12 Best Practices in Financial Planning and Analysis
16 November 2017
Most CFOs are not happy with their Financial Planning and Analysis process, believing it delivers too little value and eats up too many resources. As a result, they often ask “What are Best Practices in Financial Planning & Analysis?” To date, the answers have been based on conventional wisdom, anecdotes, and popular trends propagated by finance magazines. What’s been lacking is hard data… until now.
The Institute of Management Accountants (IMA) and I developed a survey that more than 700 organizations around the globe participated in. What made this survey different was the approach it took. Previous research focused on a particular methodology, then worked backward to find success stories. The IMA survey instead focused on what the most successful organizations are doing differently from everyone else when it comes to FP&A. These successful organizations consistently meet or exceed their targets, and they consistently meet or beat their competition. Hard to think of a single CEO who wouldn’t crave those results (which, by the way, guarantee their bonus).
These most successful organizations tell us that their Financial Planning & Analysis process :
- Drives Shareholder Value (or business value if privately held)
- Drives execution of the strategy
- Provides the mechanisms to ensure the financial and operational goals of the organization are achieved
- Builds organizational awareness of the strategy and each department’s role in achieving it
- Ensures the optimal allocation of resources
- Ensures coordination of initiatives, projects, and programs
Those are the questions the IMA survey set out to address, and the answers are illuminating. They will be the subject of an upcoming series of blog posts called “12 Principles of Best Practice in Financial Planning and Analysis”.
- FP&A Best Practice Principle #1: Translate Strategy into Actionable Plans
- FP&A Best Practice Principle #2: Identify and Gain Budget Approval for Required Resources
- FP&A Best Practice Principle #3: Connect Operations and the Financials
- FP&A Best Practice Principle #4: Analyze the Variance and Get the Story Behind the Numbers
- FP&A Best Practice Principle #5: Take Action When you Fall Behind on your Financial or Operational Goals
- FP&A Best Practice Principle #6: Cascade both Financial and Operational Goals down to more Specific Targets
- FP&A Best Practice Principe #7: Hold people accountable to reach better financial results and link them to financial incentives
- FP&A Best Practice Principle #8: Link Financial Incentives to Operational Goals
- FP&A Best Practice Principle #9: Identify what drives success in your business and develop measures for those drivers
- FP&A Best Practice Principle #10: Establish short and longer term targets for business drivers
- FP&A Best Practice Principle #11: Develop initiatives and projects to achieve business targets
- FP&A Best Practice Principle #12: Monitor business results and tie them to incentives