A strategic guide to FP&A tool implementation

Digitalization has touched most parts of finance, especially transaction processing, and reporting, with several tools and technologies being implemented, such as OCR, automation, and machine learning, to achieve significant efficiencies and improvements in the quality of output. However, despite these broader advancements, ‘Excel’ continues to be the dominant tool within the financial planning and analysis (FP&A) area of finance. It is not uncommon to hear of organizations using hundreds of spreadsheets to manage their planning, budgeting, and reporting processes. And there are several reasons for this, the key ones being:

? Widespread availability: Excel is part of the Microsoft Office suite, which is used by the majority of enterprises, from sole entrepreneurs to multinational giants

? Versatility: Excel can be used for a wide range of financial tasks, from simple budgeting and expense tracking to more complex financial modeling and analysis. Further, users have complete control over their spreadsheets and can customize them extensively.

? User familiarity: Excel is widely used across organizations, and there is a plethora of resources and support available for Excel users

While Excel has its obvious advantages, there are certain disadvantages, especially in the context of FP&A, that we need to be aware of:

? Error-prone: Excel is prone to human errors, which can lead to significant inaccuracies in financial analysis and reporting.

? Poor version control: Multiple versions of the same Excel file can be created, leading to confusion over which is the most current or accurate.

? Scalability issues: Excel is not ideal for managing large datasets or complex models as it can become slow, unwieldy, and prone to crashes.

? Limited data integration: It can be challenging to automatically feed data from various sources into Excel, often requiring manual intervention.

? Absence of audit trail: It becomes very difficult to track who made what changes and when they made them in an Excel file.

While Excel is a versatile tool, these disadvantages often lead companies to consider more specialized FP&A software tools which offer several advantages such as:

? Automation of data collection and processing: FP&A tools can automate the collection and processing of data from various sources, reducing the time and effort required for data entry and minimizing the risk of errors.

? Advanced analytics and forecasting: Many FP&A tools come with advanced analytics capabilities, including sophisticated statistical analysis, predictive modeling, and scenario planning

• Near real-time reporting: These tools often provide reports, and analyses are based on the most current information.
• Scalability: They can handle larger data sets and more complex financial models without performance issues.
• Better security and control: They typically offer better security features and audit trails, which are crucial for protecting sensitive financial data.

These advantages make FP&A tools a valuable investment for organizations seeking to enhance their financial planning and analysis capabilities, especially in a complex, data-driven business environment. Through this article, We attempt to outline an approach that an organization can adopt to implement an FP&A software tool.

• Identify key requirements from the FP&A tool
• Select an appropriate FP&A tool
• Identity FP&A use cases
• Implement the first use case
• Implement other use cases
• Set up an FP&A center of excellence

Identify the key requirements from the FP&A tool

We have observed that there is no common understanding of the term ‘FP&A’. The generally understood definition covers budgeting, reporting, and financial analysis. While these are critical aspects of FP&A, it is worthwhile to touch upon other critical components of FP&A, like forecasting, analyzing internal and external factors affecting financial performance, and scenario planning and modeling. The organization’s expectations from the FP&A function would have a significant bearing on the choice of the FP&A software tool. Clearly define what you want to achieve with the FP&A tool (e.g., improved forecasting accuracy, faster reporting, and better decision-making support). This step should culminate into a crisp requirements document, which would be used to evaluate various tools.

Select an appropriate FP&A tool

There are broadly two sets of FP&A tools that are currently available. The first set includes the ones from the stable of the large ERP OEMs, while the other set includes specialist standalone FP&A tools.

Every tool has its unique strengths, and the choice may depend on the organization’s size, industry, and specific FP&A requirements. The tool selection often depends on factors like ease of use, integration capabilities with existing systems, scalability, and specific features relevant to the organization’s financial processes.

Furthermore, it is not only important to consider your current needs while choosing a tool but equally vital to consider your future business ambitions. Some key criteria to consider include:

? Businesses’ size and complexity

? Tool’s ability to integrate with ERP

? User interface and usability

? Total cost of ownership

? Support and training

? Vendor reputation and stability

? Mobile accessibility and availability of cloud-based options

We would recommend that you also carry out client reference calls/visits and if possible, take advantage of trial periods or demos to test the tool’s functionality and fit with your business needs before committing.

Identify FP&A use cases

The next step in the process is to identify the use cases and the sequence in which they would be implemented.

We have typically seen organizations follow the following sequence:

Reporting is usually the first target, which involves migrating Excel-based reporting to the FP&A tool. The value can be significantly enhanced by integrating the ERP systems with the FP&A tool to avoid manual data entry. A good FP&A tool will also be able to represent the information in a much better manner through suitable visualization, thus providing better insights for decision-making.

Annual operating plans are typically the next use case to be implemented. An FP&A tool significantly makes bottom-up planning a very smooth process wherein changes made at any level in the organization are reflected in real-time. It also helps marry the top-down and bottom-up plans more effectively than an Excel-based process.

Once these two use cases are implemented, organizations usually adopt the following sequence:

? Financial analysis

? Forecasting

? What if analysis/scenario planning

? Driver-based planning