Part 1 in the “Understanding IFP&A” series
This series of eight blogs is intended for those considering a transition to “intelligent financial planning and analysis” – essentially, modernizing solutions and systems to support a dynamic approach to analytics. The overall aim is to enable fast reaction to constantly changing market conditions via a single integrated process, informed by intelligent insights into large volumes of data. The first blog defines the terminology.
The trouble with most taglines and labels in business is that the words are often open to interpretation, leading to misunderstanding. In the case of potential solution providers, this can have advantages, as their offerings will be included in any search.
But for those trying to educate themselves or their company in techniques that could bring real business benefits, then simple labels, no matter how smart, just confuse them and waste time. Worse, the solutions behind the terms may then be overlooked, as potential users can’t see any real differences between them.
With that in mind, this blog seeks to define the fundamental, unambiguous qualities of “intelligent financial planning & analysis,” or iFP&A.
Deconstructing the term
The best place to start is with the dictionary definitions of the words used. Most online sources describe intelligence as:
- The ability to acquire and apply knowledge and skills
- The collection of information of military or political value
For our purposes, we can replace “military or political” with “business.”
FP&A is a little harder to define. But the consensus in finance circles is that FP&A describes creating plans (mainly financial), analyzing data, and interpreting its meaning with the aim of providing senior management with information to support strategic leadership and operational decision-making.
What’s different about iFP&A?
The terms “FP&A” and “business intelligence” have been around for many years, along with systems that support organizational decision-making. One could argue, then, that iFP&A is nothing new. But that would be missing the point. You can have the world’s best technology system and still use it in a “dumb” way. Similarly, you could develop the best plan with the latest information and still fail in its implementation.
Today, the volume of data is so large and complex that forecasts are often unpredictable: the world is changing faster than managers can anticipate. Managers can no longer rely on traditional monthly reporting of internally generated data to navigate the future.
This is where iFP&A comes in, which I like to summarize as:
A dynamic, continuous approach to analytics that greatly increases the “intelligence” of an organization and its ability to change fast.
IFP&A replaces the old, time-bound management processes of annual planning, monthly reporting, and quarterly forecasting with a single integrated process triggered by events and exceptions.
Rather than separating financial results from operational activities, iFP&A treats them as a related “cause and effect” model. This approach seeks to make the most of limited resources while linking them to the achievement of long-term goals.
But it’s not only the approach that has changed. To support this wider, connected business world, the newer FP&A solutions have greatly increased capabilities. They can cope with different types of data from a wide variety of sources and yet combine them in innovative ways. This is key to focusing management attention on what is really important, both now and in the future.
Leading the charge is the FP&A team, who must now acquire new skills and tools to support the organization – understanding that the organization’s needs will continually change as the business world continually changes.
To make the vision a reality requires detail, which we will cover in subsequent blogs that delve deeper into the elements that enable iFP&A to transform business performance.