London FP&A Board: FP&A Analytics Maturity Model

By Larysa Melnychuk, Managing Director at FP&A Trends group

Introduction

The future is unpredictable, the current business environment is harsh, competition is fierce. In these times of change, modern FP&A is both exciting and challenging. It is exciting because it utilises better and more sophisticated tools than previously, can embrace automation and the incredible power of online collaboration. However it is difficult because old finance management practices are still alive: they are inadequate for the modern world, but FP&A professionals continue to live from a deadline to a deadline and have no time to stop, change, re-write, and reconsider.

Analytical transformation reduces finance departments’ costs. e.g. robotics and automation, shared services, centers of excellence have already processes of many finance departments. But what about FP&A? In many cases, it still lives in the 20th century. It is a well-known fact that Excel continues to be the prevalent analytical tool used by finance professionals. The quality of data for FP&A analytics remains poor and the FP&A time wasted on the data reconciliations and cleansing. The financial analysis task thus takes on the form of “firefighting”, leaving no time to re-think and re-design the existing non-value adding processes.

Obviously, changes in the FP&A framework are driven by transformations of analytical procedures in general. For its 10th meeting, held in mid-March 2016, the London FP&A Board embarked on developing the FP&A Analytics Transformation Model.

The meeting was sponsored  by Metapraxis, the consultancy, analytics for financial professionals and software provider and, by Michael Page, the specialist recruitment firm, which now provides its offices as the venue for Board  meetings in central London and abroad.

20 senior finance practitioners from the UK, USA, Denmark, Switzerland, Ukraine, Germany, and Netherlands came together to brainstorm on the following questions:

  • What is advanced analytics for FP&A?
  • What are the stages of FP&A analytical transformation?
  • How should the FP&A Analytics Maturity Model look?

What is advanced analytics for FP&A?

There are a lot of professional debates about the role and purpose of finance analytics; the marketplace is flooded with alternative definitions of different analytics types. Many advanced analytics definitions come from the IT profession, however these need to be adjusted in order to better address the finance world.

The Gartner model, shown below, presents an overview of different kinds of analytics.

It was agreed at the London FP&A Board meeting that FP&A advanced analytics start from the Insight stage and utilise predictive and prescriptive types of analytics. In other words, FP&A advanced analytics is Proactive  and Forward-looking Analytics.

Traditional budgeting and planning analytical processes are still centered around Descriptive and Diagnostic Analytics: the most backward-looking and reactive processes. A good example is the traditional Variance Analysis.

 FP&A advanced analytics is based on a driver-based planning and forecasting process. It is important to identify a number of key business drivers: not more than 10 or 20. If effective, the process can describe 80% of the outcomes by only focusing on 20% of the total drivers. The simplification helps to  speed up the analytics based decision-making process and to increases its flexibility and agility.

How about the optimization stage of the analytics? Are FP&A departments ready for prescriptive analytics? The London FP&A Board agreed that the foresight stage of FP&A analytics is not generally present in the FP&A departments yet. Some of the board members think that it is not possible to automate complex and strategic analytical FP&A decisions: these complex analytical scenarios should be run by human beings, not machines.

However, there are some routine and repetitive  tasks that could be automated in order to release valuable time for the advanced  analytics.

FP&A Analytics Maturity Model

The FP&A Analytics Maturity Model, shown below, presents an overview of the three states and 5 stages of the organisational analytical transformation.

There are 3 states of FP&A Analytics Maturity: Basic, Intermediate and Leading. The stages of the maturity could be described as following:

  1. Basic
  2. Developing
  3. Defined
  4. Advanced
  5. Leading

Let us look at each stage in more details.

1. Basic Stage of Maturity

It is described by the following characteristics:

  • No formal analytical processes
  • No established analytical matrixes and business drivers. The financial model is in the basic or non-existent state
  • No BI tool and  dedicated planning system
  • No business collaboration

An example of organization at this stage would be a business startup, where the processes, models, systems and measures are not yet defined.

It can also happen within a mature organization, when it decides to spin off one of its operations.

2. Developing Stage of Maturity

Characterized by the following

  • Inconsistent planning and forecasting processes
  • Basic analytical matrixes and drivers.
  • Basic planning model and tools (most likely excel-based)
  • Basic BI tool
  • Minimal and inadequate planning collaboration
  • Analytics is mostly descriptive and backward-looking

 All organizations will pass this stage in the process of developing their FP&A framework. This is necessary step of development. The desired outcome is for an organisation to progress into the defined and advanced stages of the development process.

Sometimes, an organization can stack at this “developing” state. It happens for reasons of poor management, dysfunctional business culture and inadequate investment in analytics. Such a stall can prevent an organization from unlocking its full potential and competing in the modern world.

3. Defined Stage of Maturity

Currently, many global organisations  reside at the beginning of this stage. It is characterized by the following :

  • Defined Planning processes
  • Defined analytical matrixes and drivers
  • Defined planning model and system
  • Defined, but disconnected from planning BI-type solution
  • Some elements of collaborative planning is present
  • There is heavy reliance on IT support
  • The analytics types are descriptive (What?) and Diagnostic (Why?)

 This Intermediate state of analytical transformation is characterized by relative stability: companies are able to stay in this stage for many years. The processes are stable, but not “best in class”, they are adequate for the traditional budgeting, planning and forecasting process. However, they are arguably highly inadequate for “new world” planning.

 4. Advanced Stage of Maturity

Best in class modern planning processes reside at this space:

  • Enterprise-Wide planning processes
  • Multidimensional analytical matrixes, leading KPI’s and business drivers
  • Driver based planning process and flexible planning system
  • Advanced BI solution: it is partly connected with the planning process
  • Collaborative planning process
  • Self-service planning system and process, low reliance on IT
  • Predictive analytics (What will happen?)

 5. Leading Stage of Maturity

This is the ultimate goal for which organisations should aim.

  • Integrated Planning Process (IPP)
  • Leading Analytical matrixes and drivers.
  • Integrated driver based planning process (both horizontal and vertical)
  • Planning system is fully integrated with BI
  • Real-time collaborative planning process
  • Advanced (Proactive) analytics

Conclusions

Analytical transformation is an ongoing process. We will see more transformation in the future: system implementations, restructuring of processes, re-defining and simplifications of the models, automation of the routine tasks and applying proactive advanced analytics.

Currently, the majority of organizations are stuck at the defined stage with some turning to the advanced for the best in class companies. At the leading stage, all planning processes will be fully integrated, allowing for multidimensional advanced analytical process. This is where FP&A will be able to use big data analytics and fully transform organizational corporate performance management and decision making process.

Planning for "Unknown Unknowns"

By Larysa Melnychuk, Managing Director at FP&A Trends group

Financial planning and analysis (FP&A) educational and consulting company the FP&A Trends Group has rebranded the London FP&A Club as the London FP&A Circle. The change was marked by the launch of the FP&A Circle on the 4th of July 2016 on board the historic warship HMS Belfast, which is permanently moored on the River Thames in London. The event was sponsored by FP&A technology group Prevero.

The mission of the FP&A Circle as an educational and networking platform for the professional community. It shares the knowledge that has been generated by London FP&A Board – a collection of senior finance practitioners that generates FP&A insights through discussions and collaboration. It combines the power of thought leadership, innovation and practicality and helps to recognise better practices in FP&A.

30 senior FP&A practitioners attended the launch of London FP&A Circle. These were representatives from different companies and industries including Starbucks, AON, Hutchinson 3G, The Economist, Combined Insurance, Laird plc, Kerry Group, Coats, etc.

FP&A in Post-Brexit Business Environment

The inaugural London FP&A Circle meeting took place less than two weeks following the UK vote for Brexit. In this dramatically transformed business environment the role of FP&A is more important than ever in helping to manage the value of the company. In undertaking this task, the analytical maturity of the company is very important.

As Donald Rumsfeld, former US secretary of state for defence famously proclaimed: “There are known knowns, known unknowns, and unknown unknowns… the unknown unknowns, we do not even know we don’t know them.”

Since Rumsfeld uttered those words back in February 2002, at a news briefing about the lack of evidence linking the government of Iraq with the supply of weapons of mass destruction to terrorist groups, they have been applied to other scenarios. Most recently, they were given yet a further airing following the unprecedented and irreversible British vote in late June 2016 for the UK to leave the European Union (EU).

This event represented a huge geopolitical shift and moved the global business environment into a new phase of prolonged uncertainty and high risk. Suddenly, many organisations found themselves in the realm of “unknown unknowns”.

Many questions are left unanswered. What will be the legal and tax implications of the post-Brexit world? How might business models be adjusted to the new reality? Have companies’ pre-Brexit strategies retained any relevance? These have added to the various existing realities of FP&A transformation, as outlined below:

In addressing these questions the role of financial planning and analysis (FP&A) becomes even more prominent and strategic. As we re-plan and re-forecast quickly in the post-Brexit reality, the flexibility and dynamism make FP&A essential for tackling the “unknown unknowns” that suddenly emerged in the early hours of June 24.

In order to implement the quick, flexible and dynamic processes that have become essential, FP&A needs to go through analytical transformation; moving closer to the leading stage of analytical maturity. That means advancing into the new world of simplified driver-based modelling, advanced analytics and modern integrated planning process. It also needs to ensure finance responsibility for FP&A systems and models.

In other words, modern FP&A needs to be agile and keep in mind the words of Bill Gates: “Success today requires the agility and drive to constantly rethink, reinvigorate, react, and reinvent”.

The FP&A analytics maturity model

The FP&A analytics maturity model was recently developed by the London FP&A Board and provides an easy approach for financial professionals to evaluate their stage of FP&A maturity and where their company should be aiming.

The FP&A Analytics maturity model was presented by Hans Gobin, FP&A director at Laird plc and a member of London FP&A Board.

Participants also heard from Julie Brown, director of resources at the UK social services organisation the Children and Family Court Advisory, aka Cafcass, who described how driver based planning and modelling – an essential element of FP&A analytical maturity – had helped streamline financial planning at her non-for-profit organisation.

A further case study, outlining FP&A analytical transformation in a commercial organisation, was given by Maria Olsson Carroll, head of group FP&A at thread manufacturer Coats Group and a London FP&A Board member. Her previous roles include more than two years as global sales and marketing (S&M) senior business controller and global solution expert at Sony Ericsson.

During her time with the Japanese telecoms group, Sony introduced the Smart Management Dashboard, which provided strategic senior leaders across its global operations with a descriptive and predictive analytical tool accessible on Intranet launch screens, enabling them to effectively manage organisational performance.

Olsson Carroll, who while at the group was closely involved in the process of dashboard implementation across Sony’s operations, described how the dashboard provided “one version of the truth” across the organisation through multiple data sets centralised in a data warehouse and visualised intranet. A variety of data was made easily available, including:

  • External data for market share, customer share and value share.
  • Actuals, such as volume, sales and gross margin, by product/country/customer.
  • Open orders, volume and sales, by product/country/customer.
  • Plan and forecast projections, by product/country/major customer.
  • Sales and operations planning (S&OP Demand) plan by volume and value, for each product and country.

The ability to provide “one version of the truth” was a critical success factor in supporting the “effortless adoption” of the dashboards, said Olsson Carroll. This was added to by speed in system performance and usability; relevance in providing insights; functionality and clear visibility of trends; and the ability to produce presentation slides at the click of a button.

Sony has enjoyed an analytical transformation as a result of the Smart Management Dashboard project. Firstly, it succeeded in eliminating inefficiency and ineffectiveness, by:

  • Validating data and manual manipulations.
  • Validating assumptions and drivers in debating the interpretation of projections.
  • Using central overlay guestimates to adjust for deviations between top-down trends and bottom-up data projections.

Secondly, the project enabled more time and effort to be spent in:

  • Providing quality insight to the right people at the right time.
  • Continuous improvements, such as quality of data through improved processes including collaboration and drivers

Conclusions 

Strategic, flexible and dynamic FP&A is essential for tackling the “Unknown Unknowns” of the post-Brexit world.

In order to implement these quick, flexible and dynamic processes, FP&A needs to go through analytical transformation moving closer to the leading stage of analytical maturity. That mean advancing into the new world of simplified driver-based modelling, advanced analytics and modern integrated planning process. It also has to ensure finance responsibility for FP&A systems and models.

In other words, modern FP&A needs to be agile, as was previously quoted by Bill Gates, “Success today requires the agility and drive to constantly rethink, reinvigorate, react, and reinvent”.

Future London FP&A Circle Events

The FP&A Circle will hold its next event on October 4, 2016 when the topic for discussion will be the evolution of the FP&A profession. The evening will be organised in partnership with global recruiter Michael Page at the firm’s offices in central London The event will be again sponsored by FP&A technology group Prevero.

London FP&A Board expands globally

London FP&A Board is set for expansion: in addition to FP&A communities in the Swedish capital, Geneva and London, further openings are planned over the second half of 2016 in Amsterdam, Zurich, Brussels, Dubai, Frankfurt, Kuala Lumpur and Singapore.

 

See the original article in gtnews.