Ventana Research Analyst Perspectives

People who perform the financial planning and analysis (FP&A) function in the finance organization put together and update the budgets and forecasts. In many companies, the “A” portion of this activity gets short shrift. That’s because the mechanical process of pulling together and collating the data takes up so much time that very little remains for analysis. The result is that planning and budgeting is a less useful business tool than it could be. Improving FP&A can give executives and managers more insightful analytics and easier access to analytical tools that support more accurate and timely planning and budgeting. I’ve written frequently and at length about the need for integrated business planning, which combines operational and financial planning (that is, budgeting) in a more streamlined process. The objective is twofold. One is to have a process that creates more accurate financial budgets in less time. The other is to create a more effective ongoing operational planning process that enables executives to better understand their options before the fact and what just happened and why after the fact. This combination will enable them to make consistently better choices about their next steps that produce the greatest strategic payoff. I confess that it’s a bit tiresome to always blame desktop spreadsheets as a root cause of ineffective processes. I promise I’ll quit harping on this when people stop using them inappropriate as for planning and budgeting. It’s true that many organizations have purchased and (to varying degrees) implemented dedicated software to manage their financial budgeting and forecasting process. (According to our research, about one-third of all organizations and half of large ones have such software.) However, even in those organizations most of the planning activities that take place in other parts of the business (sales-, marketing-, production- and project planning, to name just four) are done using desktop spreadsheets. Ideally, the emphasis in the FP&A function should be on the “A.” It should provide executives with the ability to do contingency planning to consider alternatives and anticipate the impact of specific positive and negative events (not just a set of simplistic upsides, downsides and base cases). It should enable them to spot opportunities to enhance efficiency or redirect spending to more productive areas. It should enable people to use predictive analytics to make their plans and forecasts better informed and hopefully more accurate. This would be consistent with one of the important finding of our recent Finance Analytics Benchmark: Making analytics more accessible is a priority for finance departments: Almost nine in ten regard making it simpler to provide analytics and metrics to those who need them either very important or important. Yet we see that in companies where desktop spreadsheets are the main planning tool, the FP&A people wind up spending the bulk of their time assembling data and consequently have very little left for analyzing it. Even when a company is using a dedicated application, it’s mainly for budgeting and forecasting. Integrating individual business units’ operating plans, usually done in individual silos using spreadsheets, with the larger financial plan is impossibly time consuming. Consequently, the FP&A people, who should be spending their time on high-value activities, wind up devoting too much of it to these largely mechanical processes. So I will say again that companies must use dedicated budgeting and planning software to overcome the core technological deficiencies of spreadsheets that are preventing them from making their planning budgetitng and forecasting more valuable business tools. They also need to integrate their operating planning processes with that dedicated planning system. The major vendors’ financial performance management (FPM) software suites that I have assessed can create and run driver-based operating models for a wide range of business functions. Some even have templates that can kick-start and facilitate the creation and integration of business operations models. Until companies acquire the right tool to handle FP&A, it won’t be the right tool to help them set and execute business strategy. Let me know your thoughts or come and collaborate with me on Facebook, LinkedIn and Twitter. Regards, Robert Kugel – SVP Research

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