The Financial Planning & Analysis (FP&A) role is gaining greater importance today, as it helps bring out crucial analysis on business performance. The FP&A role is no longer limited to management reporting; it also requires lots of business insight so that the top management can formulate an effective strategy.
FP&A has a critical role in business success, and qualified candidates are increasing in demand for the area. Knowledge of Finance,Accounting, and Strategy is crucial for those who work in this department.
Typically, the FP&A role requires extensive data reconciliation & consolidation, as well as variance analysis. Additionally, coupling the use of scenario and sensitivity analysis to forecast possible outcomes and using this theoretical information to create key metrics for monitoring. They are not only in charge of the Income Statement but are also responsible for forecasting the company’s bottom line (net income). Most importantly, it can be said that FP&A continues on the work produced by Accounting.
FP&A’s main function is to transform the overarching company strategy, into a long-range plan with annual operating and capital budgets. With the use of financial modeling, it forecasts operating and profitability performance and sets annual targets for Key Performance Indicators (KPIs). By providing an annual budget, it provides management a clear picture of future performance while giving employees a direction to work towards.
To learn the required skills for Financial Planning and Analysis check out CFI’s FP&A Courses.
FP&A Role & Responsibilities
Analyze the trends of Key Performance Indicators (KPIs), especially relating to financial metrics such as sales, expenditures, and profit margin.
Monitor KPIs and identify the cause of any unexpected variances
Develop and continually improve budgeting, financial projections, and operating forecast
Ad-hoc business performance reporting
Present the monthly and quarterly financial reports of various units and departments
Implement a business intelligence tool and dashboard reports
Develop financial models and analyze them to support strategic initiatives
Support management team and the Heads of Department with data-driven analysis
Examples of FP&A
Below are some examples to give a better understanding of how to analyze data and derive business insights:
The above graph shows the annual spending on logistics for FY16 and FY17. It shows that spending on logistics increased by 25% annually in FY17 (assuming that sales increased only by 12%). It indicates that there is a possible misuse of logistics and a cost control mechanism must be implemented to control the cost.
Spending (USD million)
DBS Synergy Ltd
The above table shows the company’s spending on several consulting projects during the year. From the information provided, KPMG got 50% of the company’s business, which highlights the fact that it is highly dependent on KPMG, or KPMG’s charges are significantly higher compared to other firms.
The above graph shows the employee profile in a technology company. Here, the maximum number of employees can be found in the R&D division, which is around 44% of the company’s workforce. However, if you look at the revenue from the R&D division (right graph), it shows that it contributes only 27% of overall revenue. Further analysis needs to be done to find out the reasons for the discrepancy. One of the reasons can be that the R&D is overstaffed or they are not able to generate enough revenue for the company.