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Financial planning and analysis (FP&A) is the process of forecasting business performance to support critical decision-making among senior executives. FP&A teams focus on gathering, transforming, and analyzing data to assess the financial health of an organization. By conducting regular financial planning, reporting, and accurate forecasting, the finance function can better track organizational performance and help management formulate a robust strategic plan for the future.

Why is Financial Planning & Analysis important?

FP&A allows the finance function to provide true value to not only senior management but to the entire company at large. By taking a strategic approach to financial reporting, forecasting, and budgeting, the finance team can serve as a true strategic business partner that helps drive change and improve efficiencies across the entire organization. By considering business trends, tracking organizational performance, and analyzing real-time data, the finance department is able to map out calculated business plans for the company to align on and follow. 

Steps involved in the FP&A process

The basic steps that make up a holistic FP&A process include:

1. Data Collection – The first step in any FP&A project is collecting relevant data from various sources. This includes information about current operations, historical performance, and forecasts for the future. Once this data has been collected, it must be analyzed and interpreted before being presented to senior management.

2. Forecasting – After all relevant data has been gathered, it’s time to forecast the future. Using the data collected, the finance team will create projections for key metrics such as revenue, profit margins, and expenses. These projections should be based on past trends and expected growth rates.

3. Reporting – Once the projections have been created, they need to be reported back to senior management. Finance reports are used to communicate these projections to upper management so that they can make informed decisions regarding the future direction of the company.

4. Budgeting – Finally, once the projections have been communicated to senior management, it’s time to begin preparing the budgets. To prepare budgets, the finance team needs to consider several factors including projected revenues, costs, and other important metrics.

What are the benefits of an FP&A software? 

An FP&A software allows CFOs, financial analysts, and other financial leaders within an organization to consolidate data from several different data sources so they can quickly report, plan, budget, analyze, and forecast. By collecting and consolidating data into a centralized platform, the finance function can conduct critical analysis using a single source of truth. Not only does using financial planning and analysis software improve data accuracy when reporting and forecasting, but it also saves valuable time which allows the finance team to prioritize more value-added initiatives.

Further reading

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