Everything You Need to Know about Financial Planning and analysis (FP&A)

Most companies need to engage in careful financial planning and analysis (FP&A) to be consistently profitable and grow sustainably. As the term suggests, FP&A is the process of planning, forecasting, and budgeting for the financial activity of a business, usually performed by an FP&A team reporting to the company’s chief financial officer (CFO). Typically, this involves some level of analysis of historical and current financial data to forecast future financial performance and inform expectations about factors such as income, revenue, cash flow, expenses, and profit margin. In this way FP&A plays a key role in the decision-making process and determining the future financial health of a business.

What Is Financial Planning and Analysis?

FP&A is a corporate function responsible for financial planning, forecasting, and budgeting. These processes are usually aimed at informing major business decisions and helping to support long-term financial health and well-being. Consistent profitability and growth for an organisation typically requires careful cash flow management, as well as in-depth FP&A.

FP&A teams are likely to use both current and historical data to forecast revenues, profits, cash flows, expenses, and other financial outcomes. The senior leadership team will use these forecasts for long-term planning and decision-making, helping to maintain cash flow while also supporting growth.

FP&A teams have taken on a broader and more influential role over time as they’ve gained access to more sources of data, providing insights and predictions, whereas previously they were engaged in more reactive tasks such as recording and reporting financial results.

The tools of the trade have also evolved over time. Applications that can automate, streamline, and improve the precision of finance processes are replacing siloed, error-prone spreadsheets, and other rudimentary software packages.

FP&A Functions

Most FP&A teams are responsible for the following processes:

1. Data collection and consolidation As a starting point, FP&A teams gather, consolidate, and verify financial data from different departments throughout the organisation. These data are used to create profit and loss statements (P&L), board reports, and senior management reports, giving management teams the information they need to apply further analysis.
2. Budgeting and planning Having consolidated financial data from different parts of the organisation, FP&A teams create a budget, typically broken down by department, for a specific period of time, such as a fiscal quarter or year.
3. Forecasting and modeling Using current and historical financial data, FP&A teams create forecasts for future periods. That process can involve scenario modeling, in which FP&A teams plug in different sales, order, and demand numbers in order to map out best-case, expected, and worst-case scenarios. As part of that modeling process, the team also maps out different steps the company could take in response to each of those outcomes.
4. Performance reporting As the name suggests, performance reporting entails the reporting of a company’s financial results for a given fiscal period, typically compared with budgeted and forecasted numbers.
5. Special project analysis From time to time, organisations may have additional projects beyond business-as-usual activities that require ad hoc analysis and reporting by the FP&A team, supporting decision-making processes.

Importance of FP&A in Organisations

FP&A teams, the financial data nerve centre of a company, play an especially vital role for organisations operating in volatile market conditions. The areas where these teams help power future financial performance include:

Strategic decision-making

For business leaders to make the right decision at the right moment, they need accurate and timely financial insights. This is provided by the FP&A team through the financial data consolidation and reporting process. Additionally, the financial data analysis and forecasting delivered by the FP&A function give businesses the ability to think ahead and make decisions for the future.

Performance measurement

One of the key tasks that FP&A teams carry out is tracking key financial and operational metrics which, through analysis, can be used to track and improve performance over time. This kind of insight often plays a big role in helping organisations assess their operational efficiency and can help business leaders course-correct or drive continuous improvement.

Cash flow management

Cash flow forecasting is a key component of FP&A, with budgeting, planning, and forecasting all playing a role in cash flow management over time. By tracking inflows and outflows of cash over specified periods, and making forecasts based on data from previous periods, FP&A teams can help businesses maintain healthy cash flows.

The Role of FP&A Professionals

Financial planning and analysis team members perform a variety of functions that assist in senior leadership’s decision-making processes, and contribute to the financial wellbeing of the organisation. These responsibilities include:

Budgeting: FP&A teams typically go through the organisation's financial reports and forecast future requirements to work out the best way to allocate money throughout the business. Such forecasting and budgeting may be done months, or sometimes even years in advance, with many businesses adopting a continual, rolling forecasting and budgeting cadence.

Profit and loss: The FP&A team is typically responsible for creating P&L statements for senior leadership. P&Ls, also called income statements, summarise the organisation’s revenues, expenses, and profits or losses over a period of time, usually a fiscal quarter or year.

Profit margin: FP&A professionals are also tasked with analysing financial statements to determine their company’s profit margin—how much money the company cleared on its products after subtracting all direct and indirect costs. Profit margins are expressed as a percentage. For example, a margin of 30% means that the company retained 30 cents for each dollar of sales. FP&A teams can calculate margins down to the individual product level to identify which parts of the business, or which specific offerings, are most and least profitable. Such analysis can give businesses the insight needed to boost profitability.

Scenario planning: As discussed above, sometimes business leaders need to make decisions based on best-case or worst-case scenarios. In these instances, FP&A team members can undertake scenario planning, a kind of financial modelling that maps out such scenarios based on different financial data inputs, capturing upper- and lower-range figures.

FP&A Personnel

Given that they are embedded in organisational financial processes, FP&A team members are usually comfortable with maths and at home with numbers. Indeed, many FP&A professionals may be former accountants or adjacent to such professions. Within FP&A teams, there are usually a number of specific roles attached to certain types of tasks. These may include:

• Director of FP&A In larger organisations, the highest-ranking member of the FP&A team is usually the director of financial planning and analysis—or equivalent. This person often reports directly to the CFO, and is in charge of supervising all FP&A functions.
• FP&A manager FP&A managers typically report directly to the director of FP&A and are responsible for leading teams or individuals within the FP&A function. FP&A managers often work directly with managers and executives to support company decision-making.
• Senior FP&A analyst Analysts are at the heart of the FP&A function, and senior FP&A analysts are typically engaged in tasks such as business forecasting, financial modelling, and planning. They may also work directly with the executive team to further support decision-making or provide recommendations.
• FP&A analyst Responsible for tasks such as tracking, consolidating, analysing, and evaluating financial data from across the business and producing reports for members of the leadership team, FP&A analysts often hold junior to intermediate-level positions within the FP&A team, or the broader finance department.

Future Trends in FP&A

Financial planning and analysis has undergone significant transformation in recent years, with advances in technology—and particularly in business management software—streamlining many of the processes involved in FP&A. No longer are FP&A professionals restricted to relying on spreadsheets and manual processes. Cloud-based financial planning and analysis solutions are increasingly being used to digitise the FP&A process and centralise company data, helping generate the conditions for increased collaboration within FP&A teams and across other teams throughout the organisation.

Further helping to streamline the financial processes at the heart of the FP&A function is the introduction of artificial intelligence (AI) and machine learning (ML) into cloud business management solutions, such as enterprise resource planning (ERP) platforms. This technology has given FP&A teams the ability to analyse large amounts of data from across the organisation and uncover important insights quickly.

AI and ML technology has also brought additional automation capabilities to the business management and financial software used by finance departments, speeding up repetitive tasks and reducing manual data input so that FP&A teams can spend more time on higher-value tasks, such as forecast predictions and performance analysis.

Here are some of the ways new and emerging developments in technology are set to influence the evolution of FP&A and the processes behind it:

• Deeper understanding from AI and analytics Software solutions with automation and AI built-in have already served to make the process of consolidating financial data and analysing it a more streamlined practice. However, as AI and analytics technology becomes more sophisticated, software-powered FP&A processes will become more accurate and effective, helping organisations gain an even deeper understanding of their business and financial health.
• Next-level visualisation and reporting The software-based tools that help FP&A teams report on and visualise financial data are becoming increasingly more sophisticated. As they evolve, interactive dashboards and data visualisation capabilities will give non-finance stakeholders the ability to access financial insights that are more easily understood. This way, more people in the organisations will be able to explore data visually and base their decisions on information that they can understand.
• Pitch-perfect planning Due to the enhanced capabilities that AI, ML, and automation will provide to the FP&A team as these technologies evolve, the work of financial planning and forecasting will become more accurate. This will allow businesses to prepare more effectively for steady growth, maintain cash flow, and plan for the future. Thanks to the centralisation of financial data in business management solutions, financial planning will become more deeply integrated throughout the business, leading to greater visibility at the corporate level and increased efficiency and overall performance at the department level.

Reduce planning cycle times with NetSuite Planning and Budgeting

Streamline your FP&A processes with NetSuite Planning and Budgeting, which is integrated with NetSuite ERP. NetSuite Planning and Budgeting automates otherwise labour-intensive planning and budgeting processes so that FP&A teams can quickly and easily produce budgets, generate reports, create forecasts, and prepare what-if scenario models. With less time spent on manual processes, teams can reduce planning cycle times and reallocate their resources to tasks that have a greater impact on the financial performance of the business as a whole.

FP&A FAQs

What is financial planning and analysis, or FP&A?

Financial planning and analysis (FP&A) is a corporate function within a business that performs budgeting, forecasting, and analysis duties.

What is the main role of financial planning analysis (FP&A)?

At the centre of financial planning analysis is the consolidation, reporting, and analysis of company financial data—tasks carried out by the FP&A team that directly contribute to the long-term business success and financial health of an organisation.

What is an FP&A job description?

While FP&A is distinct from accounting, professionals in this area typically have strong math skills and are comfortable with crunching numbers.