Planning and Analysis is a term used to describe a general process of ensuring that your business, organisation or portfolio performs as efficiently as possible. It requires you to look strategically at the working of your business or organisation from a number of different perspectives, so you can ensure you are using the right combination of people, processes and systems to enable this.
Financial planning and analysis plays an important role in the decision making process of any organization. its aim is to integrate both financial planning and performance management systems to attain the goals of the organization. this topic provides various methods through which financial analysis can be carried out. As the global economy recovers from the recession, more companies than before will enter into “expansion-stage” and “growth-stage.” Therefore, you need to monitor the financial plans and health of each company which your organization is invested in. Financial planning and analysis can help you do that.
Financial planning and analysis is a management function that assists in the development of an organization’s financial plan. The purpose of this activity is to assist the organization’s executive management team in translating its strategic plan into action plans that generate business performance improvements. Financial planning and analysis equips organizations with the data and knowledge required to make informed decisions related to financial activities, including resource allocation, business performance measurement, financial risk management, product pricing, cost management, purchase control and profitability.
Importance of FP & A
- In case of financing requirements where the company needs to borrow funds for future advancements, FP&A will try to present a separate finance section in front of the board in a very brief manner. Also, the lender would want to see the numbers before lending out money.
- The financial analysis sets a good base for any company to succeed by the setting of the financial and business plan; adequate planning leads to create a better understanding of how business is performing as compared to the projections done.
- Accounting and FP&A are two different methods to analyze financial statements, the place where accounting ends FP&A takes over. In short, accounting focuses on historical numbers, and FP&A focuses on forecasts and future numbers.
- FP&A strategy links the long-term plans with annual reporting and capital budgeting, with further analysis, it also helps to develop financial models and assist in the annual target setting process.
- Consistency and stability are very important in any business. A reliable FP&A process will help to get this stability and, at the same time, include reliable information for the management to make sound decisions.
- Most of the organizations have a dedicated team for FP&A, which continuously tries to improvise and maintain the numbers in the pursuit of many strategic objectives, and finance teams are becoming stronger and stronger by generating effective analysis to create more economic benefits to the organization.
The structure of an FP&A team
A company’s chief financial officer (CFO) is the senior executive in charge of directing a company’s financial actions. They’re tasked with tracking cash flow, budgeting, financial planning, and analyzing the company’s financial health. In order to do their job optimally, a CFO must rely on their FP&A team to guide their financial decisions.
Although it depends on the size of the business, a finance team will typically be broken down into three main functions:
- Accounting, led by the financial controller. As the name implies, the controller is charged with managing (controlling) the company’s financial accounting. Their main focus is the documentation and organization of the books and ledger. They oversee financial reporting, regulatory requirements, and tax reporting.
- Treasury and capital markets. The treasurer is responsible for managing the company’s cash, debt, and equity. Their primary role is to ensure the company is liquid and its financial investments savvy.
- FP&A. The FP&A team is a group of financial analysts tasked with analyzing the company’s financial health, and helping it forecast future financial scenarios. As analysts, their chief concerns are planning, budgeting, and forecasting. However, a financial analyst may also include other analytical tasks such as determining pricing or evaluating strategic investments.
Together, all three parts of the finance team report to and work with a company’s CFO. And to do their job well, the FP&A team must have a clear understanding of the company’s historical financial performance and a deep grasp on the trends or assumptions that could impact its performance in the future. For this to happen, they need to leverage automated accounting tools and stay in constant contact with all the major departments, including accounting, marketing, sales, and the treasury.
Purposes
- This can be used to analyze financial data to forecast the economic trend and to implement the financial policy for the company.
- Since this is done through the financial data, it depicts the financial numbers for the company by analyzing financial statements like cash flow, balance sheet, and income statement.
- There are several purposes of doing financial analysis for any company, like in corporate finance for analyzing the NPV or IRR of any project or in an investment analysis setting where the numbers can be used to analyze the investment.
- The most general way to analyze the data is to do the ratio analysis and compare the same with industry standards or evaluate the historical records.
- A periodic analysis of the financial data will help the entity to maintain the data and analyzing the trends to make any managerial decision for future advancements.
Becoming a Value-focused Finance Organization
The finance organization has been in flux for decades, striving to expand its role from financial control to a business advisor who adds value through quantitative and strategic acumen. This guide presents several pathways to address these challenges as articulated by global finance thought leaders.
Fundamentals of Finance
Finance leaders depend on modeling for a variety of needs including financial reporting, performance analysis, capital planning and budgeting, and M&A. Models can be a means to better align the entire work process with our overall corporate objectives and, at the same time, lower enterprise risk.
AFP Guide to Financial Modeling and Model Supervision
Finance leaders depend on modeling for a variety of needs including financial reporting, performance analysis, capital planning and budgeting, and M&A. Models can be a means to better align the entire work process with our overall corporate objectives and, at the same time, lower enterprise risk.
Developing Predictive and Analytical Models
One of the greatest tools in the business analyst’s bag is the ability to create a model of future business results. Models are typically used to evaluate business decisions, analyze alternatives, or predict future business results. In this chapter, we will define models, highlight typical applications, review best practices, discuss best ways to present the results of a model, and explain how to establish a portfolio of models.
CONCLUSION
Financial planning helps managers to plan ahead and make the optimal use of their funds. It helps them in determining the amount available for meeting their objectives. Financial planning plays an important role in evaluating the limitations, setting priorities and to meet the targets set. At a very high level, financial planning is a process that consist of four phases: scope the future, plan the future, scope the present and implement the plan.