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FP&A Maturity is the Future of Finance

When you think about maturity, think about dark chocolate. While adults appreciate a rich flavor profile with hints of saltiness and bitterness, children, on the other hand, want something sweet. This video below encapsulates exactly how they feel.

It takes age and experience to truly enjoy dark chocolate. Store-brand milk chocolate may seem tooth-achingly, almost nauseatingly sweet once you've made the switch.

Maturity in finance, particularly in FP&A, entails accepting complexity and expanding your capabilities. But what does maturity mean for FP&A, specifically? And what difference does it make?

Defining Maturity for FP&A

Simply said, FP&A maturity means you're free of manual processes and spreadsheets, allowing you to focus on decision-making.

“Leaders in FP&A are the ones who are focusing on the windshield view and anticipating trends and issues across their business,” says Tom Hood, CPA, CITP, CGMA, EVP Business Engagement & Growth, AICPA (Association of International Certified Professional Accountants). Tom continues, “They are leading with digital transformation and the requisite skills in their Finance and Accounting teams. They are adept at partnering with business units and divisions across their company. They are getting the benefit of being co-pilots with a seat at the decision-making table

Stages of Maturity

The above is a good description of the ideal state of FP&A maturity; it’s a goal to work towards. However, most companies do not do this in one big leap forward. According to the FP&A Maturity assessment model, there are five stages representing the evolution of FP&A:

1. Lagging

At this stage of maturity, the FP&A function or team is frequently a component of other financial entities such as accounting, treasury, or the finance function in general, with roles and responsibilities that are not clearly defined and processes that lack formal description. Reporting, planning, and forecasting are all manual processes that take a lot of time and effort to complete and are based on general ledger data. There are no or few IT systems in operation, and data is stored and manipulated manually, resulting in errors, additional corrections, and outdated information.

The lack of formal FP&A structure, processes, and procedures characterizes the lagging stage, which is common among newly founded startups. Some characteristics of the lagging stage, however, can exist in mature businesses that focus on accounting and reporting tasks rather than analytics, or in enterprises that simply do not want to engage in the expansion of their FP&A functions. The good news is that there are many options for improvement at this level, so if you're a driven leader who recognizes your FP&A function in the description, it's time to roll up your sleeves and get to work.

2. Emerging

The FP&A function is barely distinguishable from the rest of the finance department at this point. Some key processes, such as budgeting and forecasting, are, however, only partially defined. This definition, as well as the descriptions of the team's tasks and responsibilities, might be inconsistent, with the majority of them focusing on generic finance activities. Annual budgeting is a bottom-up process that includes business units as well as legal entities. Because data is highly fragmented, reporting is typically unstructured and inconsistent. IT solutions, including a basic BI tool, can be developed, but all procedures rely on the advanced usage of spreadsheets.

The emerging stage is likely one of the most common, or at the very least one that every FP&A organization goes through at some point. According to surveys, 75% of businesses still use spreadsheets to prepare their budgets and plans, which leads to challenges such as functional constraints, data integrity, versioning, and accessibility. At this stage of maturity, the FP&A function's goal is to move on to the next stage as quickly as possible, which includes creating and streamlining core procedures, enriching analytics, and beginning to create value.

3. Defined

This stage is characterized by clearly defined and described roles, responsibilities, and processes within the FP&A function which distinguish FP&A professionals from other members of the finance team. Planning, forecasting, and reporting are primarily standardized and largely automated, using a combination of spreadsheets and dedicated FP&A software solutions. With an emphasis on what happened and why accurate and comprehensive data helps to generate significant insights and provide strong analytics. Many metrics are included in the performance management system and most of them are useful for the business.

The defined stage in the FP&A organization is based on the established, proven standard practices that can support FP&A processes in their traditional forms. However, there is potential for growth in terms of talent development and the adoption of developing best practices that are more tailored to modern needs, requirements, and expectations.

4. Progressive

At this stage of maturity, the FP&A function adopts a range of advanced systems, techniques, and tools to support its processes. Annual budgeting is replaced by a collaborative, driver-based rolling forecast that relies heavily on integrated IT systems and specialized FP&A software. As a result of eliminating manual tasks, FP&A analysts now have more time to provide proactive assistance to businesses by offering meaningful analysis and valuable insights. The goal of analytics is to forecast what will happen in the future, as well as to model risks and possibilities. Reporting and established KPIs are delivered to users at the correct time and in the right format to help them make better business decisions. A shift toward a business partnership model is supported by a talent development plan that focuses on the development of commercial awareness, business acumen, scenario planning, and proficiency in digital technologies.

Progressive FP&A is defined by the application of best practices in key functions and the use of technology to add value. Only about 10% of FP&A businesses have attained this level of maturity in terms of planning and forecasting process automation, indicating that most FP&A operations have a long way to go.

5. Visionary

At the pinnacle of FP&A maturity, all processes are optimized, fully automated, and integrated: self-service real-time planning and reporting linked with company strategy, predictive analytics based on "what-if" scenario planning, and machine learning capabilities. The finance and accounting function not only contributes to decision-making but also maintains strategy alignment and promotes change. To support the role of FP&A professionals as trusted business advisors, a continuous team development plan is followed, with a focus on data science, business acumen, strategic thinking, interpersonal, and communication skills.

The First Steps to FP&A Maturity

Upgrading your FP&A processes has three primary components. It all starts with the mindset: To get started, you'll need executive buy-in, clear leadership, and a change management strategy. According to Robert Kugel, Senior Vice President and Research Director of Ventana Research, all of the above starts with finance leadership.

Finance leaders need to know what's happening in the world of business technology. They can't be passive and rely on IT – the IT department understands what they're doing, but they're not familiar with the Finance department's special needs. As a result, Finance leaders must be informed enough to argue for solutions that benefit the Finance department in particular, and, ultimately, the entire organization.

The second component is the skill set. Data science, data management, and a dash of IT abilities are among the skills to hire or train. But it’s important to not overlook soft skills, as well.

“The one surprising role that’s becoming more and more in-demand is the storytelling role,” says Gabrielle Luoma, CPA, CGMA, CEO, MOD Ventures, LLC. “We accountants are great at reading off the numbers. Storytelling requires us to have much better communication skills, interpret the data, and explain it in a way that others can understand.”

The toolkit is the final component. For forecasting, scenario planning, and budgeting, upgraded FP&A relies on technology that can consolidate data from across the enterprise and apply intelligent analytics.

“For far too long, FP&A was conducted with antiquated tools and shrouded in mystery,” says Janet Schijns, CEO, JS Group. “The latest analytics tools not only automate the intelligence of FP&A, but they also allow a broader set of leadership to truly understand and benefit from the data.”

Launch the Next Evolution of Finance

The evolution of the FP&A function is unquestionably a long and hard process that takes many years and necessitates large expenditures in IT systems, tools, and talent acquisition. However, not taking the path of transformation will lead to the FP&A organization falling behind the current and emerging needs of its stakeholders, missing the opportunities to leverage technological advantages and contribute to the business development.

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