The Future of FP&A is Digital: Here’s How to Stay Competitive
If you want your business to be attractive in the digital future of FP&A, you’ll have to start the transformation now.
As per Gartner's findings, 91% of businesses are actively involved in digital initiatives, with 87% of senior business leaders considering digitalization a top priority. Furthermore, an impressive 89% of all companies have either already embraced a digital-first business strategy or are planning to make the transition.
In today's dynamic financial landscape, digitalization has emerged as a linchpin of success, particularly within the realm of Financial Planning and Analysis (FP&A). As businesses navigate the complexities of the modern world, the fusion of financial acumen with digital prowess is essential for not just survival, but thriving in this ever-evolving environment.
I've been empowering finance professionals with data analytics, AI, and machine learning skills for the past six years, in addition to putting my words to work in my own role at a large, multinational organization. With a wealth of experience spanning international boundaries, I've had the privilege of witnessing the transformative power of digitalization firsthand.
Current Financial Planning and Analysis Trends
Financial Planning and Analysis is an enthralling fusion of financial expertise, strategic acumen, and analytical precision. To truly grasp its current trajectory, let's delve into three pivotal trends that are reshaping FP&A today:
1. Digitalization
At the heart of modern FP&A lies the profound impact of digitalization on financial processes - whether that be for forecasting, reducing human errors, or something else entirely. This metamorphosis is pivotal for finance professionals who are steering their organizations toward more intelligent decision-making.
Digitalization, at its core, revolutionizes data collection, simplifies reporting mechanisms, and delivers real-time insights into financial performance. The future of FP&A hinges on this digital transformation, where data-driven decisions emerge as the compass guiding the way.
2. Automation
The wave of automation sweeping through FP&A and the finance function is nothing short of revolutionary. It liberates finance professionals from the shackles of repetitive, time-consuming tasks.
Mundane chores like data entry in spreadsheets and report generation in Excel now fall under the purview of automation, gifting financial planning & analysis teams the most precious resource of all—time. They can spend more time making relevant business decisions, doing business partnering, and expanding their network outside of the finance department.
As we stride into the future of FP&A, the logical progression is to automate even more intricate tasks. From forecasting to budgeting, and yes, even decision-making, the automation wave promises efficiency, accuracy, and the empowerment of finance professionals and in general finance teams to concentrate on strategic analysis and critical decisions.
3. Descriptive Analytics
The contemporary financial planning & analysis landscape is characterized by a profound shift towards descriptive analytics. Beyond mere data reporting, this trend empowers FP&A teams and organizations to decipher the intricacies of past financial performance.
This helps create better decision processes and engage with stakeholders to improve the business performance.
Unearthing trends and gleaning actionable insights from historical data are now essential tools in the financial planning arsenal. In essence, descriptive analytics grants the vision to navigate the complex financial terrain more adeptly.
Why a CFO Needs to Care
The significance of the future of the FP&A function cannot be overstated, especially when it comes to the role of the CFO in an organization.
As the steward of financial planning, forecasting, and decision-making, the CFO stands at the helm of this critical function, making it paramount to understand why the future of FP&A is essential.
These are 5 areas in which FP&A is evolving:
1. Strategic Financial Planning
FP&A, at its core, encompasses strategic financial planning. It's the process that guides an organization's financial direction, aligning it with its long-term objectives and ensuring that the right resources are allocated to achieve those goals. The future of FP&A holds the promise of more sophisticated tools and methodologies, allowing the CFO to craft more precise, data-driven financial strategies.
2. Precision Forecasting
Forecasting is the compass that navigates an organization through turbulent financial waters. The CFO relies on accurate forecasts to make informed decisions. The future of FP&A brings with it advancements in technology, including automation and real-time data analytics. This empowers the CFO with the ability to foresee financial trends with greater precision, mitigating risks and seizing opportunities more effectively.
I previously wrote an article outlining a 5-step process for utilizing AI in your FP&A process, so I recommend reading that if you haven’t already.
3. Budgeting Efficiently
Budgeting is the backbone of financial planning. A well-structured budget is crucial for allocating resources optimally. The future of FP&A, with its emphasis on automation and artificial intelligence, streamlines the budgeting process. This not only saves time but it ensures that budgets are more dynamic and adaptable to changing circumstances, a vital attribute in today's fast-paced business landscape.
4. Data-Driven Decision-Making
CFOs are pivotal figures in the decision-making process of any organization. The future of FP&A equips them with the tools and insights necessary to make well-informed decisions. Real-time data and advanced analytics provide CFOs with a 360-degree view of the financial landscape, enabling them to act swiftly and decisively.
5. Empowering FP&A Teams
CFOs rely heavily on their FP&A teams to provide accurate and timely financial information. The future of FP&A empowers these teams with cutting-edge technology and methodologies, making them more efficient and capable of delivering insights that drive strategic decisions.
As the future of FP&A unfolds, CFOs must adapt to new technologies such as artificial intelligence and machine learning. These tools have the potential to revolutionize financial analysis, enabling more accurate predictions and deeper insights.
The Future of Financial Planning and Analysis
Looking ahead, the future of FP&A is poised to be even more transformative, thanks to advancements in generative AI and data analytics. Here are three intriguing trends on the horizon:
Data-Driven Decision Making
The future of FP&A will be characterized by data-driven decision-making processes. Real-time data analysis will become the norm, enabling finance professionals to react swiftly to market shifts and seize emerging opportunities.
Generative AI in Finance
Generative AI, a branch of artificial intelligence, will play a pivotal role in automating complex financial tasks, such as scenario modeling and report generation. It will not only enhance efficiency but also improve accuracy in financial forecasts and predictions.
Right now, AI sucks at math… but in time, it may be ready to replace FP&A jobs entirely.
Advanced Prescriptive Analytics
Tomorrow's FP&A professionals will harness advanced prescriptive analytics to provide actionable recommendations for business strategies. These analytics will go beyond simply identifying trends; they will guide organizations on the best course of action to achieve financial objectives.
Skynet’s Infancy?
The convergence of finance and digitalization is ushering in a new era for FP&A and, who knows, maybe it’ll start controlling our governments, bodies, and minds next. Just kidding. Sorta.
The current trends in digitalization, automation, and descriptive analytics are equipping finance professionals with powerful tools to navigate today's financial landscape. Simultaneously, future trends in data-driven decision-making, generative AI, and advanced prescriptive analytics promise to further elevate the role of FP&A in driving organizational success.
As we move forward, embracing these trends is not just a choice but a necessity for anyone seeking to thrive in the ever-evolving world of finance and FP&A.So stay up to date about this and other critical financial topics in The CFO Club’s weekly newsletter!