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Financial Planning and Analysis - What and Why?
chillibreeze writer — Supriya Mothay
What is FP&A?
FP&A provides decision support to the management in visualizing short term and long term objectives, assessing their viability and ensuring their fulfillment through continuous monitoring. FP&A is the function that helps management take important decisions pertaining to the profitability and other financial health of the organization. It also provides sufficient information to the management in envisioning the future.
Elements of FP&A:
In the context of a corporation, forecasting can be defined as the periodic prediction of future trends considering the current internal and external factors. Usually, this is done by analyzing and extrapolating the past results and applying known anomalies to past trends.
In a corporate scenario, budgeting involves drawing out a detailed financial plan and establishing a goal for the future period. It usually details the various financial elements and its drivers considering the capabilities of the business. This activity is done before the beginning of the year and is drawn out by month.
In a corporate scenario, we engage in reporting to measure the events in a particular period. Reporting can be defined as providing of information at periodic intervals to various stake-holders that enables them to take important decisions. Stake-holders include management, business partners, investors, creditors and debtors. Information could be related to past performance, future plan, strategy, objective and market standing among others.
In a corporate world, financial analysis can be defined as assessment of the financial aspects of an organization including deployment of funds, profitability, investor protection, business viability and market standing. It usually involves the understanding of ratios, comparisons with Budgets and Forecasts and detailed study of the financial statements. This activity not only helps understand the problems and provide decision support, but also visualizes opportunities and ensures better performance.
FP&A in Corporate World:
The core FP&A team caters to various departments like the Finance, Operations, HR, Corporate, Procurement, Quality, Sales and Marketing etc. In short, FP&A function is that thread of every organization that beads various departments together and ensures achievement of their common goal. In addition to providing timely reports and analysis, FP&A also provides support for redesigning the systems used for accounting, reporting etc.
FP&A is set up by every Product and Line of Business in an organization. In some cases, it is also sub-divided by function and areas in which the business is carried on. In fairly large organizations, there are different people sourcing to different sub-divisions and conversely, in small organizations, one person caters to all divisions.
FP&A aids in -
To overcome this, it is very important for the offshore FP&A Analyst to allocate quality time to analysis and to ensure that we do not get too caught up between deadlines and mundane activities. It is also imperative for the offshore qnalyst to maintain contacts with the business as proximity will be a challenge. Regular visits to the business concern, wherever possible, will help.
The advantages of having an offshore FP&A are numerous. Offshore FP&A activities not only ensure cost savings but also help in standardization. The assumptions underlying the financial reports are standard across all products and regions. Also, Forecasting and Budgeting are processes involving assumptions about future events. Catering to these requirements in a unified manner ensures that all the assumptions are standard.
FP&A is a very dynamic and interesting function of finance. It requires the analyst to be deeply involved with the business and to understand not only the numbers, but also the science of running the business. It is therefore, very important for the analysts to understand the business before jumping into the numbers in order to keep the essence of “A” in FP&A alive.
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Chillibreeze's disclaimer: This is a contributed article and was published on Chillibreeze in May, 2011. The views and opinions expressed in this article are those of the author(s) and do not reflect the views of Chillibreeze as a company. Chillibreeze has a strict anti-plagiarism policy. Please contact us to report any copyright issues related to this article. The relevance of the facts and figures cited (if any) could change after a period of time.
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