You already know: Financial Planning and Analysis (FP&A) is a crucial process where analysts use data-driven forecasts, budgeting, and financial planning to help companies make better decisions.
The FP&A function has evolved significantly in recent years, becoming a strategic force that sets the vision for future success and keeps departments on track. But are you aware of how the FP&A team drives cross-functional teams to align their data, processes, and decision-making?
In this article, I'll take you through exactly how FP&A plays a key role in setting the vision for future success and keeping the organization's departments on track through strategic alignment. Let's start with the basics.
What is Strategic Alignment in Business?
Strategic alignment refers to the process of planning and implementing practices that ensure departmental strategies align with the overall objectives of a company.
When a company is strategically aligned, all its methods, operations, and practices flow together to achieve long-term goals. Cross-functional departments work in unison to fulfill the company's mission, vision, and objectives.
In short, it's the ideal state of strong, productive, and efficient communication across the entire organization.
Who benefits from strategic alignment?
Nearly everyone involved benefits from strategic alignment!
When a company's departments and strategies are in sync with each other, it leads to better decision-making, increased efficiency, and ultimately, improved business performance. From employees to customers to shareholders, strategic alignment helps create a more successful and sustainable organization for all.
Here are a few examples of how different stakeholders benefit from strategic alignment:
- Leadership: Senior management and executives can make key decisions quickly as strategic alignment offers greater clarity on the duties and responsibilities of key personnel.
- Employees: With stronger autonomy and efficient task allocation, employee engagement across projects is improved.
- Investors: With well-defined objectives and action plans, investors enjoy better insights into the company's future direction.
- Customers: When operations are properly aligned, the company can deliver products and services on time with high quality. This boosts customer confidence in the company's offerings and helps build a positive reputation.
What are the advantages of strategic alignment?
Some of the key advantages of strategic alignment that make it desirable for companies worldwide are:
- Optimal utilization of resources: Strategically aligned organizations enjoy effective utilization of resources, helping boost profitability.
- Informed decision making: With easy access to data insights, management can make and implement informed strategic decisions in a time-bound manner.
- Organizational unity: As the leadership team and other employees work towards a common goal, organizational unity is promoted, leading to better efficiency and productivity.
- Updated reports: When a company is strategically aligned, departmental heads share regular reports with executives on performance and progress on goals.
- Improved responsiveness: Strategically aligned businesses are more responsive to changes in market situations, reducing loss of stability and productivity.
Hopefully, I've convinced you on the need for strategic alignment, but you might be thinking: where does FP&A factor into all of this?
How the FP&A team helps with strategic alignment in the organization
Strong FP&A teams encourage a data-driven decision making process across the organization with their unbiased perspective. They bring in crucial elements like accountability, collaboration, and operational knowledge to help achieve strategic alignment across different departments of the organization.
By breaking down larger tasks into smaller ones, providing clear metrics and performance indicators, and creating a culture of accountability, FP&A teams can help ensure that the organization is moving in the right direction and making the most impact.
Read through a few examples of how FP&A teams can help with strategic alignment in the organization:
Strategic alignment is a key factor in optimizing resources across departments to reduce expenses and boost profits. The FP&A team plays a crucial role in this by helping leadership prioritize strategic initiatives in line with the organization's goals and available financial resources.
This enables the leadership team to effectively lower operational costs and higher employee productivity. By working together to achieve strategic alignment, FP&A teams can help companies achieve their financial goals and drive success.
Measuring the impact of each dollar spent
For any company to succeed with strategic alignment, it is important to have detailed information regarding every dollar spent across the organization. FP&A teams prepare detailed financial reports on factors such as total sales versus spend and return on equity.
When executives have an in-depth understanding of the overall financial performance, it is easier to ensure efficient allocation of resources across teams. Moreover, FP&A teams help minimize unnecessary spending across departments as well.
Uniting teams with better analytics
FP&A teams encourage strategic alignment in the organization through improved collaboration. Reports shared by FP&A teams feature detailed analytics based on available data and actionable insights that can be drawn from them. This information helps individual team members across departments better understand organizational goals and encourage them to collaborate on common tasks to deliver better value to the organization.
Sharing the organization's financial KPIs
Capital efficiency is pivotal for sustainable and long-term revenue growth in an organization and helps with strategic alignment of individual efforts with the company's financial goals. FP&A teams help with strategic alignment by sharing the key financial KPIs with the concerned team members, who can then measure their performances with the KPIs and determine the further course of action. Some of the key KPIs to track are:
- Return on Invested Capital
- CAC Ratio
- Venture Capital Efficiency Ratio
- Burn Multiple
- Debt to Equity Ratio
- Net Income
- Total Assets
For strategic alignment to be successful in an organization, scenario planning is an essential exercise. FP&A teams undertake scenario planning for several purposes, such as risk assessment, deriving data-backed inferences, determining multiple ways to address an issue, and identifying cross-functional goals. This exercise helps the finance and revenue teams set their goals and develop an action plan to achieve those goals.
How do you align the budget with a strategic plan?
Aligning your strategic plan with the budget is extremely important, as a disconnect between these two aspects can spell trouble for the organization due to poor strategy implementation. Here are the steps you can follow to align your budget with the strategic plan:
- Define key short-term and long-term corporate objectives for every portion of the budget
- Identify strategies to achieve corporate objectives and assess their probable impact
- Document and review key assumptions on external and internal factors that affect strategic goals
- Develop an operational budget for optimal allocation of resources
- Complete a risk assessment exercise to prepare for uncertainty and change
- Conduct recurring discussions between key stakeholders determine the budget's completeness and relevance
Follow these guidelines to unlock your FP&A team's capability to drive strategic alignment in the organization. By providing a data-driven perspective, encouraging collaboration, and promoting accountability, the FP&A team can help companies optimize their resources, reduce expenses, and ultimately drive success.
If you're looking for a refresher on what exactly FP&A is, and how the FP&A team can be more efficient, read on. But feel free to skip to the end of the article, where I'll share a few helpful resources on how FP&A can drive organizational alignment.
What does the FP&A team do?
The FP&A team is the backbone of any successful organization. These finance professionals are responsible for analyzing financial data, creating budgets, and forecasting future performance.
They use complex financial models to evaluate business trends, identify risks and opportunities, and provide insights that help executives make informed decisions. This includes KPI measurement and monitoring financial metrics such as burn rate, tracking revenue and expenses, managing operating cash flow and regulation of operating expenses, and developing financial reports that inform strategic planning.
In addition, the FP&A team works closely with other departments to ensure that resources are allocated effectively and that the company's goals are aligned with sustaining the bottom line.
The FP&A team also acts as a business partner, enjoying a close working relationship with different departments, including acting as a strategic advisor for the entire leadership team. FP&A professionals help decision makers in the finance department ascertain the available savings, investment, and efficiency opportunities to mitigate additional costs.
What is FP&A?
FP&A is a combination of four forward-looking functions that support a company's financial well-being:
- Management and performance reporting
- Planning and budgeting
- Forecasting and modeling
- Integrated financial planning
A dedicated FP&A team in the finance department handles FP&A to boost the capabilities of the finance department by linking corporate strategy to execution.
What is the FP&A team structure?
As the function of the FP&A team is to process the data with the latest tools to prepare insightful reports for management's decision-making tasks, it features several key personnel. While the specific team structure might vary across companies, it usually features a couple of dedicated FP&A employees who report directly to the CFO. But as the organization expands its operations, the team might feature several FP&A analysts and managers who report to the FP&A Director, who in turn reports to the CFO.
What are the goals of the FP&A team?
Every FP&A team has an extremely crucial role to play in a company as it operates to achieve essential goals:
- Strategic alignment: The FP&A team aims to ensure strategic alignment between the different departments and the company's objectives.
- Support Decision Making: FP&A teams aim to encourage informed decision-making from management through detailed reports.
- Improve Business Performance: FP&A team aims to boost business performance by optimizing cash flow and mitigating financial risks.
- Deliver Crucial Data: FP&A teams compare past and present financial activities to determine their impact on the company's financial future.
How can the FP&A team be more efficient?
To make the FP&A team more efficient, you'll want to make sure that their efforts are aligned with the overall goals of the company. In other words, you want to make sure they're working on the right things that will help the company succeed.
One way to do this is to clearly communicate what those goals are and how the FP&A team can contribute to them. This way, everyone is on the same page and the team can focus their efforts on what really matters.
To make the team more efficient, it's also important to have good processes and procedures in place for collecting and analyzing data. That way, the team can work more effectively and avoid getting bogged down by manual tasks.
Another thing to keep in mind is that technology can be a huge help. By automating some of the more tedious tasks, the team can free up more time to focus on higher-level analysis and strategy.
Finally, it's a good idea to regularly review and adjust the team's performance metrics to ensure that they're still aligned with the company's goals. This will help the team stay focused on what matters and ensure they're making the most impact.
So, to sum it up, if you want the FP&A team to be more efficient, make sure they're working on the right things, have good processes in place, use technology to their advantage, and regularly review their performance metrics to stay aligned with the company's goals.
Have a look at some of the steps you can take to make the FP&A team more efficient:
- Optimize existing processes: identify inefficiencies and address them as soon as possible. This will enable the FP&A team to focus on more important tasks of creating innovative solutions for bigger challenges beckoning the company.
- Automate processes: FP&A teams spend the majority of their time on data analysis and preparing reports. Instead, use technology to free up more time for your FP&A team to drive impactful analysis of core issues.
- Cross-functional collaboration: Cross-functional alignment is crucial for improved productivity and job satisfaction. Encourage collaboration within key departments and teams to improve the operational efficiency of your FP&A team. For instance, the FP&A team can collaborate with the RevOps team to develop better reporting standards.
- Set up measurable KPIs: The FP&A team helps leadership make key decisions efficiently. But to determine the efficiency of the FP&A team itself, it is important to set up KPIs against which their performance can be measured.
- Determine the team's strength: To derive the best results from your FP&A team, play to the strengths of the combined talent on your time, and use any skill gaps to upskill existing team members or develop a hiring plan.
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