FP&A can help guide the journey

Chief financial officers have become more focused on shaping and governing strategy in recent years.

They have made the evolution with the help of financial planning and analysis (FP&A) professionals, who work closely with the C-suite to ensure the strategy is carried out, risks are avoided, and opportunities are recognised ahead of the competition.

James Miln, ACMA, CGMA, has played a key role in that type of relationship at Yahoo, where he is senior director of investor relations. Prior to his current role, he served in various positions involved with FP&A or business partnership, supporting the company’s forecasting of revenues and costs, building analytical models to improve accuracy of forecasts, and working closely with data and reporting teams.

“One of the challenges is ensuring that we identify the most important and relevant pieces of data that can help drive the understanding of our financial results,” he explained. “I’ve always been very focused on translating the strategy of a company or a business unit into execution and very passionate about that.”

Miln spoke with CGMA Magazine about the evolving role of FP&A and offered tips on how companies can improve the effectiveness of their FP&A teams. Here’s an edited transcript of the conversation:

What are the obstacles to the FP&A group within an organisation becoming a true business partner?

I’ve seen two major obstacles: The pace of change that there is today and the quantity of data that we have to deal with. On the finance side, having the skills to cope with the amount of data that we have — not just the traditional financial data, but the full enterprise data and then potentially what is called Big Data — is an area that we have to grapple with and become experts in.

And accompanied with that is having the right talent and the organisational structure in place, ensuring that there are people within the finance function who are able to deal with this data, and also that we’re organised to be able to partner with the business correctly.

We have to make sure that finance is very proactive and confident about its role in supporting the business across all types of decision-making, because at the end of the day they all have a financial impact.

How would you advise companies to overcome those kinds of obstacles?

A big part of it is leadership from the top, so that the CFO and his or her leadership team really recognise the challenges there are in dealing with the amount of data and the high pace of change in business today. We have to be able to adapt it to an environment where data is perhaps not all in one system or we have to be quicker at aggregating it from those different systems. Having talent that is able to deal with that level of uncertainty, but also having the skills to be able to deal with data today is key. The leadership from the top can ensure that the finance function is looking for that talent and developing those sorts of skills within our organisation as well.

And the other point is about making clear decisions about where you’re going to allocate your resources and that you think it important enough to have roles that deal directly with the challenges of dealing with data and the decision-making that needs to be done in the business.

What are the pros and cons of centralising FP&A professionals versus having them decentralised, more visible to other business units?

A big decision to make is how much centralisation you want in your finance team versus having your finance team and leads sitting with their business partners. There are times when it makes sense to centralise more, and there are times when it makes sense to get more people focused with their business partners. It is important to consider the scalability of what you’re trying to do in supporting the business.

Centralisations can help in dealing with data, being able to pull it into one place, and having the talent and the structure in place to be able to focus on standardising key reporting, key metrics, being aligned very much with the strategy and with the C-suite. At the same time, if you do too much of that, then the trust finance has outside of that central location can be much lower.

And in terms of your day-to-day ability to influence decision-making by the operators, you can lose touch. So you need to balance, and sometimes it’s been the right decision to try and move some roles more centrally for a while to focus on getting the standardisations, potentially globalisations depending on the company, and get one source of truth in place.

But once you’ve gone through a period of that, I think it’s very helpful to then try and get back out and do more customisations and closer partnering to continue to build trust so that finance can influence more decision-making.

Why is it important for those in FP&A to build trust?

Our role is about supporting and challenging leaders’ decision-making. We can’t quantify all of the scenarios that can occur. And in that situation you want to both support the belief of where the company can go, but you also need to be a bit more of a realist and challenge the key assumptions, make sure that we’re not deluding ourselves whilst also aspiring to something much better than where we are today. So you need to earn that trust with that leader, so that they’re not looking at finance as being the police, but you can also be part of that creative process about where the company is going to go.

How can FP&A professionals or the FP&A function demonstrate the value it provides a company?

The best way to do that is to just be on that journey with the senior leadership, whether that’s the C-suite or the senior leader that you’re supporting. From developing the strategy at the beginning, following it through to the goals you’re putting in place, the measurement against those, and really following through with the postmortem and the analysis afterwards of how that went. If you can be with your business on every step of that journey around — from strategy to execution — your value is demonstrated because they know that you’re with them in terms of supporting their vision and where they’re trying to drive the results. Then they’re willing to listen to you when things have gone worse or better than expected to learn from that experience.

How has the role of FP&A evolved in the past five years, and where do you see FP&A headed in the next five years?

Whether it’s online, where it’s more obvious, or whether it’s in steel-making or chemicals, the data that you and your competition have — and the ability to extract value out of that data — has driven the most change in the last five years and will also do so in the future. This is data beyond what you would just need for your financial transactions, but what is sitting within your company about your customers, about your users, about your suppliers, about what’s going on out there — the ability to extract value from that is going to be increasingly a competitive advantage.

And if your finance team does not have the skills going forward to be able to leverage that, then you put your company at a disadvantage. Finance must be proactive in playing a role here. Finance does not necessarily own all the data, but needs to judge what’s important about the data available, and so select what best informs the strategy, the plan, and the execution.

How else can FP&A professionals help make a business more agile in its decision-making? And which skills must they develop to help an organisation do that?

FP&A teams need to be very conscious about the cycles that are impacting our businesses and our competition and respond to those in a very flexible way.

It may have been good enough before to have a very regular cadence. Maybe every three years you did a three-year or five-year strategic plan and then refreshed it every year or two, and then had a certain cadence around the annual budgeting and forecasting.

I think we need to be a lot more selective going forward and think about, for every business driver that there is, what is the right cadence to be looking at that? So I think we have to be flexible ourselves in driving the core FP&A processes, but with responsiveness to what’s going on in the business.

Think about which of the lines have the most volatility and then think about the drivers that you need to be monitoring, and focus your attention on those and be comfortable with a level of uncertainty — and that you don’t need to do everything all the time. Otherwise finance would just be inundated with too much data and too many tasks. We have to realise what we don’t need to do in order to be most effective at supporting the business and being more agile.