5 minute read 5 Mar 2021

Four milestones that redefine your finance function

By Derk-Jan van der Wal

EY Netherlands Partner Consulting

Connects people. Results-oriented. Innovative. He is sometimes less focused than he would like to be, because he gets pleasure out of too many things.

5 minute read 5 Mar 2021

How can the Financial Planning & Analysis function be transformed into a sustainable model for the future?

In brief

  • FP&A teams traditionally create value by delivering meaningful and timely business insights, but the future of FP&A is changing rapidly.
  • FP&A has the capability to become a function that supports decision-making and drives accountability through accurate finanial and business analyses.
  • The time for change is now!

Internal and external environments are in constant flux, and dynamics have become more complex. Stakeholders are asking the Financial Planning & Analysis (FP&A) function to do more than simply crunch the numbers. The business wants FP&A to respond to market events in real time, improve scenario planning capabilities and support new customers. The ‘ask’ from the FP&A client is to leverage data effectively to improve forecasting accuracy. So how can the FP&A function be transformed into a sustainable model for the future? We sought the views of Salvatore Cantale, Professor of Finance at the IMD executive leadership school in Lausanne, Switzerland, and Derk-Jan van der Wal, Partner EY CFO Consulting.

The impact of Covid-19 on the 2020 results of many companies has exposed the need for flexibility in the way the FP&A function is organized. And, in all this turmoil, research shows that approximately 75% of a Finance Director’s time in the FP&A function is spent on non-value-added activities such as gathering, collecting and validating data. And even more staggering, this percentage has been more or less the same for the last 10 years; time to focus on value-added analysis has gone up by only two percentage points. So, despite the efforts of the sector, little progress has been made in ‘modernizing’ the FP&A model.

‘New normal’ requires efficiency and agility

The compelling challenge for the FP&A function today goes further than simply anticipating the needs of the business, grasping improvement opportunities and unlocking value. Determining what needs to be done next probably requires dramatically rethinking key processes. “It is important to start with the question: ‘what is the beyond’?”, says Professor Cantale. “What is a realistic next step and what are the changes that need to be made in order to get there? Industry dynamics impact organizational efficiency, complicating the drive for operational agility. The challenges that arise during the journey of an organization along a future growth path need to be understood, addressed and prioritized in the transformation roadmap.”

The key to this is central uniformity spiced with local creativity
Derk-Jan van der Wal
partner EY

People & Organization

When contemplating the ‘beyond’ and redefining the FP&A function, a CFO should address three dimensions; organization (people), process and technology. The scope of this article is limited to People & Organization, so what are the service delivery models that can move FP&A into a more strategic and forward-looking function? As companies drive service delivery and structural improvements to enable future growth, EY sees three key focus areas: being bold and rethinking the model, expanding and focusing on dedicated Centers of Excellence (COEs); and leaning out Business Unit (BU) finance.

“Being bold and rethinking the model means developing an FP&A operating structure that meets business needs, rather than redesigning around current people and processes,” says EY’s Van der Wal. “Expanding and focusing on Centers of Excellence requires the creation of dedicated COE groups for reporting, data, analytics and controls. And leaning out Business Unit finance calls for clarity on roles and responsibilities within the FP&A function, best achieved by eliminating dual controllership and capitalizing on automation opportunities.”

How to create central uniformity

Van der Wal has no doubt that the FP&A function of the future must be organized at lower cost and higher quality. “This will not be achieved overnight by simply tweaking what we already have,” says the CFO consulting partner. “Finance directors need to lead a transformation from local to central to retain proper oversight and control.” Those finance professionals who accomplish this will help their business to make a greater impact. “The key to this is central uniformity spiced with local creativity,” he emphasizes. “The small, local FP&A team that remains co-located with the business can redirect work – such as research, data analysis, report writing and design – to the COEs. This frees up the co-located FP&A team’s time to better focus on business partnering and decision support. Moving high-level FP&A analysis and reporting to COEs nurtures uniformity.”

Driving change within FP&A

Although there is no one-size-fits-all FP&A model, structures cannot remain static and need to evolve continuously to address the changing needs of the business. EY believes four milestones need to be achieved to drive change within FP&A in the next 10 years:

  1. Incorporate new subfunctions to strengthen the analytic and decision-making services that FP&A delivers.
  2. Develop the role of the FP&A business partner, focusing on strategic business value areas, and rethink the skills needed in other roles such as analytical, finance/accounting and ‘softer’ skills that boost personal communication, presentation and persuasion/influencing qualities.
  3. Rethink the FP&A organizational structure, keeping state-of-the-art technology options in mind such as machine learning, reporting automation that enables self-service for business leaders, as well as (geographic) access to FP&A talent.
  4. Expand the scope and scale of FP&A within fully-focused COEs that can better handle ad hoc questions from the business such as standard reporting implementation because a COE has a better overview of all available management reporting (rather than each BU coming up with its own report).

Coping with convergence

“We see a number of parameters facilitating this process,” says Van der Wal. “The FP&A organization of the future needs to be agile and adaptable, because only in this way will it be able to handle industry convergence and realignment. It needs to instil a continuous improvement culture whereby an enterprising company can evolve and thrive. And streamlining the organization model will foster seamless operations during disruption.”

As centralization leads to further standardization, enhanced efficiency and accelerated delivery will follow as a matter of course, driven by advanced technology. “A recent, targeted study found that 90% of respondents had moved some routine analysis and reporting to centralized services to drive standardization and free up capacity,” adds Professor Cantale. “Enablers are rationalizing and eliminating work, simplifying reporting, implementing leading-edge analytical tools, leveraging technology to automate manual-intensive tasks, and aligning the delivery location with resource capability and skill level.”

Summary

As today’s FP&A model is enhanced to become the leading FP&A model of the future, the role of COEs will expand, activities will be redistributed to realize efficiencies, continuous process improvement will be crucial, business partnering models will be evolved that more effectively meet unique business requirements, generalist accounting and finance skills will give way towards unique specializations and clear accountability between FP&A teams and controllers will be established. The added value of the FP&A function will be truly unlocked.

About this article

By Derk-Jan van der Wal

EY Netherlands Partner Consulting

Connects people. Results-oriented. Innovative. He is sometimes less focused than he would like to be, because he gets pleasure out of too many things.