Empowering financial agility: the dynamics of FP&A

Welcome back to our series on crafting a sustainable finance function. Today, we dive into the dynamic world of Financial Planning and Analysis (FP&A), where adaptability and foresight are paramount. In today’s fast-paced business landscape, traditional FP&A methods may fall short. Organizations must be nimble, responsive, and data-driven to stay competitive. This is where dynamic FP&A processes step in.

What is Financial Planning and Analysis?

The FP&A process includes planning, forecasting, budgeting, and analytical activities that support business decisions and financial health. The FP&A process includes these four basic steps:

1. Data collection, consolidation, and verification
2. Planning and forecasting
3. Budgeting
4. Performance monitoring and analytics

However, as companies grow this process becomes more complex and has more moving parts. The dynamic FP&A process starts with innovative approaches that empower finance teams to adapt to real-time insights and shifting market conditions.

What are Some Examples of Dynamic FP&A Processes?

1. Rolling 18-month Forecast with Scenario Planning: Some of our most successful clients embrace a forward-looking approach by utilizing a rolling 18-month forecast that extends beyond traditional budgeting horizons. This requires our clients to incorporate scenario planning to assess various market conditions, economic trends, and business scenarios. By evaluating the impact of different scenarios on financial performance and strategic initiatives, our clients can proactively make decisions and mitigate risks. 
2. Frequent Reforecasting with Risk and Opportunity Assessment: Reforecasting should be done rhythmically to reflect evolving business dynamics and market conditions.  This requires a business to monitor performance against budgets and forecasts to identify variances and trends regularly and evaluate changes over time. Sensitivity analysis should also be performed to assess risks and opportunities. When reforecasting, our clients engage cross-functional teams to validate their assumptions and incorporate their insights into the exercise, enhancing accuracy and relevance.
3. 13-Week Cash Flow Planning: Cash is the lifeblood of small and growing businesses, so it should be no surprise that it’s critical to manage cash flow for a business’s resilience and liquidity. For many of our clients, implementing a 13-week cash flow planning process makes a huge difference when planning their short-term cash inflows and outflows and the decisions surrounding them. By analyzing cash flow drivers, such as receivables, payables, and capital expenditures, a business can anticipate liquidity needs and mitigate cash flow risks.

By implementing these dynamic FP&A practices, our clients have been empowered to navigate uncertainty and seize opportunities in an ever-changing business landscape. By embracing rolling forecasts, scenario planning, reforecasting, and cash flow planning, our clients enhance their own agility, foresight, and decision-making capabilities. Stay tuned for the next installment, where we explore the role of technology in driving finance transformation and innovation. At Siegfried Advisory, we understand the importance of effective financial planning and analysis. Please get in touch with our team to learn more about our unique perspective and individualized approach. We would be thrilled to help support your goals!

This article was contributed by John Peatross, Senior Manager and Molly DiDonato, Senior Associate in the Financial Advisory Services group at Siegfried Advisory. You can contact John or Molly directly at [email protected] or [email protected].