By Thomas Sutter, Finance Centre of Excellence, Oracle NetSuite

Effective financial planning and analysis (FP&A) capabilities are essential to the finance function and the success of the organisation it serves. This was especially true in 2020, with teams navigating one of the most unpredictable years on record. Thrust into the spotlight, organisations looked to CFOs and FP&A teams to provide rapid insights into forecasts, operational performance and data-driven answers to help make critical decisions. Finance teams had to embrace agility, committing to constantly updating business scenarios, fixing future projections and creating multiple contingencies.

With a new year well under way, have these requirements changed?

Fixed costs will once again be scrutinised  

Fixed costs don’t normally change from month to month. However, in a market as dynamic as we have currently, businesses have to challenge this assumption. Last year was when FP&A teams were forced to scrutinise every line item.

This scrutiny will continue and might just become more extreme by necessity throughout the rest of 2021. Organisations must turn a critical eye towards costs, understanding what can be cut without potentially harming the long-term future of the company. Data and insights will be needed so that FP&A teams can continually monitor several categories, including payroll and benefits, outsourcing, cost of operations, supplier contract terms and culture expenses.

Despite heightened cost management, organisations will need to focus on the growth of the business, all while keeping people motivated whilst they deal with increased workloads and fatigue. Every decision will need to have a long-lasting positive impact on the business while pursuing these cost reduction measures too.

Thomas Sutter

Legacy systems will be replaced

As CFOs seek to maintain and mitigate additional costs to their organisations, FP&A plays a critical role in maximising profitability, establishing operational efficiencies and uncovering cost savings. To deliver these insights, finance teams must challenge the existing mechanisms and systems by which they execute their planning and forecasting processes. FP&A teams cannot afford to be slowed down by old legacy systems. Spurred on by the shift to remote working, businesses will seek to enhance or eliminate systems that can’t keep up with the organisation’s priorities.

Instead, new technologies will be adopted to create efficiencies. For example, cloud planning and budgeting software solutions are completely changing the way FP&A teams conduct their budgeting, planning and analysis. By simply eliminating the manual consolidation of budgets from disparate spreadsheets, finance teams have more time for actual analysis.

Cloud-based tools also provide remote access, which has quickly taken on much greater importance over the past year, as well as improved collaboration options. The cloud is also making sophisticated planning tools accessible for mid-sized and fast-growing businesses. Bolstering planning capabilities can unlock the value of financial forecasting and inform strategic decision making.

Agility will remain key

The last 12 months have shown how important agility is for growth, and businesses don’t want to be caught off guard again. FP&A teams learned the importance of adjusting plans quickly and communicating insights to senior leadership early and often.

With resources already stretched, teams will likely have to deliver more reports, meet business needs and find the capacity to partner with business functions and provide insights throughout 2021. FP&A teams will continue to enhance technological capabilities that allow organisations to reduce planning cycle times, improve forecast accuracy, deliver insights quickly and proactively plan.

Flexible and strong financial planning is key

In any year, planning can be a complex process, but the volatility of 2020 forced FP&A teams to rethink the art of prediction and highlighted the importance of mitigating risk and creating a clear path forward.

Organisations faced additional strains on their financial planning and forecasting process last year, which will continue in 2021. In the months ahead, the world will continue to evolve and businesses will expand probabilities and outcomes, using multiple modelling approaches to prepare and understand impacts throughout the organisation. There will be an increased focus on driver-based modelling and planning teams will rely even more on external economic drivers.

Is your FP&A team prepared?

It is clear the FP&A function can expect another busy year. However, organisations can make their lives easier by ensuring they’re equipped with the right tools and technology to provide more strategic value and practical insights for the business. With the right software in place, teams will have the capabilities to dig deeper into data to yield insights that can be incredibly valuable for helping the business avoid unnecessary risks. Interpreting data in this way will also guide future performance in the years to come.