CHAPTER INTRODUCTION

This chapter will recap key takeaways from this book and provide suggestions for accelerating improvements in Financial Planning & Analysis (FP&A).

KEY TAKEAWAYS

Whether you have read this book from cover to cover or focused on topics of current interest to you and your organization, I offer the following summary of key points on transforming Financial Planning & Analysis (FP&A) and Performance Management (PM).

The current business and economic climates, as well as the pace of change, have significantly increased the need for effective FP&A and performance management. Most clients of these functions desire better analysis, advice, and service. Finance teams must rise to the occasion and improve the effectiveness of FP&A.

FP&A and performance management generally represent the areas of greatest potential impact for the finance organization.

Organizations should assess the current effectiveness of FP&A and develop a plan to implement best practices and other improvements. In Chapter 5, we introduced several tools, including a best practices assessment and client survey to identify improvement opportunities. Finance teams must develop or acquire skills and competencies to meet high expectations and needs of our clients.

Analytical works are incomplete and ineffective until they are presented and communicated to our clients. Spreadsheets are seldom the best communication tool. The ability to develop and present the findings of our analysis is a critical skill for analysts. Improving our ability to deliver the message will improve the effectiveness of the analysis and the standing of the analyst. Chapter 6 detailed actions that can be taken to improve our ability to communicate and also provided specific examples of graphics, dashboards, and reports.

Performance management, including the use of key performance indicators (KPIs) and dashboards, must be integrated with FP&A efforts in order to maximize effectiveness. A key to successful performance management is to develop a context that allows us to focus on key business and value drivers, strategic issues and objectives, and other critical issues. The selection of KPIs and the development of dashboards are very important since they implicitly define priorities and key areas of emphasis. There is a tendency to measure areas and activities that are easy to track. Care should be exercised to include areas of great importance, including innovation, agility, human capital, and external forces. Finally, performance management must be fully integrated into other management processes, especially those dealing with acquiring, evaluating, and compensating team members. These topics on performance management were covered in Part Two, Business Performance Management.

The ability to develop reliable financial projections is a core competency for finance teams. Because the future is increasingly difficult to predict, new techniques and practices must be employed. Detailed financial budgets must be replaced with operating plans and business outlooks that focus on key drivers, operating processes and activities, upsides and downsides, and an ability to monitor key assumptions and indicators of future performance. Part Three, Business Projections and Plans, presented best practices in developing projections, including on‐demand business outlooks and long‐term projections.

FP&A teams must be able to plan, measure, review, and identify improvements in critical business and value drivers, including revenue growth, margins, and operating and capital effectiveness. Each of these drivers was reviewed in detail in Part Four, Planning and Analysis of Critical Business and Value Drivers. These business and value drivers typically are the core of most analytical efforts.

Capital investment decisions (CIDs) play a critical role in the overall success of any organization and have a direct impact on value creation. They are instrumental in purchases of equipment, product development projects, and acquisitions. Since CIDs require estimates of future performance, often over an extended time horizon, analysts must identify risks and upsides, a range of potential outcomes, and management options to optimize the project results under different scenarios. Capital investment decisions were covered in Chapters 20 and 21.

Valuation and shareholder value are important factors in assessing business decisions, setting goals, and purchasing businesses. Identifying value drivers and understanding the relationship between operating processes and activities, financial results, and value creation are essential. Valuation and value drivers were covered in Chapters 22 and 23.

Finally, it is important to direct our efforts in FP&A and performance management to important business drivers and issues. Specific suggestions to assist in this challenge were provided in Chapter 5, Building Analytical Capability, and in Chapter 11, The External View: Benchmarking Performance and Competitive Analysis.

WHERE TO FROM HERE?

Many finance teams struggle with the overwhelming number and magnitude of possible improvements to the current state of FP&A and performance management (PM). This problem is exacerbated by other demands on finance and the limited resources to deal with those demands. In addition, many teams encounter resistance to improved performance management, typically because of fear and misinformation that arise about how performance management will be utilized, in some cases to limit discretion or intuition or to more objectively evaluate employees' performance.

These initiatives to improve FP&A and PM represent changes for the finance team as well as the entire organization. Those in leadership roles must consider these soft issues and utilize change management principles. In addition to the suggestions in Chapters 5 and 11, the following suggestions may be useful in driving for significant improvements in FP&A and performance management.

Develop a Case. Document the current state of FP&A and PM. This can be accomplished in two areas. First, an assessment of FP&A effectiveness can be made. This can include a benchmark and identification of best practices, as well as client feedback. The second area of assessment is a view of the overall performance of the company or organization. This can include benchmark comparisons on everything from value creation to capital management and from revenue growth to costs and expense levels. These assessments will identify different needs for each organization and help to identify the specific areas warranting attention.

Build Consensus and an Execution Team. I cannot recall any successful endeavor of this magnitude that did not include building consensus and developing an execution team. The development of a case for change will provide a starting point for building consensus. Many executives are surprised at the amount of effort required to effectively communicate the case. In addition, catalysts for change also find that they must repeatedly drive home the message. The creation of a project plan with clear deliverables, milestones, and responsibilities is critical.

The execution team should include representatives from FP&A, information technology (IT), and key business processes and business units across the organization. This will help ensure that the changes and solutions are accepted, rather than viewed as a finance or IT project.

Provide Tools and Resources. Most efforts to significantly improve FP&A and PM will require investments in technology, training and development, and outside resources. In addition, a significant amount of FP&A human resources must be devoted to improving and then subsequently delivering high‐quality FP&A service.

Build Momentum. An important aspect of leading change is to identify and execute on some early successes. The overall project should be planned to address some low‐hanging fruit – in other words, relatively easy tasks that have high visibility. In organizations that resist adopting performance management, it is useful to direct initial efforts toward problem areas. For example, if the organization has difficulty in developing and meeting projections or in managing receivables, initial efforts can be directed to those areas. Skeptical managers can be won over after witnessing the useful role that performance management can play.

Monitor and Adjust. Progress on the plan should be reviewed frequently. In addition, the project results must be reviewed to ensure that intended objectives of the plan are achieved. For example, if one of the efforts is directed at improving the planning and forecasting process, has the project resulted in intended and measurable improvements?

Circumstances and priorities change frequently. Efforts to improve FP&A and PM must be continually reviewed to ensure that they are directed at important areas and drivers of performance.

It Is a Journey. Efforts to improve FP&A and PM will likely be an ongoing challenge. Changes in business conditions, technology, and competition will ensure that FP&A and PM will continue to evolve and rotate focus across various aspects of the enterprise.

FP&A and performance management generally represent the areas of greatest impact for the finance organization.

Good luck and enjoy the journey!