FP&A Trends: Experts Discuss Pivoting and Persevering in 2020

FP&A trends

When you look back at 2020, you see just how many industries have been affected by the pandemic and the economic domino-effect.

Organizations are learning to embrace a culture of empowerment where everyone makes data-driven decisions. Agility is no longer a want-to-have but a must-have for decision-makers. Most of all, we’ve realized the critical importance of our people and the role empathy now plays in the business environment.

FP&A has changed permanently as a result of 2020 challenges…but how has it changed? Industry experts offer their perspectives on FP&A trends from this challenging year—and how they’ve managed to pivot and persevere.

Pivot…No Longer Reserved for Excel Data Tables

Desiree Gonzalez
Vice President, Finance
Hope Media Group

Pivot. A word commonly associated with a data table in Excel evokes a different association for me in 2020…agility. The need to be agile has become a common thread in recent finance and non-finance conversations. With the pandemic quickly surfacing vulnerabilities in an organization, FP&A professionals were asking themselves: Are we prepared to respond to the uncertainties ahead?

Since the 1970s, Shell Oil has challenged its leaders to stretch their thinking by considering the “what if?” And while this does not sound like a new concept to FP&A professionals, forward-thinking organizations have embraced this “scenario-planning” culture to better understand remote (but not impossible) events, such as a pandemic. This type of thinking leads to exploring new possibilities today for improved decision-making tomorrow—and an agile response to the future.

The Pandemic Mode Requires a New Way of Working

Terry Ndifuanja
Director of Finance
Save the Children International

The year 2020 is leaving a footprint on every form of business and no one is immune to these changes. This poses new challenges and opportunities to rethink how to run businesses and new ways of working the FP&A function.

Since March 2020, many companies had to work remotely or make strategic decisions on running business operations—such as the increased deployment of new technology and the use of AI for collaboration and analytical information for decision-making.

The pandemic mode is requiring people to adapt to new ways of working. FP&A professionals need to learn new skills and familiarize themselves with new regulations. While the situation creates opportunities—especially for innovation management—there are also new challenges to cut costs, make quick decisions on growth, scaling, and maintaining a remote workforce—and even dealing with cash flow issues, especially where funding is dependent on tax dollars.

Becoming Tactical Liaisons Who Emphasize a Future Outlook

Hector Rubalcava
Finance Manager & Business Partner
Amtrak

In today’s disruptive and unpredictable climate, FP&A is under pressure to revamp its traditional operating environment. FP&A can no longer focus on the past and present results but instead must put a heavier emphasis on the future outlook of an organization.

For this innovative approach to succeed, FP&A needs to become dynamic business partners in many functional areas. FP&A needs to first gain trust from its stakeholders, then be active tactical liaisons providing actionable insights. A few vital strategic management initiatives for FP&A to lead going forward will be:

  • Deploying more revenue optimization projects
  • Exploring creative cost-savings and expense reduction exercises
  • Delivering creative solutions to address internal complex business challenges, as well as external uncontrollable interruptions.

I believe another major outcome from this year will be the prioritization of senior management to automate time-consuming and repetitive finance/accounting tasks via various advanced data science mechanisms. This finance revolutionary phase will not only deliver material cost-savings to organizations but also enable employees to strategically perform more complex, creative, and forward-looking analytics for effective management decision-making practices.

Remote Working and Planning During the New Norm

Abby Obomighie
Head of FP&A
Hitachi Europe

FP&A continues to witness a change as it embraces and creates its path as a value-adding strategic business partner within any organization…and within finance. 2020 ushered in a “new norm.” As the dust settles, some changes may not be permanent but they may be foundational.

1. Remote working questions the idea of business partners being physically close or embedded within the business/division. How finance business partners or FP&A respond to this question will be based on relationships (people, data, and process).

2. Planning/budgeting has been affected in 2020. “If one does not know where one is going? Any road and/destination will be okay.” Companies that thrived seem to have a good, robust, and agile planning process in addition to adequately good analysis and analytics to accompany the results—especially in Q1 of 2020…therein lies a foundation.

The Difference Between Survival and Extinction

Terrell Turner CPA
Finance Leader
TL TurnerGroup

The challenges in 2020 have brought about major changes for the FP&A role, because FP&A is where the people, products, process, and finance strategies all converge into one plan. 2020 has shown us that the successful convergence of these strategies really is the difference between survival or extinction and retraction or growth. In this brave new world, we must consider changing how we approach forecast modeling, skill set development, and the empowerment of others.

Forecasting and modeling have become more heavily relied upon. 2020 has caused massive fluctuation in financial records, which means any analysis that includes 2020 will be distorted and not be as insightful for future comparisons. To avoid this large distortion, internal and external parties will rely on the forecast vs actuals to determine if a business is performing and managing its resources well.

Due to this increased reliance on the forecast, FP&A teams will need to establish a more rigorous forecasting approach that increases the transparency of underlying assumptions and considers “going concern” issues in both the supply chain and customer base on a deeper level. There will need to be a focus on providing a range of outcomes based on varying business scenarios.

Questioning the Way FP&A Fast-Tracked Transformation

Tejas Parikh
Founder/Director
Akshar Business Consulting

2020 has no doubt affected every function/department in every business. You’ll notice a few FP&A trends emerging as organizations begin to get over the initial shock and fear of the crisis and move into the acceptance phase.

An increasing number of organizations have fast-tracked long-overdue technological transformations of FP&A to cope with challenges of remote coordination—while improving the ability to produce business insights and provide enhanced decision support.

This does, however, beg questions like:

  • Are these transformations being well thought out, planned, and tested?
  • Will these transformations stick?
  • Have the processes been streamlined enough to implement technology?
  • Or are we duplicating inefficiencies into the new technology?
  • Is this a well thought out solution?
  • Or is the solution a temporary plaster on a much deeper problem that needs a structured phased change in culture, people, and processes enabled by technology?

On the other end, the current crisis has increased focus on the FP&A function and further cemented its position as a strategic partner.

Now more than ever, FP&A professionals have learned the importance of driver-based budgets/forecast and the skills of scenario planning, which continue to prove pivotal in all forms of planning (short, medium, or long-range). Additionally, within the FP&A community, there is an increasing awareness of data sciences and the need for upgrading skills to better manage data.

There’s No Going Back to The Way It Was

Danny Bharat
VP Finance NTD & VP Planning Analytics
American Tire Distributors

Already dealing with industry disruptions, the Amazon effect, fast-changing consumer trends, and other macro challenges, a black swan event like COVID has created the perfect storm for FP&A teams. The traditional long budgeting and planning cycles don’t hold anymore, and statistical models have broken down. Even the most sophisticated ML/AI model could not have forecast COVID—and there’s isn’t any model for what the post-COVID world will look like.

FP&A teams now need to reframe their mandate and build new skills. A deductive approach to planning and reliance on heuristics does not work anymore. The logical cadence of Numbers-Algorithm-Analysis does not add value in a world where change is unpredictable and discontinuous.

Instead of using standard models, FP&A teams now need to produce new models. Success in the uncertain future requires inductive thinking where we observe reality and synthesize new concepts. This requires new skills—creativity, imagination, perception, and an ability to overcome beliefs and cognitive biases.

There isn’t any way of going back to the way it was. Scenario planning is now a short-time horizon exercise. At ATD, finance leadership is retooling to meet these new challenges. FP&A is partnering with the business teams to help them flex to changing needs. To make that happen, existing BI stacks need to deliver better.

Data needs to be interconnected and actionable insights need to be readily available. This cannot wait for traditional multi-year IT cycles and multi-million-dollar investments. It requires a much closer partnership, one that often overlaps between finance and IT functions.

As traditional single-point forecasts become less useful, there is an increasing focus on using tools such as Monte Carlo simulations, not just as ad-hoc models but as real-time, ongoing, and scalable solutions that guide actions.

Our clients have overcome 2020 challenges by staying dedicated to their people and their processes. If your FP&A team needs guidance and support, sign up for Collectiv’s FP&A Visioning Program.

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