Financial planning and analysis (FP&A) supports major business decisions through activities like planning, forecasting, budgeting, and analysis.
However, since every department is focused on formulating and executing operational plans, it is the task of the finance team to undertake monitoring, reporting, and analysis of crucial financial data. As a result, companies end up with siloed planning that is focused on individual departments, which impedes the growth potential of the business.
To ensure uniform company-wide planning, companies must focus on integrating departmental plans to secure an in-depth view of the business. To address this challenge, FP&A teams extend the FP&A principles beyond the finance department and transition to extended planning and analysis (xP&A).
xP&A requires the examination of financial and operational data to foster inter-departmental collaboration for better organization-level decision-making through better visibility into the company’s performance.
Read on to learn more about xP&A and the benefits it can offer for a business.
What is Extended Planning and Analysis (xP&A)?
xP&A means extended planning and analysis; it is an innovative approach to the planning process that leverages the best practices from the FP&A processes.
xP&A extends practices like ongoing planning, forecasting, detailed analytics, and performance monitoring throughout the enterprise. xP&A helps connect financial and strategic plans by eliminating traditional barriers that impede the functioning of operations and finance departments.
This strategic approach takes care of standard sales and operations planning processes, thereby creating a synergy between strategic planning with periodical operational plans.
xP&A also ensures that the HR department has a better collaboration with finance and operations teams. By allowing better headcount management and workforce planning, xP&A helps companies turn highly nimble and be prepared to respond to any eventuality.
In hyper-competitive sectors, xP&A also helps companies become adaptable and agile to ensure better visibility.
Transitioning to xP&A: The Need of the Hour
Standard FP&A strategies are unlikely to meet the diverse planning needs of other departments in the organization. At the same time, xP&A enables the creation of a streamlined process for ongoing operational and financial planning across the enterprise in the following ways:
- Comprehensive Business View: xP&A helps synchronize people, data, business plans and processes under a single platform. With a comprehensive view of all departments in one place, leadership can easily formulate enterprise-level decisions.
- Streamlined functioning: xP&A helps eliminate departmental silos from the planning process, thereby enhancing the efficiency of the plan manifolds. This integration is transformational for companies operating in agile markets.
- Useful tools: xP&A tools cater to the varied needs of departments, ensure data accuracy, and help integrate the latest technology in standard FP&A operations. xP&A truly leverages the functionality offered by the latest technology.
- Holistic planning: Companies that adopt xP&A can enjoy better agility and business performance. This is enabled by the creation of comprehensive business plans that offer better visibility into the functioning of an organization.
- Timely insights: Finance functions in companies are expected to witness ongoing volatility. xP&A empowers business leadership through broader and timely insights for making policy-level decisions.
For a seamless transition to xP&A, digital transformation is a prerequisite. The company needs to integrate the latest technology in its processes to leverage all the benefits on offer. Another important area that the company must focus on is the creation of centers for excellence to avoid silos across the enterprise.
The Journey to Company-Wide Planning: xP&A in Action
Finance is the starting point for extended planning and analysis in most organizations. After analyzing the success here, management then takes a decision to expand this approach to other departments like sales and marketing, operations, and human resources.
Individual plans are linked to the central plan, and as a result, multiple departments can plan and function per their unique needs while being linked to the central company-wide plan.
Decision-makers are able to guide their enterprises with high efficiency, especially when there are disruptions, by incorporating integrated business planning. Management can determine the impact of disruptions on business performance and plan for future eventualities. Consequently, modern-day companies have become extremely agile and competitive, with decisions being based on insights and not on instincts.
The key difference between xP&A and FP&A is the type and volume of data required for the planning process and ensuring its alignment with the department-level business goals. Hence, xP&A is considered to be only as good as the data available and the subsequent adoption of the analysis in the strategic decision-making processes.
xP&A enables all stakeholders to get a comprehensive view of the workings of the organization and thereby create a basis for scenario planning. This helps the businesses ascertain the effect of different strategies and thereby be in a better position to take data-backed solutions in the future. For instance, companies can identify new growth opportunities if they can integrate workforce plans with revenue forecasts, budgets, and financial plans.
FP&A vs xP&A: A Detailed Comparison
FP&A and xP&A have emerged as important organizational strategies to streamline their planning processes. However, there are some underlying differences between these two approaches, which are important to understand for ensuring an efficient planning process. Here are some of the important differences between xP&A and FP&A:
- Approach: FP&A teams are mainly focused on evaluating various financial parameters like revenue, expenses, and other financial statements. When it comes to xP&A, the teams are focused not only on the financial aspect of the business but also on other essential functions like sales, marketing, and HR.
- Scope: The scope of FP&A activities is limited to the financial aspects of the business. These teams are not concerned with the planning process in different departments resulting in silos. At the same time, xP&A is a more comprehensive approach where the teams are focused on all operational aspects of the business to create a streamlined business plan.
- Focus: The focus of FP&A teams is on using a financial and strategic lens to analyze the data accumulated from multiple sources. This enables them to deliver actionable insights to management related to company finances. While xP&A also uses a strategic lens to analyze data, it is not solely limited to the financial aspect of the business. It delivers insights to leadership for all functions to drive business growth.
In a general sense, FP&A can be considered a part of xP&A for many organizations. By leveraging the latest tools and technologies, xP&A takes FP&A to the next level by ushering in collaborative and continuous planning for comprehensive insights.
Why do you require an xP&A approach?
Traditional FP&A is not ideal to meet the planning needs of non-finance departments. It is inevitable for companies to gradually move towards the xP&A approach with the following advantages:
- Single source of truth: xP&A collects all types of operational and financial data from all the departments in the company. By bringing this data onto a single platform with a unified data model, it creates a single source of truth where every decision-maker has access to consistent information.
- Comprehensive details: xP&A successfully gets past the organizational data silos and delivers a unified view of the finances and operations of the company. As a result, all stakeholders have a clear view of all the resources and assets in the entity. Consequently, xP&A teams are able to create seamless plans for the entire company.
- Business alignment: xP&A helps in creating a better-aligned organization by collecting data from all departments in the organization and thus creating an integrated plan. Hence, management can connect operations to strategic goals for achieving desired results.
- Quick planning: xP&A brings in the latest technology to the decision-making process. By integrating the most recent automation solutions, businesses can reduce the time taken for the completion of planning processes. Moreover, companies can transform their budget planning activities into ongoing processes.
- Higher accuracy: xP&A helps usher in better accuracy in the decision-making process. xP&A teams use the latest tools to process data collected from key stakeholders. With highly accurate forecasts, business leadership is better prepared to address any challenges that might come their way.
xP&A in Action
Companies that desire to transition from FP&A to xP&A must undergo a few steps to ensure the successful adoption of the process at all levels. Here are some steps that must be followed to extend data, tools, and processes from FP&A to other departments in a hassle-free manner:
- Get everyone on board: The first step in this transition is to get buy-in from every departmental leadership. It is essential to make sure that team members also understand what their new roles will be and how xP&A can benefit them.
- Create an xP&A strategy: It is the duty of the finance team to develop a strategy to expand xP&A across all business functions. A strategy is also required for continuous planning and performance management.
- Work on data architecture: To avail full benefits of xP&A, businesses would need to invest in the integration of the latest technological tools and capabilities. To process all data in one place, there would also be a need to upgrade the data management architecture.
- Define key metrics: As the entire planning process will change under xP&A, it is essential to define key metrics to measure operational performance and financial performance.
- Deployment: After the new systems are in place and everyone is onboard, it is time to deploy xP&A. Taking care of change management through ongoing communication is essential during this entire process.
- Ongoing improvement: xP&A processes will need to be optimized on an ongoing basis. To ensure greater success, companies would need to scale the xP&A continuously and expand it to newer business units.
Companies need to evolve from traditional FP&A processes to leverage the benefits offered by xP&A in the form of integrated planning and data analysis.
This transition will enable businesses to remain competitive with the use of the latest technology and automation techniques. xP&A will also power a unified approach across the organization, acting as a strong growth driver.