Systems – FP&A Expertise

FP&A and Artificial Intelligence

Featuredby Laryssa Reifel: FP&A Expertise

The Future of AI in FP&A

One of the mega trends of our time is the advent of Artificial Intelligence as a mainstream tool. Though AI has been around in various forms for decades, it is only in recent years that it has become a topic of conversation as a usable, transformative tool.

I have done some reading on AI (see A Brief History of Artificial Intelligence: What It Is, Where We Are, and Where We Are Going: Wooldridge, Michael: 9781250770745: Amazon.com: Books) and have attended a few conferences sponsored by Finance Alliance | World Finance Forum. The purpose of this post is to summarize where I think we are with AI as it relates to FP&A. The most burning question on peoples’ minds tends to be whether AI will replace FP&A Professionals in the workplace.

In its current state, AI’s ability to run 3 statement models, forecast a business, develop a 5 year plan and prepare a deck for the board and investors is pretty limited. Remember at this stage it is a language model. So, if you try to use AI for these types of analytics you ultimately get a “how to” list for forecasting. Even the ChatGPT add in for excel is pretty limited to functions that produce words, not numbers.

For the future, my initial answer is well, it depends.

Here is a list of 6 practical considerations for assessing the potential impact of AI (using Gemini or ChatGPT for example) in FP&A:

Company Stage and How You Connect Decision Making with Your Data

The promise of AI is in its ability to one day process large volumes of data in order to draw important conclusions about the dynamics of a business. The challenge is that large volumes of sales data, customer data, product usage etc is typically reserved for later stage organizations. Companies in their infancy will not have developed this volume of information and more likely than not have not yet made the necessary ERP investments to get there (very few start ups have FP&A as native to the organization). Therefore, the opportunity to connect data and decision making is limited to Stage 4/5 organizations.

2. The Type of FP&A Work That You Are Doing

FP&A work tends to span a rather broad spectrum that connects the dots from financial results post financial close to telling the story of those results to communicating that information to a wide variety of customers (boards, investors, bankers) and ultimately making recommendations around long term planning. Those activities go way beyond data science and scenario analysis that could be offered by generative AI. The art of FP&A is in the contextualization of information and more importantly “reading the room”. Even with the ability to program in preferences, AI will not be able to operate in a way that leverages the five human senses. Experienced FP&A professionals and especially those with M&A experience can tell you that there is so much nuance in bringing companies together (or breaking them apart) that more often than not, the decision is made despite what the financials say.

3. The Promise of Automation and Systems

Harnessing data and achieving maximum utility in its use has been the promise of every system tool since the first instances of Essbase and SAP BI. I have discussed this topic previously in my blog. No matter how sophisticated the system, the challenge always lies in how a business leader wants to tell the story of the business. Sometimes it is supported by the data but more often it is not. Telling the story of the business using historical information can sometimes support stories of performance but the information may not be aligned with strategic objectives and investment plans. Unless all preferences and unexpected outcomes are programmed into the learning model you are using, it is a tall order to replace and FP&A person with AI.

4. What Are Your Resources Like?

Companies who are at a stage with a large dataset may very well be among the earliest adopters of AI in FP&A. The challenge is that in the initial adoption it is highly likely that FP&A teams will need data scientists to partner with in the development of the tool. There are several thought leaders who discuss the merger of data science and FP&A. Smaller teams with resource constraints may have difficulty with this. More importantly, a data scientist is not an FP&A person and vice versa. FP&A leaders going down this path will need to be able to synthesize disparate skillsets to bring a full picture with effective business recommendations to the C Suite.

5. Can Your Organization Absorb the Opportunity Cost

There is an opportunity cost associated with database automation – whether it is a data warehouse (like in the old days) or ultimately a sophisticated AI system that tells you everything you need to know about your business. That opportunity cost is institutional knowledge. No data set in business is perfectly clean. Experienced FP&A professionals know that spending time scrolling through tens of thousands of lines of data allows you to see the anomalies. You can think of these as “one-time events” that can dirty your data. For example, in any given quarter you may have a blue bird customer fall from the sky that distorts the trend line in your business. Unless you program all of the potential one-time events into an AI model, you will get distorted view of what is happening.

6. Risk Management and AI

The fact that AI is coming to FP&A in some form and even with limitations is unavoidable. The most important thing that organizations can do is to protect themselves now by instituting AI policies ASAP. Understanding the exposure is a first step and especially so with a remote workforce. AI’s use in creating work product in the absence of company policies for its use can lead to less than desirable outcomes. Companies need to be clear about what employees share with the learning models and more importantly what they should not share. Moreover, AI and any of its use in creating work product has to be treated like an employee. Work still needs to be reviewed and contextualized. Think of it as one of those situations where you literally get what you ask from generative AI but it may not be what you really wanted. That’s where FP&A leadership comes in.

General, Process, Systems

FP&A Establishment vs. FP&A Greenfield

June 4, 2019February 18, 2021by Laryssa Reifel: FP&A Expertise

One of the most extreme comparisons of FP&A roles is whether it exists in a established versus a greenfield environment.

Interestingly, once organizations have an established function it really doesn’t change much. The people may change, the positions might shift slightly but it is a company function that once ingrained is very difficult to shift. About the only catalyst that can drive changes in FP&A processes and analytics is a new system implementation or a major acquisition. On occasion better systems yield more information which might call for a new analytical process but it is not likely. Moving the needle on analysis that comes after the books are closed or shifting the type and cadence for forecasting/planning is difficult to do in large organizations and particularly those which are publicly traded. In fact, those company’s FP&A functions tend to be tied by not only their own internal process but those internal process are driven by a higher power – Wall Street. Expected performance appearing in the form of earnings expectations really sets the tone for what a forecast will look like. The opportunity to drive major change is extremely limited.

Greenfield opportunities on the other hand offer the seasoned FP&A professional a blank canvas for setting up the function, analytical tools, cadence, process and deliverables for senior management. The sheer vastness of decisions stems from literally not knowing what a business needs because it is growing quickly. The situation often calls for running parallel processes down multiple decision trees – systems implementations, building out excel tools to use in the meantime, hiring the right staff, creating board communications when there is little information, partnering with business area experts to understand the right levers to measure and then use as a basis for forecasting. All of these things have to happen at the same time. The environment often gets more challenging before it gets better. This is typically a 2-3 year process and then before you know it, you have an established FP&A function that is hard to change.

Contact Me, General, Organization, Systems

“I need an FP&A Person!”

June 5, 2018February 18, 2021by Laryssa Reifel: FP&A Expertise

On more than one occasion I have heard leaders express in an exasperated tone the fact that they suddenly (as opposed to strategically) in need of an FP&A person (which then evolves into a team and then systems, etc. see blog post on systems here).

The timing of this typically happens at the following business junctures: the business is still figuring out how to close the books, the business knows how to close the books and is ready to mature into formal process, you are getting the numbers but still cannot tell how you are doing or the business takes a dive. In all cases, having FP&A as a function in your organization is crucial for effective decision making but it does not necessarily mean you need a whole department and the inevitable systems.

Most often the assessment of whether you need FP&A is a function of multiple things:

your growth strategy
your exit strategy
your existing talent
your existing processes

Notice that systems are not on the list. Given that most FP&A worth its salt lives in Excel, a systems evaluation and investment would be last on the list. If you have strong people and process, you can make do without systems (for a while anyway).

Often, it is worthwhile to look at those elements first before proclaiming that you need an FP&A person/team. Sometimes, it is worth the money to have an initial assessment completed first and then based on those findings proceed forward.

For small to medium sized businesses such an assessment can take from a few weeks to a quarter. For large, highly complex organizations, it is likely a much longer research project.

Nevertheless, it is something to consider. If you are interested in exploring this type of assessment I can be reached via my blog contact information.

Systems

Systems and Tools

May 14, 2018February 18, 2021by Laryssa Reifel: FP&A Expertise2 Comments

WHAT:

The last two decades has brought a tremendous amount of change in terms of data. We have moved from fairly archaic tools that allowed one to access information through an excel interface hooked up to a DataMart to highly sophisticated tools that can integrate your manufacturing, accounting, planning and analysis all in one place. We have also gone from not having enough information to run a business to in some cases having too much information. There is a domino effect as well where volume drives complexity which then demands more sophisticated tools requiring heavy lifting in terms of implementation. Many CFOs are plagued with the challenge of harnessing the data they have in a timely manner so as to make the best possible decisions for driving profitability in their business. I have had experience with a number of systems and they all have their pluses and minuses – some are better at charts and graphs, others are better on the planning side and most are pretty equal on the accounting side but none of them are excel. In fact, the first feature any FP&A person will ask for in a system is how well it exports data to excel. The reason for this is that FP&A is the artistic side of the finance world and it is the only place where a finance person can be truly creative in framing an issue and then dissecting it in order to tell a story or offer a CFO some options.

SO WHAT:

The nasty little secret of any system implementation is that you end up in excel anyway. Every executive is a customer with unique set of requirements.