As the world of finance continues to evolve in 2023, it's more important than ever to stay ahead of the curve. With record inflation and macroeconomic volatility persisting, modern strategies for financial planning and analysis are essential - so here are five trends you should be aware of this year.
What is financial planning and analysis (FP&A)?
Financial Planning and Analysis (FP&A) is an essential practice for businesses looking to achieve long-term success. It involves gathering, analyzing, and interpreting financial data to provide decision makers with the insight they need to make the most of their resources.
From setting budget targets to developing forecasts and providing insightful recommendations based on past performance analysis, this process exemplifies sophisticated decision-making.
Every business is unique, and the strategies employed must be tailored to fit. As markets change and evolve, so too should your approach - planning for, and staying ahead of the curve, is key.
FP&A has developed with the emergence of new technologies.
Before delving into FP&A 2023 trends, it's essential to understand how technology has revolutionized financial services. Here's a look at the technologies that are shaping modern finance.
1. Artificial Intelligence (AI): AI has revolutionized mundane and complex tasks, freeing up resources for more strategic endeavors. Automated processes like data collection, analytics, and report generation streamline FP&A operations while providing key insights to inform decision-making.
2. Robotic Process Automation (RPA): RPA has transformed the way businesses manage large volumes of data. By automating manual processes, it dramatically accelerates financial planning and analysis cycles while drastically reducing errors - all with minimal human intervention.
3. Big Data: analyzing massive datasets - in the billions of records - is now a reality thanks to the power of machine learning. Businesses can gain real-time insights, enabling them to take informed decisions and stay ahead of the competition.
4. Forecasting: predictive analytics offers a powerful tool for FP&A, primarily through pattern-matching historical data, and identify patterns and trends.
5. Cloud Computing: cloud-based solutions have revolutionized the way businesses access their financial information by enabling them to store, digest, and share their data with ease. Instead of using on-premise servers, organizations can access their financial records from anywhere in the world.
Traditional planning models are obsolete; continuous planning will keep teams agile.
Traditional FP&A based on periodic reviews is becoming obsolete in today's rapidly changing landscape. This approach assumes that business dynamics remain static, but this no longer reflects reality.
As such, 2023 will bring a shift towards continuous planning – an iterative process of forecasting and analyzing data in real-time to identify new opportunities or risks as they arise.
Continuous planning allows greater agility and efficiency in decision-making, as well as more accuracy and speed when dealing with complex financial data. By taking a proactive approach, businesses can prepare for changing market conditions and capitalize on new opportunities before their competitors do.
This type of planning requires a considerable amount of data, the right technology, and the proper tools to collect, store, and analyze financial information.
Historically, finance teams have relied on manual processing through spreadsheets or other on-premise solutions. However, the rise of automation and cloud-based tools has drastically improved the speed and accuracy of data management, offloading finance teams from laborious tasks to focus on high-value activities.
Continuous planning can be broken down into three FP&A stages:
- Strategic planning: In this stage, businesses take a step back & assess the big picture. What are they aiming for? Here, they define goals and objectives that align with their long-term plans.
- Financial planning: Businesses use past performance data to create financial models that project future results. This allows teams to anticipate risks or opportunities before they happen and make necessary adjustments in a timely manner.
- Operational planning: Here, businesses use financial models to identify and monitor key performance indicators (KPIs) that drive their bottom line. This helps them to track their performance in real-time and make adjustments as needed.
Scenario planning will help businesses prepare for uncertain times.
One of the biggest challenges facing FP&A professionals in 2023 is preparing for an uncertain future – especially in light of recent economic challenges.
Scenario planning is the solution.
Simply put, scenario planning involves assessing different scenarios preemptively and developing strategies accordingly. By engaging in scenario planning systematically, you can help create a more resilient business model with greater agility in your decision-making, as well as better risk management capabilities.
With scenario planning, businesses can identify potential opportunities or risks that may arise from unexpected events like market disruptions or regulatory changes. It also allows teams to explore various “what if” scenarios and develop strategies to mitigate risks or capitalize on new opportunities (like planning your workforce in the event of a market downturn, for example).
A truly integrated business planning system not only involves collaboration between departments, but also the integration of internal and external data.
Businesses are moving away from the siloed planning models of yesteryear to an integrated business planning framework that allows collaboration between departments, as well as integration of internal and external data sources.
Finance teams in many companies perform orders of magnitude better when they can access real-time insights across the entire organization – from sales, marketing, and operations, to customer service and beyond. This enables more accurate forecasting of both short-term performance metrics like monthly revenue targets as well as long-term strategic objectives such as market share growth.
To make this happen, businesses need to have a single source of truth for their financial data accessible across the board. Ideally, companies would use a cloud-based platform that can integrate with other systems (think ERP or CRM solutions) to collect data from multiple sources in real-time.
By having access to a single source of truth for their FP&A, businesses can make informed decisions faster and increase their agility when responding to changes in market conditions or customer needs.
FP&A teams are now becoming key strategic players.
As businesses become more data-driven, the role of FP&A teams is becoming increasingly important. Instead of merely providing financial reports and forecasts to management, these teams are now expected to be financial business partners.
Financial business partners are expected to provide strategic advice on key business decisions, such as pricing and marketing strategies. This requires having a deep understanding of the financial implications of each decision and being able to accurately predict outcomes.
To accomplish this, FP&A teams must be able to rely on quality data that's up-to-date and accurate. This requires close collaboration between key stakeholders such as operations and IT teams, in order to ensure the accuracy of the information used.
It also means having the right tools in place to quickly process large volumes of financial data and produce insights in real-time. This can help identify potential risks or opportunities before they become a problem for the business.
With the aforementioned boom in predictive analytics, finance teams are also soon going to rise beyond simply “crunching numbers” — they’ll use machine learning algorithms to project future market trends, inventory needs, and hiring patterns.
Organizations embracing xP&A will see greater business improvements.
Extended planning and analysis (xP&A) is an innovative approach to FP&A that goes beyond traditional financial data, taking into account non-financial information like customer segmentation, market trends and competitive intelligence.
This holistic view helps organizations gain better insight into their overall performance and take more accurate decisions. It also provides a comprehensive picture of the business environment in which they operate – from what customers are saying about their products to how competitors are performing in the same markets.
Moreover, xP&A enables teams to collaborate on different scenarios and track their progress over time, helping them unearth hidden opportunities or risks before it’s too late.
A typical xP&A session might include stakeholders from marketing, sales, finance, and operations. The interdisciplinary nature of meetings like this helps integrate information and minimize “black-box” situations where FP&A analysts don’t trust the data.
The future of financial planning and analysis in 2023 is an exciting one. From continuous planning to extended planning and analysis, organizations will benefit from modern, data-driven approaches and improve both their accuracy and decision making
That said, it’s important to note that technology plays a key role in these processes. Automation, cloud-based solutions, and business intelligence technology should all be part of your toolkit if you want to leverage the most up-to-date trends for financial success this 2023.
Pigment is the business planning platform for forward-thinking organizations. We provide expert guidance to help you get the most out of your data, including comprehensive financial planning and analysis services to optimize business processes and improve intelligence.
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