CFOs are spending more on financial planning and analysis (FP&A), but the return on investment isn’t growing at the same rate, according to analysis from corporate advisory firm CEB.
Twenty-five per cent of decision-makers don’t use financial analysis in decisions, 61% of FP&A directors use it selectively to validate a gut instinct, and nearly half of decision-makers misinterpret the analysis, according to the report.
Quality of analysis (30%) is the biggest contributor to misuse of financial information in decision-making, according to CEB’s survey of 248 companies earlier this year. The financial savvy of decision-makers is second (25%), followed by access to data (21%).
The analysis is often answer-focused, characterised by precision, technical rigour, and definitive recommendations. But for companies with top-quartile analysis quality, the analysis is more problem-focused, meaning that it anticipates and informs impending decisions, unearths alternative investment paths, and disrupts conventional wisdom.
“The value of FP&A is going to come when we look at the future,” said Donny Shimamoto, CPA/CITP, CGMA, the founder of IT consulting firm IntrapriseTechKnowlogies. “Doing what-if scenarios, understanding what the trends are and how that might help us predict what’s going to happen will provide more value.”
In other words, the value comes not only in answering a question but also in coming up with new questions that might vex a business in the future.
“FP&A has got to start looking forward and becoming much more predictive … and start applying things in ways that give people warning that things are going to happen,” said Steve Player, CPA, CGMA, the CEO of consulting firm The Player Group. “What can we do to change that outcome? What can we do to get a better result? That’s when you’ll see FP&A as a function begin to really pay off.”
Related CGMA Magazine content:
“World-Class Finance: Better Analysis, Less Cost, Fewer People”: With less staff devoted to compliance, the top finance teams can spend more time and money on forward-looking duties.
“Collaboration Can Keep Hidden Costs From Sinking FP&A Initiatives”: Failure to fully consider hidden, business-level costs may be to blame for FP&A not delivering expected value. Close collaboration between corporate finance and business units can fuel process improvements, cost savings, and improved, actionable data.
—Neil Amato (firstname.lastname@example.org) is a CGMA Magazine senior editor.