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Why should FP&A be data-driven?
This article is Part 2 of the ‘FP&A and the three-headed serpent’ series. This blog series is inspired by the research ‘Defining the Evolution of FP&A: Benchmarks, Challenges and Opportunities‘ that was carried out by FP&A Thought leaders and sponsored by Prophix.
There are three main challenges that FP&A currently dealing with. These are data, business planning methodologies, and techniques and tooling. Data is the first component and is the blood of the whole process. Nowadays, everyone is talking about being ‘data-driven’. What lies beneath this idea, is the wish to make the decision-making process easier and more effective. But in general, it means delivering the required data of acceptable quality to the relevant decision makers when and where they need it.
FP&A concerns about being ‘data-driven’
In the FP&A paper, the authors mentioned concerns of FP&A top professionals. The following two insights I found the most striking:
Insight 1: Companies are immature relative to FP&A analytics.
Only 41 % of companies report that most decisions are based on data.
Insight 4. Companies face a shortage of the right data.
The key function of effective FP&A is delivering a culture of data driven decision-making across the enterprise. It shows that being data driven came to the agenda of the FP&A tasks
FPA& professionals want to make their function ‘data-driven’
FP&A focuses on delivering information to the main decision-makers. The information includes an analysis of historical data that is used for evaluation of the company’s performance on one hand, and on the other, the forecast analysis that predicts the company’s future. How does the data-driven concept change this current situation?
Becoming ‘data driven’ might mean:
- Giving FP&A professionals and business decision makers access and ability to use data they need and when and where they need;
- Moving from a set of few reports on daily or weekly basis to assist business decision makers in data analysis;
- Letting FP&A professionals ask questions and receive answers that are based on data before the decision are made.
What you gain from working in ‘data-driven’ environment:
As an FP&A professional, you will benefit a great deal from working in a ‘data-driven’ environment as you will:
- move from ‘production of information and reports’ function to assisting in the analysis of the data;
- become a real business partner;
- get a better strategic position in the decision-making process.
FP&A’s motivation for becoming ‘data-driven’
Data is a shared asset in every company. Various stakeholders in the company have their own concerns when it comes to data. Managing the data has to become a common effort of all the parties involved. The position of FPA& and other financial professionals is unique in this case. On one hand, you use a lot of data produced within the company and data received from outside sources. On the other hand, you analyze the data and produce a lot of information which is used for decision-making at different levels of organization. From my experience, 80% of data circulating within a company can be recognized as ‘finance-related’. FP&A is in the center of this data marathon and is one of the most important stakeholders.
Ensuring access to the right data and an ability to get the right information to the right person at the right time is an accountability of other stakeholders as data management and IT and technologies.
To motivate your company to become data-driven, you need to create an awareness of the subject at the top management level and become one of the sponsors of the idea.
At some point in time, the idea will find multiple sponsors and supporters and there will be real business drivers to start the realization. The next question is: how to become ‘data-driven’. In my next blog, you will find some tips on this subject.