FP&A BEST
PRACTICES
A BLUEPRINT FOR HIGH-PERFORMANCE
By Richard Freeman
FP&A BEST PRACTICES: A BLUEPRINT FOR HIGH-PERFORMANCE TEAMS
CONTENTS
00 Introduction 03
01 Becoming Operationally
Focused and Embracing Speed 05
02 Relying on the Data that
Matters 08
03 Supporting Strategy, Not
Accounting 11
04 Improving Execution 14
05 Rounding Up 17
FP&A BEST PRACTICES: A BLUEPRINT FOR HIGH-PERFORMANCE TEAMS
INTRODUCTION
Welcome to "FP&A Best Practices: A Blueprint for High-Performance
Teams." This eBook is your comprehensive guide to unleashing the full
potential of your FP&A (Financial Planning and Analysis) team. Within these
pages, we'll embark on a journey through crucial strategies and actionable
steps that will elevate your FP&A team's performance and empower them to
be the driving force behind your organization's success.
Drawing from the wealth of knowledge presented in our three-part blog
series, we have distilled the most vital principles and practices. We'll not only
explore these key areas but also provide you with practical insights and
strategies that you can implement immediately.
Embracing Operational Focus and Speed
In a rapidly evolving business landscape, we understand the urgency of agile
planning and analysis. Our first chapter delves into how your FP&A team can
become operationally focused and embrace speed. We'll guide you through
streamlining processes, automating tasks, and accelerating decision-making
to thrive in unpredictable times.
Data-Driven Decision-Making
The significance of data in today's business world cannot be overstated. In
our second chapter, we'll explore the art of relying on data that truly matters.
Discover how to distinguish between valuable data sources and superfluous
information. We'll help you mitigate biases, leverage operational data, and
foster data-driven decision-making at every level of your organization.
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FP&A BEST PRACTICES: A BLUEPRINT FOR HIGH-PERFORMANCE TEAMS
INTRODUCTION
Aligning with Strategy
In Chapter 3, we break down the silos that often exist between strategy and
finance. Learn how to support strategy effectively, preserving the context of
high-level decisions. We'll guide you through aligning FP&A with strategic
initiatives, integrating external context, and creating a seamless flow of
insights from strategy to execution.
Elevating Execution
In our final chapter, we'll explore how to improve execution within your
organization. Dive into the operational aspects of your business and bridge
the gap between finance and operations. By understanding operational
drivers and fostering collaboration, your FP&A team can drive efficiency,
enhance decision-making, and remove cultural barriers that may hinder
performance.
Throughout this eBook, we will provide you with actionable "blueprint
actions" for each key area, allowing you to implement the principles
immediately and transform your FP&A team into a high-performance
powerhouse.
So, whether you're a seasoned finance professional or new to the world of
FP&A, join us on this journey of growth and excellence. Together, we'll equip
your team with the tools, knowledge, and strategies to not only navigate
challenging terrain but also to thrive and lead your organization to new
heights of success.
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FP&A BEST PRACTICES: A BLUEPRINT FOR HIGH-PERFORMANCE TEAMS
CHAPTER 1:
BECOMING OPERATIONALLY
FOCUSED AND EMBRACING
SPEED
Understanding the Challenge
In the face of unprecedented and unpredictable business environments, the
role of FP&A teams has never been more critical. The words "unpredicted,"
"unprecedented," "unplanned," and "unanticipated" have become all too
familiar in recent years. These terms have been used to explain nearly every
aspect of company performance, from financial successes to challenges and
setbacks. As a finance professional, you understand that these uncertain
times demand agile and efficient financial planning and analysis. FP&A teams
play a pivotal role in providing the planning and analysis necessary to support
decision-makers during such periods of uncertainty.
Beyond navigating unpredictable scenarios, FP&A teams have a multifaceted
responsibility that includes producing long-term strategic plans, budgets,
reforecasts, financial models for acquisitions and divestments, and addressing
various ad-hoc requests. This complex and challenging mandate underscores
the importance of FP&A teams in driving business success.
Operational Efficiency
Historically, FP&A teams have been tethered to predictable business
rhythms, such as annual budgeting, quarterly reforecasting, and month-end,
quarter-end, and year-end processes. Unfortunately, the predictability of
these processes has often led to the evolution of inefficient and cumbersome
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FP&A BEST PRACTICES: A BLUEPRINT FOR HIGH-PERFORMANCE TEAMS
BECOMING OPERATIONALLY FOCUSED AND EMBRACING SPEED
procedures. In many organizations, Excel has remained the primary tool for
producing analysis, but much of this analysis goes unused or is simply
padding within reports.
A recent McKinsey report highlights a significant issue: finance organizations
now spend 10% more time and resources on FP&A compared to a decade
ago, yet they often lag in delivering value. The fundamental question that
CFOs, VPs of FP&A, and Directors should be asking is whether the time
spent adds value or merely adds up. Many finance professionals admit that
their biggest time drain is waiting for, aggregating, and creating the required
reports or analysis. This inefficiency hinders the capacity to handle the extra
data needed for effective ad-hoc scenario modeling.
Blueprint Action 1: Creating a "Clean Sheet"
To become a high-performing FP&A team, it's essential to start with a "clean
sheet" approach. This involves conducting a thorough audit of how your
FP&A team supports the business. Key questions to consider include:
What processes does the FP&A team support?
What data is used, and where does it come from?
How are reports and materials produced?
In the world of finance, manual processes should have no place. Producing
routine reports using Microsoft Excel, PowerPoint, or ad-hoc Power BI
activities is no longer acceptable. If your team relies on such methods, it's
time to improve automation or consider alternative technologies. For FP&A
to truly support the business, it must work in ways that efficiently scale to
handle increased workloads. Embracing speed is crucial. Challenge any
impediments that hinder your team's ability to work swiftly and effectively.
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FP&A BEST PRACTICES: A BLUEPRINT FOR HIGH-PERFORMANCE TEAMS
BECOMING OPERATIONALLY FOCUSED AND EMBRACING SPEED
Remember to measure, record, and continuously improve the performance of
key processes.
In the next chapters, we will delve deeper into the core principles of FP&A
best practices, exploring how to rely on the right data, support strategy
effectively, and improve execution. Let's start the journey toward making
your FP&A team a high-performance force that drives your organization's
success.
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FP&A BEST PRACTICES: A BLUEPRINT FOR HIGH-PERFORMANCE TEAMS
CHAPTER 2:
RELYING ON THE DATA THAT
MATTERS
The Significance of Data
"In God we trust. All others must bring data." This famous quote by W.
Edwards Deming underscores the critical role of data in decision-making
within a business. While this concept is well-known within the realm of
FP&A, not all data is created equal, nor should it be given equal weight in
decision-making processes. Several factors contribute to this differentiation:
Data Quality
The quality of non-financial data can vary significantly, depending on the
diligence and training of the teams responsible for data recording.
Inaccuracies can arise if data capture lacks consistency or rigorous scrutiny.
Context Matters
External data sources may lack essential context or background information,
affecting the value attributed to trends or outliers. A change in data capture
methodology, for instance, can substantially alter data values.
The Data Deluge
The information technology landscape encourages the capture of all data
generated within an organization, creating vast data lakes containing
structured and unstructured data. While this is valuable for data scientists, it
may not serve the needs of FP&A teams focused on high performance.
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FP&A BEST PRACTICES: A BLUEPRINT FOR HIGH-PERFORMANCE TEAMS
RELYING ON THE DATA THAT MATTERS
Base Forecasts on Operational Data
FP&A teams must focus on data that aligns with the logical business model of
their organization. This begins with creating a deep understanding of the
business model, often depicted using value tree diagrams that trace the
drivers of value throughout the organization. By collaborating with other
teams within the organization, the aim is to identify data connected to these
value drivers, enabling operational insights.
Data external to this model should only be included when it significantly
enhances contextual understanding. The goal is to eliminate biases in
planning and analysis, using data as a guide.
Removing Bias
Consider a practical example in revenue forecasting. Traditionally, revenue
forecasts may rely on subjective inputs from various stakeholders, resulting in
forecasts tainted by biases related to factors such as individual performance,
market outlook, and compensation structures. These biases can introduce
inaccuracies that can't be explained by internal data alone.
Alternatively, automated revenue forecasts based on CRM data and other
operational data can eliminate these biases while streamlining the forecasting
process. However, the primary objective isn't just accuracy but performance
improvement.
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FP&A BEST PRACTICES: A BLUEPRINT FOR HIGH-PERFORMANCE TEAMS
RELYING ON THE DATA THAT MATTERS
Blueprint Action 2: Mitigate Bias and Enhance Performance
To implement these principles effectively, consider taking the following
actions:
1. Base Forecasts on Operational Data: Prioritize data generated from the
operational activities of the business, such as the sales pipeline. Ensure
that FP&A teams are focused on the drivers of performance that can be
improved through operational changes.
2. Supporting Non-Financial Measures: Acknowledge the importance of
non-financial measures in performance reporting. Contextualize data to
provide a more comprehensive understanding of operational execution.
By basing forecasts on meaningful operational data and minimizing biases,
FP&A teams can contribute significantly to enhancing performance and
enabling more informed decision-making. This approach aligns financial
planning and analysis with the operational realities of the business, a crucial
step towards high performance.
In the following chapters, we'll delve deeper into how FP&A teams can
support strategy effectively and improve execution, creating a holistic
blueprint for high-performance financial planning and analysis.
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FP&A BEST PRACTICES: A BLUEPRINT FOR HIGH-PERFORMANCE TEAMS
CHAPTER 3:
SUPPORTING STRATEGY, NOT
ACCOUNTING
The Strategy-Finance Divide
In most mature organizations, a natural division exists between the strategy
and finance teams. Strategy teams focus on crafting the high-level
operational direction of the business, while FP&A teams measure the
outcomes of operational execution. Strategy teams invest significant time
and resources in generating analyses, scenarios, and plans to support board-
level decisions. These decisions often rely on a wealth of data, both internal
and external, to build robust business cases.
However, once strategic decisions are made and operational activities
commence, the responsibility for tracking progress typically falls to the FP&A
team. Strategic priorities are measured using variations of P&L, balance sheet,
cash flow, sales, and cost analysis. Unfortunately, this approach often lacks
the strategic context necessary to support ongoing strategic endeavors.
Strategic Context
Maintaining the context of strategic decisions is vital for informed decision-
making. External datasets may lose relevance when they can no longer be
effectively applied to the operational realities of the business. This issue
often arises due to constraints in automating the integration of external data
with internal finance data, or because of the substantial time investment
required for this process.
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FP&A BEST PRACTICES: A BLUEPRINT FOR HIGH-PERFORMANCE TEAMS
SUPPORTING STRATEGY, NOT ACCOUNTING
These constraints present significant challenges for FP&A teams. Without
access to external context, they may struggle to evaluate the performance of
strategic initiatives effectively. Critical questions, such as whether a new
product is gaining market share or whether expansion into a new
geographical area is generating organic growth, may go unanswered.
Data external to this model should only be included when it significantly
enhances contextual understanding. The goal is to eliminate biases in
planning and analysis, using data as a guide.
Aligning with Strategy Teams
High-performing FP&A teams take on the responsibility of actively
supporting the strategic activities of the business. They break free from the
confines of merely looking after accounting and align themselves with the
strategy teams to ensure that they can make necessary adjustments to
forecasts, budgets, and long-range plans to capture future performance
accurately. This alignment enables FP&A teams to anticipate reporting
requirements and react promptly to changes.
Integrating External Context
To effectively support strategic initiatives, FP&A teams must swiftly integrate
new datasets into their reporting processes. This integration provides the
external context necessary to evaluate performance comprehensively.
Whether it's market data, competitive intelligence, or industry trends, high-
performance FP&A teams recognize the importance of incorporating this
information to provide a more holistic view of strategic execution.
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FP&A BEST PRACTICES: A BLUEPRINT FOR HIGH-PERFORMANCE TEAMS
SUPPORTING STRATEGY, NOT ACCOUNTING
Blueprint Action 3: Collaborate for Strategic Impact
To implement these principles successfully, consider taking the following
actions:
1. Align with Strategy Teams: Foster close collaboration between FP&A and
strategy teams to ensure alignment in capturing and reporting on
strategic performance.
2. Streamline Data Integration: Invest in technology and processes that
streamline the integration of external data into your reporting framework.
By aligning FP&A with strategy teams and integrating external context
effectively, your FP&A team can better support strategic initiatives, facilitate
data-driven decision-making, and contribute significantly to the organization's
success.
In the upcoming chapters, we'll delve deeper into the final core principle of
FP&A best practices: improving execution. This will provide you with a
comprehensive blueprint for transforming your FP&A team into a high-
performance force within your organization.
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FP&A BEST PRACTICES: A BLUEPRINT FOR HIGH-PERFORMANCE TEAMS
CHAPTER 4:
IMPROVING EXECUTION
A Closer Look at Operations
Traditionally, FP&A teams have often operated at a certain distance from the
day-to-day operations of the business. While they handle essential financial
tasks such as posting journals, managing intercompany transactions, and
overseeing month-end, quarter-end, and year-end processes, they tend to
remain somewhat detached from the operational aspects of the business.
This separation can be attributed to the perception that FP&A is primarily
concerned with cost control and financial reporting.
However, this traditional approach should be proactively challenged. FP&A
teams have a unique opportunity to contribute to operational effectiveness
and overall business performance by gaining a deeper understanding of the
operational challenges faced by the organization. By bridging the gap
between finance and operations, FP&A can provide invaluable insights that
enhance decision-making and drive improved execution.
Rotating into Operations
One effective way to foster greater knowledge of operational challenges is to
rotate finance team members into operational roles within the business. This
rotation allows finance professionals to gain firsthand experience of the day-
to-day activities, challenges, and opportunities that shape the operational
landscape.
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FP&A BEST PRACTICES: A BLUEPRINT FOR HIGH-PERFORMANCE TEAMS
IMPROVING EXECUTION
By immersing themselves in operational areas, finance team members can
develop a more comprehensive understanding of the processes, workflows,
and critical success factors that drive the business forward. This insight is
invaluable for those responsible for creating budgets, plans, and forecasts, as
it enables them to contextualize financial data within the operational realities
of the organization.
Understanding Operational Drivers
Improving execution hinges on understanding the series of actions and
activities that create value for the organization and drive revenue conversion.
High-performing FP&A teams recognize that operational effectiveness in
executing core business functions is a subject they must be well-versed in to
achieve high performance.
For example, consider an FP&A team in a business that sells products or
services. While the FP&A team may have a comprehensive financial model
that includes costs of production, real estate, financing, revenue breakdowns,
and more, it might miss the key drivers of performance within the business.
These drivers could include the number of customers, the efficiency of sales
processes, the effectiveness of customer relationship management, and the
time it takes to successfully sell and deliver to customers.
Enhancing Decision-Making
Understanding operational drivers allows FP&A teams to provide actionable
insights that enhance decision-making. High-performing FP&A teams are as
focused on these operational measures as they are on traditional financial
metrics. By offering context and supporting non-financial data, FP&A can
play a vital role in improving execution throughout the organization.
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FP&A BEST PRACTICES: A BLUEPRINT FOR HIGH-PERFORMANCE TEAMS
IMPROVING EXECUTION
Breaking Down Barriers
Perhaps equally important is the removal of potential cultural barriers
between teams. By actively participating in and contributing to operational
discussions, FP&A teams can help bridge the gap between finance and other
departments, fostering greater collaboration and alignment of goals.
Blueprint Action 4: Embrace Operational Insight
To implement these principles effectively, consider taking the following
actions:
1. Rotate into Operations: Explore opportunities for finance team members
to gain hands-on experience in operational roles.
2. Focus on Operational Measures: Incorporate operational measures into
your financial planning and analysis processes to provide a
comprehensive view of performance.
By improving execution through a deeper understanding of operational
drivers, enhancing decision-making, and promoting collaboration, your FP&A
team can contribute significantly to the overall success of your organization.
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FP&A BEST PRACTICES: A BLUEPRINT FOR HIGH-PERFORMANCE TEAMS
ROUNDING UP
In conclusion, this eBook equips you with a comprehensive
blueprint to transform your FP&A team into a high-performance
powerhouse. By embracing operational focus, relying on
meaningful data, supporting strategic initiatives, and enhancing
execution, your FP&A team will not only navigate the challenges of
today's dynamic business environment but also spearhead growth
and success for your organization.
As you embark on this journey, remember that these principles are
not mere ideals; they are actionable strategies that can drive real
change. By implementing the practices outlined in this eBook, your
FP&A team can overcome obstacles, seize opportunities, and make
a profound and lasting impact on your organization's success.
Let's embark on this journey together, armed with knowledge and
insights, to elevate your FP&A team's performance and drive
excellence within your organization. The future is bright, and it's
yours to shape.
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FP&A BEST PRACTICES: A BLUEPRINT FOR HIGH-PERFORMANCE TEAMS
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