difference and any gaps in this regard are usually the first order of business.
- Process Discipline
FP&A processes are driven by its customer base. The wingspan of an FP&A team often covers of multiple needs from internal reporting to external reporting, investor relations, board of director communications as well as business unit leader support. This is a demanding customer base which yields numerous deliverables in a short period of time. If internal processes such as an effective accounting close, regular forecasting and agile three statement modeling are not “humming along” it becomes challenging to meet and exceed expectations. In the most evolved FP&A functions each of these processes feeds the other (close > financial model update > rolling forecast > quarterly business review> annual operating plan > long range plans>board communications > investor relations) so that there is not an “ala carte” lift every time something is due. Process gaps make for tremendous inefficiencies in FP&A teams.
- FP&A Team Talent
Every FP&A team is different in terms of its skillset. The talent on the team needs to be able to cover off a number of vital functions. These include a solid understanding of accounting, skilled financial modeling, creative analysis design and execution, data science skills, systems skill, relationship building skills for partnering across the organizations and excellent communication skills for telling the story of the business. In my experience, it is rare to find all of these characteristics in every single individual on an FP&A team. More of ten than not, these teams are comprised of specialists who drive the success of the team through their natural talents. For example, the same person who is a natural data scientist perhaps earlier in their career may not yet have the relationship and communication skills needed to tell the story of the business. With time an experience, FP&A leaders will have all of these items in their toolkit.
- Cross Functional Relationships
The core of FP&A analysis is in its understanding of the business, its products, the challenges business unit leaders are facing in the marketplace and familiarity with the company’s long-term strategy. Like all departments in the company, the FP&A team has a reputation and state of affairs in terms of cross functional relationships. If there is a gap here in terms of where the team is versus where it should be with those relationships, then there is a whole additional effort that has to be made.
- Long Term Vision For The FP&A Team
Having a vision for the FP&A team is a significant factor in understanding the playbook. Recall that FP&A is a service organization and therefore, the leadership of the company likely has a vision of what they want the team to be. In the most evolved organizations, FP&A is a center of excellence that the C Suite and business unit leaders look to for the highest quality decision making that drives growth. Some organizations are content with repeatable processes that check the boxes of deliverables in terms of reporting without having a desire to take the team to the next level. This is a trade-off that organizations often make when making time and investment choices.
In the end, any FP&A Playbook has to be designed through the lens of these 5 factors:
- The Quality of Your Data and Effectiveness of Systems
- Process Discipline
- FP&A Team Talent
- Cross Functional Relationships
- Long Term Vision For The FP&A Team
If you need help with your FP&A Playbook feel free to contact me.