Part 2 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. Here, we’ll examine the key elements of an intelligent FP&A solution.
Traditional FP&A solutions are typically focused on one aspect of the management process – for example, setting a budget, collecting a forecast, or delivering results in the form of a report pack. Over the past 20 years, there have been concerted efforts to combine these processes into a single system. After all, what’s the point of a budget if you can’t report against it or collect a forecast to see if year-end goals will be met?
The trouble is that these systems often have a single view of the business, which is financially oriented and structured according to the organizational hierarchy. While this does have some value, it typically does not include the real-world view, which is far more complex.
To get around this, “satellite” systems are developed for analyses such as sales, market share, and even the impact of social media. These results are then brought together in the form, or yet another system such as a dashboard that is tentatively linked to the organization’s adopted strategy methodology. (Whatever happened to the Balanced Scorecard, Hoshin Planning …?). If all else fails, there is always Excel, which gives end users free range for producing their own analyses, but at a price that usually forsakes data integrity.
For the record, this is not an integrated solution and does not meet the definition of iFP&A.
IFP&A solution components
The following components are essential in any modern iFP&A system:
Common platform: iFP&A solutions recognize that there is no single “off-the-shelf” application. Instead, they encompass a mixture of technologies built on a common platform that enables the sharing of data and metadata. This is a key point.
Model builder: “Models” are typically a collection of mathematically based variables/structures that reflect the way an organization operates. They can include ”adding-up” models that you typically find in a budget solution, or “driver-based” where entering a number into a variable (e.g., sales volume), then generates a range of associated variables (revenue, cost of sales, delivery, etc.) by the application of preset formulae. To represent the complete organization, multiple models will be required that will typically include:
- Past sales by product, customer, region, size, etc.
- Financial resource allocation and funding
- Long-range plan and associated targets
- Detailed forecasts
- Strategic initiatives and projects
These models are designed to answer specific questions and will have different content and structures, and are used by different people at different times. They can include both structured and unstructured data, including text.
Common data and metadata: An iFP&A solution will allow these models to be built from common metadata (business structures, variable definitions) and allow common data to be entered once and automatically shared between models. Any changes to common items are automatically reflected wherever they are used.
Data acquisition tools: All data within an iFP&A solution is common, but these tools allow external data and metadata to be accessed, summarized, and transformed into the established models.
Data analysis and optimization tools: These tools can be applied to any model or data set to find trends and correlations, and used to generate data without having to embed rules within the models.
Collaboration and workflow: These capabilities are role-specific, allowing users to see what actions they need to take, by when; automation triggers activities based on events and exceptions. Typically, users can collaborate by using tools such as comment functions
Reporting: Users can “grab” data from any model and any time period and display it in any format, whether traditional report, dashboard, or email alert.
End-user analysis: These tools allow unfettered access for analysis, provided that the user has the right security clearance. These analyses can be saved, shared, and accessed by a variety of hardware devices.
Cloud enablement: Intelligent cloud-based solutions enable user access from any location and any device, security permitting. This frees users from having to be at a certain location or use specific devices.
In many ways, there is nothing new in these capabilities individually. What makes iFP&A different is that these capabilities are all tightly integrated without the need for users to know and learn different technologies.
Together, these components greatly speed up the collection and analysis of data and pave the way to continuous planning driven by exceptions and alerts.
Stay tuned for the next blog in this series, which examines emerging technologies for solutions that enable FP&A to transform business performance.