What is FP&A?

Financial Planning and Analysis (FP&A) is a critical function within a business, as it helps organizations make informed decisions to ensure financial stability, efficient resource allocation, and sustainable growth.

budget variance analysis

FP&A meaning and definition

Financial planning and analysis (FP&A) is a subgroup of the finance function within an organization. The difference between FP&A and some of the other finance functions, is that FP&A is focused on performance analysis and future-looking initiatives such as budgeting, forecasting, and planning.

This is essential, as the most important objective for an FP&A department is to use both current and historical data to drive business performance, prepare management and board reports, and accurately forecast a company’s revenues, expenses, and cash flows. This then becomes the backbone of strategic decision-making to support the future objectives of any organization.

This is why the modern FP&A team needs to become a force multiplier across the business – moving away from back office tasks and starting to operate as a true business partner to each stakeholder across the organization.

🎯 In a nutshell, FP&A teams help business leaders answer critical questions such as:

  • What is our current financial position?
  • What are the potential risks and opportunities in both short-term and long-term strategy?
  • Where can we invest to achieve our financial goals?
  • And, are we allocating resources in the right way to maximize growth and efficiency?

Ultimately, FP&A brings together the different metrics from each department such as marketing, sales, operations and HR to help create a robust financial plan for the future.

Why is FP&A so important?

Since finance is the backbone of a business, FP&A teams need to develop a holistic understanding of each business function.

From management reporting, sales quota attainment, to headcount planning, or owning the budgeting process, FP&A professionals play an essential role in the financial health and success of any organization.

Modern CFOs have enabled their FP&A teams to transition away from being the budget police and instead become true revenue enablers.

If you’re curious about how today’s Chief Financial Officers have evolved beyond being budget gatekeepers and have become strategists, business partners, operators, and trusted advisors to CEOs, you won’t want to miss our CFO Days ’23 event session. In that session, industry leaders such as John Watkins (Founder & CEO, Altima), Michael Bannon (President & CFO, Typeform), and Billy Morris (CFO, Genesis Global) shared their insights on the remarkable transformation of the CFO role. Watch the video below to learn more.

What does an FP&A role do?

Because FP&A has such a fundamental understanding of a company’s financial operations, the role covers both a lot of depth and breadth.

Some of the ways in which FP&A teams are doing this is by:

Complete understanding of business performance

FP&A teams operate across the entire business. This gives them access to the underlying data of each function, helping them understand performance at the most granular level.

Balancing the short-term and long-term strategic planning

Companies need to move quickly, and this means decisions need to happen in real-time. FP&A teams act as unbiased business partners, and help stakeholders balance the trade-offs between short-term execution and maintaining alignment with the long-term strategic plan.

Abacum FP&A Tip

Translating data and insights into clear actions

FP&A teams leverage data to identify the key insights that will drive company performance. Then effectively partner with the rest of the business to turn those insights into a clear and measurable action plan.

How is Financial Planning & Analysis different from Strategic Finance?

While FP&A and Strategic Finance teams share some similarities, they have in the past served as different functions within an organization.

FP&A

  • Primarily focused on developing the financial models and forecasts that support informed decision-making
  • Analyzing financial and operational KPIs to identify opportunities and risks
  • Working closely with other functions to prepare ad-hoc financial insights and decision recommendations
  • Owning the annual operating plan and departmental budgets

Strategic Finance

  • Concerned with developing the long-term and overall strategy of the entire business
  • Understanding and evaluating different market opportunities to uncover new product or business lines
  • Calculating the financial impact of key business decisions such as potential M&A activities

However, as companies and finance teams are becoming more agile, we are seeing FP&A and Strategic Finance operating as one single team. Day-to-day, this means FP&A is responsible for both the financial planning and analysis remit of the role, as well as directly owning the long-term strategic planning that supports the entire business.

Understanding the FP&A cycle and processes

The FP&A team has several responsibilities that range from day-to-day reporting, analysis, and automation, to future-looking initiatives such as annual planning. 

All of these responsibilities help: 

  • Bring predictability and operational rigor to the company
  • Facilitate cross-functional execution between senior management 
  • Ensure operational and financial results are measured, achieved, and any variance understood 

To support those responsibilities, FP&A teams follow a framework to understand their data and use it to make better business decisions. The hardest thing in any business is driving consistent performance, however, having a great FP&A cycle will definitely aid this process.

The FP&A framework is broken down as follows:

1. Financial and Operational data collection and consolidation

The first step of any FP&A process is to collect the data from the different business systems (e.g. ERP, CRM, HRIS, and data-warehouse) and create an operational single source of truth – this means consolidating your financial, operational, and workforce metrics into a single system.

A best-in-class FP&A team will put a lot of emphasis on correctly defining the operational metrics of a business and on automating the data collection process, moving away from disconnected Excel spreadsheets, and being able to leverage integrations for real-time data updates.

Once the financial data has been transformed and checked for accuracy by an FP&A analyst, teams can now use that data to prepare reporting of visualizations, dashboards, or build driver-based forecasting models.

2. Forecasting and Long-Range planning

After the FP&A team has consolidated the data from each business system, established KPI definitions, and confirmed its accuracy, it’s time to build the company’s forecast and long-range plan.

Forecasting is the process of estimating the future financial performance based on historical data, market trends, and other relevant economic factors.

It is an iterative process of asking questions that help guide the potential business trajectories such as:

  • What will the business look like if we don’t change anything?
  • What would it look like if we only changed X or Y?
  • What is the impact of those decisions in 3-5 years?

To help answer those questions, Finance leaders use different financial forecasting methods such as driver-led models, scenario planning, and what-if analysis to quantify the impact of potential business outcomes and adjust their strategies accordingly.

The Finance team collaborates closely with senior management, breaking down silos and ensuring the forecast model correctly reflects the underlying nature of each department across the company.

A good forecast and long-range plan will:

  • Agree and establish the capital allocation between the different parts of the business
  • Establish business unit and corporate target performance
  • Give credibility to the business strategy (e.g. we have enough resources to afford it)
  • Set investor expectations

3. Budgeting

Now that the FP&A team has a long-range view of the company’s strategic plan and underlying financials, it is time to cascade this into an annual departmental budget.The budgeting process entails breaking down the financial plan for the upcoming year by months, and rather than a top-down exercise, it is a bottom-up build of the financial plan for the upcoming fiscal year.

A final budget is reflected in the Income Statement, with budgets being allocated all the way down to the individual vendors and account levels,as well as the Balance Sheet and Cash Flow statement.

A good budget will:

  • Validate the top-down assumptions with the bottom-up budget inputs
  • Set financial and operational KPI targets at the company level for the upcoming 12 months
  • Touch every corner of the business, breaking down silos and giving clarity to every business unit. Everything needs to connect back to the P&L

4. Reporting and Performance Tracking

A good report helps FP&A and the rest of the business track their progress against budget, evaluate their performance, and identify any potential areas of improvement.

For that reason, FP&A teams also play a critical role in defining operational metrics, establishing their targets, measuring against them, and identifying any potential areas of improvement.

Management reporting involves conducting a variance analysis to understand which P&L, CF lines, or leading operational KPIs landed in line with the target and which ones did not. Then, delivering the clear insights and problems that need to be fixed to get back on track with the plan.

A good management report will:

  • Leverage commentary to provide stakeholders with clear reports on what has happened and why
  • Spot the issues and identify the course of action needed to correct performance
  • Show a BvA variance analysis for every line item, with detailed OPEX spend at the vendor level
  • Carefully diagnose the impact that leading operational indicators (e.g. sales qualified leads) can have on lagging indicators (e.g. recognized revenue)

Benefits of implementing an FP&A software 

The main challenge of FP&A teams owning the planning process detailed above,

“is that the finance department spends 75% of their time manually consolidating data, copy-pasting metrics from one spreadsheet to another, and updating stakeholders through back and forth emails.”

This means FP&A professionals are left with limited time to be the strategic partners the CFO and the rest of the business needs them to be. 

This is why Abacum is the FP&A platform, focused on maximizing your business’s most precious resources: time and money.

With Abacum FP&A professionals can:

Save 260 hours a month

with off-the-shelf reporting templates, automated BvA analysis, intuitive revenue forecasts and rolling forecasts Run a planning process that is 20% more efficient by leveraging streamlined budgeting workflows with

Run a planning process that is 20% more efficient

by leveraging streamlined budgeting workflows with approvals and user-level permissions

Ensure Budget to Actual variance <5%

your OPEX spend is reduced with vendor-level insights and data-driven planning that keeps your business on track

Have 1 Operational Source of Truth

integrate all your business systems for automated data wrangling and consolidations

Building an FP&A team

Finance teams are the engine behind efficient growth. Here is everything you need to know about scaling this corporate finance function, the difference in responsibilities between roles, and how to go from your first hire to IPO.  

The key roles within an FP&A team include:

Director or Head of FP&A

Director or Head of FP&A are roles you will most likely see in more mature organizations, often companies that have already raised Series B.

This role reports directly to the Chief Financial Officer, and is accountable for coordinating the FP&A function.

Some of the core responsibilities of the role are:

  • Building a consistent and predictable corporate FP&A planning process
  • Creating and owning both the long-term and short-term operating model, forecast, and budget
  • Delivering key insights to different business stakeholders and supporting the execution of those insights across the business
  • Being an exceptional business partner, establishing a clear relationship between the FP&A function and the other departments within a business.

FP&A Manager

Depending on company maturity there can be great overlap between the responsibilities of a VP and FP&A Manager. One of the high level differences separating both, is that Managers operate with a more granular view of the business.

Some of the core responsibilities of the role are:

  • Supporting the CFO or the VP of FP&A with the annual planning process
  • Preparing and presenting ad-hoc analyses to understand any performance trends
  • Creating FP&A forecasting models that show the impact of business decisions
  • Preparing management reports that are on track with month-end closing

FP&A Analysts

FP&A analysts will be into the weeds of the day-to-day, as they collect, analyze and interpret both financial and operational data.

Some of the core responsibilities of the role are:

  • Consolidating, cleaning, and preparing financial and operational data
  • Measuring and keeping track of financial metrics and operational KPIs both at the company and departmental level
  • Preparing data for any ad hoc analysis senior FP&A leadership or executives may need

FP&A frequently asked questions

When do scaling companies need to start building out an FP&A team?

Which challenges can be solved with an FP&A solution?

How does FP&A add value to your company?