Formal Training

A large number of training programs exist that are geared to financial analysis. Unfortunately, many are very basic and do not extend very far beyond traditional financial statement and ratio analysis. These are fine for the junior analyst but fail to address important business drivers, current trends, and advanced topics.

For advanced levels of training, seek programs that cover a range of topics, offer practical tools, and cover new developments in the science.

• Planning and forecasting
• Business performance management
• Diagnostic tools, including the Pareto principle and root cause analysis
• Capital investment decisions
• Valuation and value drivers
• Presenting and communicating business information

Also choose a workshop or seminar leader who has practical experience in the application of these tools and experience that rounds out the technical aspects of FP&A.

Reference Materials (the Objective of This Book)

Few professional books or textbooks fully explore FP&A. Some works on corporate or managerial finance include a chapter or two on analysis, but the emphasis is on technical or academic finance subjects. Many books and publications focus on the theoretical aspects of a topic without exploring the real‐world issues that the analyst encounters.

Recognizing the void in this area, I began creating my own reference materials and developing analytical tools. The objective of this book is to provide such a reference to others. Most of the analytical templates reviewed in this book are available to purchasers of the book. For more information, please refer to About the Website.

Read and Collect Examples of Outstanding Analysis

As a student of financial analysis and performance management, I set up a file (actually a paper file, back in the day!) in which I placed a copy of any superior analysis or presentation that caught my eye. Some were terrific spreadsheets; others had unique or very effective methods of summarizing and presenting complex information. In many cases, the analysis was not directly applicable to anything I was likely to need. However, there were often kernels that highlighted best practices in analyzing or presenting findings such as statistical summaries, dual axis graphs, and waterfall charts.

Many of these thought‐provoking examples were plucked from magazine articles, conference materials, consultant reports, marketing and promotional materials, and research analyst reports.

Maintain a Portfolio of Your Analytical Works

Just as an artist maintains a portfolio of his or her works, so should the financial analyst. This portfolio can be electronic or paper, or both. It can serve as a source of ideas and will also limit “reinventing the wheel.”

Today, my portfolio fills an entire file cabinet of paper, and a substantial part of my hard drive. I often find materials that I had long forgotten, but that are directly applicable to a current project. My ability to leverage this past work, of course, is very dependent on my ability to retrieve a paper or, better yet, the digital file. Good filing, indexing, and labeling are critical. These can also be useful in employment searches and for reference in performance reviews.

Improve Communication and Presentation Skills

One of the greatest improvement opportunities for most finance professionals is to develop their communication and presentation skills. Many finance professionals believe that the analysis is complete when the spreadsheet is complete. They simply pass on the spreadsheet without enough thought as to how best to communicate the findings. The analytical process is not complete until the results are presented and understood. Chapter 6 provides some specific and concrete ways for us to improve the way we present and communicate financial and business information.

Credibility and Objectivity

To be an effective analyst, it is important to be viewed as an objective party. Too often, we finance folks have a reputation of always having a negative perspective and being critical of all programs and performance. Operating managers will tune out input from analysts they believe are always pessimistic or negative. To counter this, we must strive to be balanced, and occasionally point out the positives! Our analysis and presentations should always be objective and fact based.

One effective technique for creating a balanced view is to present the “Highlights” and the “Improvement Opportunities.” This balanced presentation will strengthen the weight of your findings and build credibility as an impartial reviewer of business performance and projects. Another technique is to present several scenarios, including both risks and upsides of projections, to point out concerns without always appearing negative about future prospects.

Business and Emotional Maturity

The FP&A team is engaged in analysis of highly sensitive business issues, problems, and opportunities. They will be interacting with senior executives and with a wide range of associates within the organization. Analysts need to build trust with associates to ensure access to information. In many cases, the analysis is a component of the evaluation of a project, business, team, or even an individual manager. In addition to the need for confidentiality of sensitive information, analysts must also be thoughtful and considerate in their interactions with other associates and managers.

Volunteer to Work on Important Analytical Projects and Presentations

Another way to develop and hone analytical and presentation skills is to volunteer or assist in important high‐level presentations. Due to their importance, many projects and presentations get a lot of attention and therefore a lot of professional assistance. Volunteer to work on these projects, and you will be exposed to the big picture, solid thought leaders (consultants, investment bankers, senior managers, and executives), and good presentations of business information. A few examples of reports and projects:

• Reports and presentations to investors, analysts, and shareholders
• Reports to the board of directors
• Customer proposals
• Large capital decisions, including new products or acquisitions
• Strategic assessments and plans

Develop a Business Perspective

The best analysts develop an understanding of the business. To become an effective business partner, we must step back from our quantitative and technical orientation to develop a context and understanding of the overall business. Invest some time with operating managers to understand their challenges and objectives. Obtain and read marketing and strategic plans. Review investor presentations, analyst reports, and market reports. Inquire about areas where you may be able to assist by identifying opportunities or illuminating challenges. Our accounting jargon should be replaced by business terms; we should simplify the analysis rather than complicate it; we should act as players, not just reporters; and we should propose actions and solutions rather than offer criticism or just identify problems.

Structure the Organization for Service

The structure and level of resources within the finance department directly impact the effectiveness of FP&A. Are there dedicated resources with a focus on FP&A? Are there adequate resources devoted to the needs of the organization? Does the staff have the requisite skills to serve the needs of the clients of FP&A?

The traditional organization is structured as shown in Figure 5.1.

Another way of accomplishing FP&A is to assign key FP&A functions to team members across the finance organization. For example, the accounting manager could be assigned to support marketing. This also helps to develop skills across the organization, since additional staff members will be involved in FP&A. An additional benefit is that the work is distributed across a larger group, which helps during peak reporting and planning cycles. Some organizations share the analysts with the department or function they are serving. These analysts may have a dual reporting structure and are viewed as members of both the operating organization (e.g. R&D or business unit) and finance (see Figure 5.2). Other companies are centralizing routine aspects of FP&A to gain economies of scale by creating a “center of excellence.” While benefits of centralizing report generation and other products are self‐evident, care must be exercised not to reduce personal contact or interaction with clients.

Whether structured as a separate department or as a process team from various finance departments, it is essential that a senior finance team manager coordinate and drive FP&A efforts, training, and development.

Organization and Resource Allocation

Review the organization chart, including senior management and the finance team. Are there staff members dedicated to FP&A? What are the reporting relationships within finance? How do they interact with senior managers and the rest of the organization?

Experience, Competency, and Skills Inventory

Finance managers should take an inventory of skills that exist within the organization. High‐performing FP&A organizations recognize that the development of key competencies and experience is critical to their success. Business acumen, communication and presentation skills, exposure to other disciplines, statistics, and data visualization are just as important as technical skills, including report writing and modeling. Good analysts will typically be strong in several of the following skills and types of experience:

• Business Sense
• Operating Experience
• Reporting Applications
• Graphics
• Oral Communication and Presentation
• Written Communication
• Process Mapping and Improvement
• Statistics
• External Reporting

If these skills and competencies are underrepresented in the team, consideration should be given to developing or acquiring those skill sets. Formal training is available, but analysts should also become active learners by reviewing top‐quality analysis and presentations from consultants, research analysts, and presentations to the board and investors. Very successful FP&A organizations also strive for diversity in thinking and skills. For example, individuals with experience in quality initiatives and process improvement can make a significant contribution to the overall FP&A effort. Table 5.1 is an example of a skills and experience inventory that highlights coverage and gaps. This inventory should be completed as part of an FP&A assessment and also as part of a comprehensive human capital management process (see Chapter 10).

Best Practices Review

Another assessment technique is to compare current FP&A practices to a list of best practices in FP&A. This is a very effective way to identify high‐leverage improvement opportunities. Table 5.2 presents an excerpt from a best practices checklist.

Evaluate Your Current Reports and Analysis

One of the best ways to evaluate the effectiveness of your FP&A function is to collect all reports, dashboards, and on‐demand reports that are distributed to managers, executives, directors, investors, and other important constituencies. These should include recurring reports (e.g. monthly or quarterly) as well as ad hoc requests for analysis. I recommend collecting paper copies of these reports and spreading them out on a conference table for full visual impact.

Evaluate these reports considering the following characteristics:

• Graphic or visual presentation versus spreadsheet tables.
• Relevancy: Do the reports cover key issues and progress toward goals, targets, and objectives?
• What themes are we emphasizing? Are they appropriate?
• Does our work support the attainment of strategic objectives and critical performance drivers of the organization?
• Are the reports professional and consistent with the image the finance organization strives to present?
• Time to produce.

The reports and analysis can be summarized as illustrated in Table 5.3. This process can be very illuminating! Typically, managers will be surprised at the tremendous time invested in certain reports, including those with dubious utility. In some cases, reports can be eliminated. Others may be candidates for streamlining or developing a more efficient preparation process. This activity also identifies those reports that were introduced for a specific purpose at a point in time … that never get eliminated.

Next, interview key managers, executives, and other clients of your reports and analysis. In many cases, we have found that many managers do not utilize or even look at substantial parts of reports. In one instance, not one recipient (of 22 senior managers and executives) in the organization found the monthly finance report useful. Few reviewed the report. A couple referenced a single schedule for specific information. The report was old school, almost entirely focused on the past, and full of Excel spreadsheets. We decided to eliminate the report entirely, saving more than 12 days of preparation time! The report was replaced with more relevant weekly and monthly dashboards, and more emphasis was placed on current performance and progress toward future performance targets and goals.

Ask the managers what information they need on a recurring basis to execute their responsibilities. Inquire about any specific problems or issues that FP&A can assist in resolving.

Survey “Clients” of FP&A

In addition to informal discussions, some organizations also survey customers or clients of FP&A. While the ratings are informative, the greatest value tends to come in the comments and suggestions. Priority should be given to common themes. An example of a client survey is presented in the box.

Improvement Plan

The results of the assessment can be overwhelming. Senior finance managers should review all assessment materials and identify the most important findings. Focus on high‐leverage improvement opportunities that will have the greatest impact. Review with executives and senior managers (clients of FP&A) to validate your findings. The team should construct an implementation plan with specific objectives, responsibilities, and timeline. Progress on the plan should be reviewed each month. An example of an FP&A improvement plan is presented in Table 5.4.