In the summer of 2016, the Association for Financial Professionals (AFP) ran its first annual FP&A Benchmarking Survey. Our goal was to take a snapshot of financial planning and analysis (FP&A) processes and practices so we could track the evolution of the function over time. The main findings are that FP&A is a function in transition—there are still big gaps between where FP&A is today and where it wants to be. The survey, however, points to a path to change.
Nilly Essaides will be presenting the session, How to Shorten the Budget Process & Merge Financial and Strategic Planning, at Accountex 2016.
As companies invest more in finance technology, the function is becoming more efficient and FP&A professionals are liberated to spend more time on analytics and business partnering. While adoption of predictive analytics is still spotty and access to big data is in its early stages, more companies are planning to develop such capabilities. As a result, FP&A is becoming a more forward-looking, data-driven function, with a focus on helping the business make tough decisions, identify risks and opportunities, and optimize performance.
Investment in Technology Yields Better Efficiency
We investigated the relationship between greater investment in technology as a portion of the overall FP&A budget on the one hand, and process efficiency and the amount of time professionals spend on “grunt work” on the other. We found that the two are closely linked.
FP&A functions at companies with bigger technology budgets spend less time on collecting and processing data, so they can free up professionals to focus on analytics and work closely with operations to create robust business plans. The average number of days FP&A staff spends on data collection and processing tasks at companies that dedicate less than 10 percent of their budget to technology is over 384, or more than an FTE. By contrast, companies that spend between 10 percent and 20 percent on systems have cut the average number of days spent on such tasks in half.
At the same time, the more respondents spend on technology, the less time it takes them to complete their budget, forecast, and rolling forecast. For example, those that spend less than 10 percent on technology as part of their overall budget take an average of almost 90 days to create the budget, 23 days to build the financial forecast, and nearly 16 days to complete a rolling forecast. By contrast, companies that spend between 20 percent and 49 percent on systems complete the same tasks in 75, 16, and 12 days, respectively.
This disparity shows that automation and streamlining of many basic financial planning activities greatly reduces the time it takes to complete routine activities.
Taking a Better Look Forward
While AFP found that the average company is not yet fully enabled in the use of predictive analytics (18 percent), we also found that half of all respondents expect to have the capability in the future.
A separate IBM survey of 1,000 CFOs found that they expect to double their investment in analytics over the next couple of years. IBM also found that companies that invest in analytics are more profitable. Using such predictive analytics tools, FP&A can both better advise business leaders on how to plan their next move and also design better business solutions to achieve the company’s strategic objective.
The AFP survey shows that what’s allowing FP&A to take a more educated look forward is the growing ability to feed analytics models with better data.
Already, close to one-third (29 percent) of all companies report that they have access to integrated traditional and unstructured data across enterprise sources, as well as some external data, and that they run both historic analysis and predictive algorithms. That number is going to grow. Not surprisingly, over half of AFP’s survey respondents told us that to be competitive, they’ll need access to real-time structured and unstructured data that’s shared extensively across the enterprise. Indeed, they believe that FP&A will have to be able to tap into integrated data and manipulate and visualize data on demand so that data-driven decision-making becomes part of the company’s DNA.
More data also means the ability to use more advanced budgeting, forecasting, and planning techniques. For example, companies that rely more on data are also more likely to use driver-based modeling (71 percent vs. 57 percent). In addition, better access to data also gives companies a leg up on being able to track down cost to a granular level. They are also more likely to use activity-based budgeting (61 percent) than those with less access to information (48 percent).
While today’s FP&A profession still lags in measures of data access and use of predictive analytics, there are clear signs of change. Already, greater investment in technology is helping FP&A become more efficient, allowing professionals to focus more time on value-add activities like partnering with the business, conducting analysis, and providing decision support.
Moreover, over a half of the companies surveyed believe that better access to more real-time and diversified data will help them remain competitive. The build-up in capabilities suggests FP&A is a function in transition. FP&A is moving its attention toward the future, and is increasingly focused on providing management and business partners with insight and foresight so they can plan better and enhance enterprise performance.
Where does your company fall? Find out in the 2016 AFP Benchmarking Survey. You can also hear your peers discuss the results of the survey during the companion webinar, “2016 AFP FP&A Benchmarking Survey: A Function in Transition.”