With the uncertainties brought about by COVID-19, the finance team’s financial planning and analysis function was thrown into the spotlight and, in some cases, was found wanting. Deepak Chaudhari explores what FP&A teams can do to maximise their talents and capabilities in the future.
When the COVID-19 pandemic triggered extreme uncertainty, financial planning and analysis (FP&A) within the finance function played a key role for organisations from strategic and operative perspectives. As the ‘fog light’ of the organisation, FP&A aims to provide accurate outlooks on top-line and bottom-line views, from sales to cash-in-hand and adapting to a turbulent environment.
With further proof of its criticality, there is a renewed emphasis on FP&A functions. In addition, many teams are revisiting their current operations as they look toward further growth.
Here are four results from a recent Global Financial Leadership by Tata Consultancy Services study to help leaders understand organisations’ critical issues.
FP&A capabilities are falling short
Current FP&A capabilities are falling short, with nearly half of finance teams struggling to perform essential forecasting and budgeting functions consistently and accurately. 50% of respondents regularly fail to deliver short-term forecasts or make significant errors. Current skills are also proving insufficient for the increasing demands on FP&A, including the ability to use advanced data analysis. What’s more, only 54% say their teams possess sufficient risk assessment capabilities.
Finance leaders are relying heavily on their own intuition and that of others. These executives estimate that, on average, 43% of their financial planning and forecasting relies on intuition instead of data and analytics.
Those with advanced FP&A capabilities are reaping the rewards
A small group of finance executives are leading the way, however. Making up only 6% of the total respondents, they have more mature digital capabilities, operate in a more agile manner, and demonstrate greater use of artificial intelligence and machine learning. They are moving beyond intuition-led decisions, using data and analytics to drive fact-based decision-making. Those who advance their FP&A skillset will decide where the sector is going while bringing new success to the business.
Organisations are increasing technology investments
Most organisations plan to increase technology investment to shore up current FP&A gaps, including improved scalability to manage new business demands and gain visibility and insights.
Findings from the study concerning technology investments indicate that:
- 69% of respondents plan to increase investments in cloud-based systems over the next 12 months, while 63% have already increased investments in cloud-based systems in the past year.
- 67% plan to increase investments in data and analytics over the next year, while 61% said they already did so within the last 12 months.
From awareness to action
Even before the pandemic, many FP&A teams struggled to provide agile forecasting and analysis to enable smarter decision-making in the finance function and throughout the business. COVID-19 further exposed those weaknesses, and now they must be fixed.
New technologies, particularly in the data and analytics field, will help the FP&A function evolve. But they will also need to invest in the skill base, whether internally or via arrangements such as shared services.
The finance function can enhance its position as a growth enabler and strategic partner to the rest of the organisation. Improving risk-assessment capabilities will ensure that the function is better placed to protect the business.
Deepak Chaudhari is the Head of Tata Consultancy Services Ireland. You can view the full report here: https://on.tcs.com/gfls
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