At a corporate level, risks can be very well mapped and controlled using e.g. the COSO framework. Defining the risks is often source driven. This means: the source of the risk is identified leading to the impact being measured by the possibility of occurrence (chance) and the size of its impact on the P&L (money). How much appetite for risk does the company have to achieve its goals?
The most important decision for top management is where the money goes. Capital allocation not only defines the money flow but also who will be spending it. Since many companies are threatened by disruption, intrapreneurship is now more important than ever. FP&A specialists can hold a key-position when it comes to facilitating the process of capital allocation.
There are different financial indicators to monitor the financial results of a company. Focussing on ‘value creation’ is sometimes considered ‘rocket science’ for the local management team. However, by explaining the steps of calculating ‘value’, management will quickly see what is meant by it and how they create it.
The strength of those working in FP&A often comes when they worked in different industries or with BU’s from different countries. They learned a little bit more about the impact management can have on the numbers under different circumstances. To develop a long-range forecast, financials need to look beyond current events and steer away from business plans based on extrapolation.
Sometimes, what you forecast needs to change dramatically, due to e.g. market disruption or internal changes. You also might not monitor every business the same way, because each might be in different development stage or ´situation´. By looking at the company itself, but also possible (management) crises, you can determine what the focus of the forecast should be.
Being critical of one’s own work, is even more important for the financial doing the forecast. A forecaster will undoubtedly have his or her bias and blind spots. However, some can be avoided by looking at the forecast itself, and some by looking at person doing the forecast. The aim here is to create deeper awareness of ‘forecasting’ by presenting some structural elements.
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Every month the Managing Director or Country Manager has to report the business results to the CEO or internal board. Depending on the corporate structure, there are different narrative reports, each with a different focus. This defines the role of Financial Planning and Analysis (FP&A) and the information that needs to be collected for future growth. Two opposite cases will make the same point.
Working at a local business unit often doesn’t give you access to sophisticated corporate systems to monitor performance. However, as a financial you are quickly immersed into daily operations, learning how things really work. A sample will be given of key indicators used to improve the cash forecast and position of a business unit.
At a corporate level, risks can be very well mapped and controlled using e.g. the COSO framework. Defining the risks is often source driven. This means: the source of the risk is identified leading to the impact being measured by the possibility of occurrence (chance) and the size of its impact on the P&L (money). How much appetite for risk does the company have to achieve its goals?
The most important decision for top management is where the money goes. Capital allocation not only defines the money flow but also who will be spending it. Since many companies are threatened by disruption, intrapreneurship is now more important than ever. FP&A specialists can hold a key-position when it comes to facilitating the process of capital allocation.