Most CFOs dissatisfied with company’s approach to budgeting, FP&A

Many accounting staffs have little time for forward-looking financial planning and analysis (FP&A) because they are buried in basic duties, a new survey shows.

That emphasis on compliance functions instead of analysis was the most common barrier to improving FP&A value to businesses, cited by 62% of finance executives in a report by Grant Thornton and the American Productivity and Quality Center (APQC).

Finance executives from 130 US organisations, including many with global operations, are also dissatisfied with their organisation’s approach to annual budgeting. Only 37% rate the approach as valuable, and 69% say their organisations use a “last year plus percentage” approach, a model that often does not “account for the fast-moving, high-impact business risks that are likely to materialise,” the report said.

Half of the respondents use rolling forecasts, which can be adjusted as business opportunities and risks change. Thirty-two per cent do not use rolling forecasts, and 18% said they don’t use rolling forecasts but plan to do so in the next 12 to 18 months.

A dichotomy exists between those who use rolling forecasts and those who don’t in the report. For example, 94% of respondents who use such forecasts say their organisations are effective or very effective at business analysis, compared with 50% of those whose organisations don’t use rolling forecasts. Sixty-two per cent of companies that use rolling forecasts are categorised as well-aligned with unfolding business strategy, but just 25% of those that don’t use rolling forecasts cite high levels of alignment.

“Turning the crank”

Regarding the FP&A function, many barriers are getting in the way of value. Thirty-one per cent of respondents cite insufficient access to operational metrics that drive and impact financial measures, and 27% cite insufficient knowledge of business strategy and dynamics amongst finance staff. Other barriers include FP&A not being a management priority (19%), a limited budget for process improvement (17%), insufficient opportunities for analysts to interact with the business (16%), and a limited budget for talent development (16%).

Thirty-six per cent of respondents said their organisations are tolerating poorly aligned or unacceptable FP&A models. Twenty-five per cent say FP&A models are well-aligned or very well-aligned, and 38% say FP&A models are adequately aligned.

James Robertson, senior director of FP&A for Omnitracs LLC, a Texas provider of fleet management solutions, said in the report that FP&A departments are consumed by basics such as data management, process administration, and working with the accounting staff to correct posting errors.

“They are focused on ‘turning the crank,’ and that makes it difficult for them to conceptualise a broader performance management role,” he said.

Other findings in the report:

• Companies are slow to adopt technology that enables more effective FP&A. Only 24% of finance leaders report using predictive analytics techniques; most are using data to report on what happened in the past.
• Fifty-six per cent of finance leaders use a combination of spreadsheets and dedicated software for FP&A and internal reporting, and 39% use only spreadsheets.
• One-third say they have no plans to move finance functions to the cloud. The main barriers preventing a move to cloud technology are concerns about risk (47%) and scepticism about promised cost savings (40%).

Related CGMA Magazine content:

“4 Strategic Orientations for CFOs”: CFOs are asked to wear many hats in an organisation. As the job’s demands grow, it’s helpful to think about how finance chiefs should approach their strategic role. Deloitte offers four orientations to help CFOs choose how to engage in a company’s strategy.

“3 Ways to Improve the Quality of Management Information”: Just 40% of companies consider the management information provided by their finance function to be insightful, according to a Deloitte finance benchmarking survey. The report highlights three areas where action is needed if finance teams are to more effectively support decision-making.

—Neil Amato (namato@aicpa.org) is a CGMA Magazine senior editor.