FP&A

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Last Updated:October 4, 2023

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What is Financial Planning and Analysis (FP&A)?

FP&A is a set of tools and techniques to help companies make better financial decisions. The goal is to use data analysis and business intelligence to provide insights for managers and stakeholders to see how current decisions will impact the organization.

It is traditionally responsible for:

Analyzing company performance
Forecasting
Providing financial information to stakeholders

These professionals often work with CFOs and CIOs independently or as a team.

What is financial analysis or management accounting, and how are they different from traditional accounting?

	Accounting	Auditing	Financial Analysis / Management Accounting
Job	Booking Entry	Auditing	Analyze
Purpose	Recording	Assurance	Maximize the Value
Value	Same as GAAP	Materiality	Variance
Relationship	Interactive

Organizations rely on them to achieve operational, financial, and strategic goals. Financial analysts make forecasts designed to reflect business performance. Source data includes:

Cash flow
Microsoft Excel spreadsheets
Business trends
ANOVA
Historical data
Profitability modeling

With this FP&A data, analysts can evaluate how budgets and forecasts compare to actual financial performance and how best to achieve efficiency goals and financial strategies.

FP&A and its practitioners have grown dramatically over the last few years due to the need for more sophisticated data analysis tools.

With these new tools available, more companies are investing in this field. Here are some things you need to know about Financial Planning & Analysis if you’re looking into a career in this field.

Key Takeaways

FP&A helps companies make informed financial decisions through data analysis, forecasting, and stakeholder reporting.

FP&A is adopting digital tools for agility, transparency, and better decision-making.

FP&A collaborates with CFOs, shaping strategy and ensuring goals are met.

FP&A offers growth opportunities, requiring financial skills, decision-making, and project management.

FP&A guides organizations with data-driven insights, influencing success.

Understanding Financial Planning and Analysis (FP&A)

Financial Planning & Analysis is a function that provides the insights and information needed to make financial decisions. It's a part of a company's finance department and often works closely with the CFO.

These professionals use data analysis and business intelligence to inform managers and other stakeholders about the organization. They:

Compile financial information
Analyze performance
Forecast future performance
Prepare stakeholder reports

This work used to be mostly conducted by accountants who would sift through numbers all day to get a snapshot of the company's financial health.

CFOs and senior management need to make reliable, data-driven decisions based on accurate forecasts provided by these teams.

As we enter a new era of financial transformation, organizations looking to integrate, manage and analyze enterprise data, their roles are evolving toward a digital-first strategy.

These professionals are moving away from the traditional way of planning and forecasting using Excel spreadsheets, which are often created ad hoc, creating data silos across business units.

A digital-first approach to planning means organizations adopt strategies that focus on:

Process automation
Agility
Transparency
Data-driven decision-making

Its teams currently employ solutions that can change plans, re-forecast or revise budgets in real-time, and integrate planning across business units, resulting in faster decision-making and improved accuracy and reliability of scenarios and forecasts.

A solid business strategy requires the use of solid financial models. This requires solutions specifically designed for FP&A reporting to improve operational efficiency and generate insights.

Choosing a solution is an important decision that may require the participation of the CFO, FP&A managers, and other company stakeholders.

Importance of FP&A

It is one of the most important finance functions for any company. It helps companies:

Make better decisions by providing data and analysis
It contributes to strengthening goal-setting and execution

One of the many reasons it is important is that it provides insights into recent decisions. It has traditionally been responsible for analyzing company performance and forecasting future performance.

However, it can also provide financial information to stakeholders like CFOs, CIOs, and others. This helps them make decisions with more information available to them.

The importance does not stop at its contributions to the finance function; it’s an integral part of the organization. It helps ensure that managers meet their goals and objectives on time, allowing for better decision-making.

Moreover, as technology becomes increasingly more advanced, so does financial planning and analysis. The need for sophisticated data analysis tools has increased over the last few years due to new tools available in the market.

With these new tools, companies are investing more in this field than ever. According to Forbes Magazine's 2017 Fintech 100 list, many of the leading financial institutions on this list use Financial Planning & Analysis.

How to prepare for a career in FP&A?

Financial planning and analysis is a career that requires an understanding of finance and accounting and specialized skills that can be acquired through education or training.

It's not just about having the right degree, though. As seen above, you will need to know how to use FP&A tools such as Excel. So if you want to get into this without formal education, you should still take the time to learn these tools.

There are many different jobs in financial planning and analysis. Some jobs entail more responsibility than others, so it's important to find one that fits your interests and skillset before you enter the field.

One job might require you to manage assets, while another might include more hands-on analyses.

Tools that can help finance professionals

Quickly provide business leaders with accurate financial analysis and advice
Forecast the potential impact of decisions on cash flow and profits
Assess and monitor the overall financial health and return on investment of the business
Build and maintain detailed financial and forecasting models
Develop a flexible and comprehensive financial plan that takes into account individual scenarios
Work with departments to prepare and consolidate budget statements
Ensure execution is aligned with company strategy and track performance
Identify and evaluate new revenue opportunities and risks

As the economy changes, the role of financial planning and analysis professionals will also change. Their decisions will shape how businesses evolve in response to economic trends.

Job roles and responsibilities of FP&A

These professionals evaluate:

A company's performance
Forecast future financial performance
Provide essential financial information to stakeholders

The goal is to provide insights that are critical to decision-making.

Its process is a continuous cycle consisting of data collection and analysis. This process becomes more complex as the business grows and enters new markets, and the market environment changes rapidly.

Businesses need to collect more data and conduct more analysis, which is why many medium and large companies have dedicated financial planning and analysis teams within their finance departments.

Despite the increased complexity, the core of its process has always been the following four basic steps:

Data Collection, Integration, and Validation

The first step in its process is to collect financial and operational data. In addition, data outside the enterprise may need to be collected, such as:

Demographic
Economic
Market data

Once all the necessary data has been collected, it needs to be integrated, standardized, and validated. The accuracy of:

Planning
Forecasting
Budgeting
Analysis

Depends on the quality and completeness of the data used, so this step is essential.

Plan and Forecast

In this step, Financial planning and analysis analysts use the prepared data to build financial forecasting models that predict how the business will perform in the future and whether it is going in the right direction. Financial forecasts include sales forecasts, cash flow forecasts, etc.

Financial forecasting models can also be used to:

Test different scenarios
Simulate the impact of different variables
Determine the best course of action
Optimize business outcomes

Common financial planning methods include

Predictive planning
Driver-Based Planning
Multi-scenario planning

Budget

In the budgeting step, financial planning and analysis staff estimate the cost of executing the business plan based on the revenue goals of the strategic plan and allocate the cost budget to each business unit or function along with expected revenue and cash flow.

Afterward, the corporate management collaborates with various departments to aggregate the agreed budget of each department into a general budget.

Business budgets are usually annual and then updated quarterly as financial conditions change. However, to better cope with the uncertain market environment, many companies are now adopting continuous budget cycles and rolling forecasts that are updated frequently.

Performance Monitoring and Analysis

To provide advice and decision support to the business, financial planning and analysis teams need to continuously analyze financial data and monitor financial performance, including:

Sales
Expenses
Profits
Working capital
Cash flow
Other KPIs

They will respond to impromptu inquiries, turning numbers into text messages or data stories, helping decision-makers understand the situation and take informed action.

Post FP&A Career – Where Can You Go Afterward

Considering a financial planning and analysis career, you might wonder how to move up the corporate ladder. The good news is that with the increasing need for more sophisticated data analysis tools, many opportunities exist for growth and professional development.

These professionals often work with CFOs and CIOs, so they often have senior-level positions with management responsibilities. This can include ensuring that budgets are met or helping to decide which projects should be pursued.

These professionals also use their skills and knowledge of finance and accounting practices to help grow companies by making informed decisions about finances and spending. As the field evolves, financial planning and analysis professionals will continue to find new roles that allow them to use their analytical skills in new ways.

Career path

It is a growing field, and there are many different options for career paths. If you’re interested in it but are unsure whether it’s the right fit for you, here are some considerations to help guide your decision-making process.

Do you have a finance background?
Do you have an analytical mindset?
Do you have good math skills?
Do you enjoy working with data?

This could be the right career path if you answered yes to any of these questions.

FP&A Essential skills

Decision-Making and Learning Skills

This field is constantly changing and evolving to meet the company's needs. Unfortunately, that often means that these professionals have to be able to think critically and come up with creative solutions to problems.

To succeed in this field, you need strong decision-making skills and the ability to learn quickly. As soon as you graduate from college or receive your certification in FP&A, you will be thrown into a new environment with new information at every turn.

You'll need to be able to take all this information in and make decisions quickly based on the data available to you.

New tools and methods are constantly popping up to help companies make better financial decisions. To stay on top of these changes, you'll need curiosity and a willingness to learn continually.

Reading and Analyzing Financial Statements

One of the essential responsibilities of these professionals is to review and analyze company financial statements. To do this well, there are a few skills you need to have.

The first skill the professional needs is the ability to read and understand financial statements. For those who don't have any experience with them, a basic understanding of terms can be a little tricky, but it's manageable.

For example, according to the Financial Accounting Standards Board (FASB), assets are things that can provide benefits or value in future periods. On the other hand, liabilities are "current obligations representing what must be paid or otherwise satisfied by the entity out of its resources."

Revenues are the amounts of money an organization receives from its activities. Expenses are all costs related to:

Doing business
Including salaries
Rent
Advertising

To know which type of analysis is needed for different statements, understanding these terms is critical so you can do your job correctly.

Project Management Skills

This field is very data-driven, and the best FP&A professionals can work with large amounts of data. To do this, these individuals need strong project management skills.

The digital age has given FP&A professionals access to massive data, but it’s up to them to make sense of it.

They'll need to find trends and insights to share with stakeholders and managers. This involves understanding and using the data effectively to drive decisions and create strategic plans.

Project management skills are crucial for this job because they help FP&A professionals prioritize their work and stay on top of deadlines.

Financial Modeling Work

One of the essential skills for an FP&A professional is being able to complete financial modeling. Financial forecasting and analysis can be done with an Excel spreadsheet, but using specific tools like Microsoft Excel is much more effective.

The work these professionals handle includes analyzing data to develop forecasting models (e.g., cash flow, return on investment) and evaluating the impact of past events on future outcomes.

Financial modeling is one of the essential tools that these professionals use to help others make better decisions. With financial modeling, an FP&A professional will consider a company's financial history and future projections to predict how company performance will change over time.

These professionals are exceptionally skilled at understanding how finances can affect human capital needs for organizations. Using sophisticated data analysis, they look at current workforce trends and how they may impact the organization's future needs.