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October 2012

Seven Financial Planning and Analysis Trends 2012


As we start the fourth quarter, having just come back from the annual Association for Financial Professionals (AFP) national conference, it seems like an appropriate time to reflect on the trends of the last year.

Trend #1: The Rise of FP&A

Within the finance community, financial planning and analysis (FP&A) seemed to come together throughout the year. That helps, because it is more possible to define what we all do. With that trend comes responsibility for everyone involved. New FP&A tracks, conferences, and certifications, such as those introduced by AFP, will help. They create momentum for the community, recognition with the larger Finance organization and, perhaps more importantly, required knowledge among FP&A practitioners.

Trend #2: Receding Discussion of Proper Evaluation Criteria

The year started with a realization that models like "Economic Value Added" (EVA) held promise over traditional models like "Net Present Value" (NPV). The realization by the FP&A community that decision criteria like EVA had limitations led to an emphasis on the data and the way that activities like planning and analysis were conducted rather than the evaluation criteria that were used.

Trend #3: Increasing Emphasis on Strategy

The receding interest in merely quantitative evaluation criteria was replaced with an increased responsibility in corporate strategy. Many finance professionals discussed and shared FP&A strategy-related capabilities at the AFP. For example, the need to link units of measure like projects back to corporate goals became common.

Trend #4: The Role of FP&A in Strategy

Sharing information about the role corporate finance plays in strategy led to the conclusion that there was no single common role for finance. For that reason, generalization about finance responsibilities in strategic evaluation was problematic. Consensus seemed to emerge that whatever the role of finance in corporate strategy, FP&A should be at the heart of that support, even when that role is not just quantitative. For example, quite common was the expectation that FP&A assists both corporate executives and business owners in identifying critical business drivers.

Trend #5: The Relevance of Risk in FP&A

The FP&A community began to explicitly acknowledge that the term "risk" was no longer the proprietary domain of other elements of the Finance community. When finance organizations like GRC (Governance Risk and Compliance) or Treasury use the term "risk" they do so in very specific ways. Discussions of how to identify other elements of risk like execution, market demand, and competition were deemed to be critical to planning and analytical assessments.

Trend #6: The Emergence of Vendors Focused on FP&A

A stroll through the trade show floor at any major finance conference including the AFP conference last week shows vendors and mature software packages focused on treasury, audit, tax, and fraud. Many larger enterprise resource planning (ERP) vendors began to pay more attention to the role they play in supporting the "F" part of FP&A. Smaller vendors began to proliferate with value propositions focused more on the "P" and "A" in FP&A. For example, vendors began to stress the ability to use central planning tools to displace the inappropriate use of spreadsheets in Long Range Planning, and awareness of these solutions began to build. As the community continues to emerge, vendors and tool usage will flourish.

Trend #7: Confusion Over "Beyond Budgeting" and "Rolling Forecasts" Concepts

The year began with an emphasis on developing rolling forecasts, rather than traditional point forecasts. Many in the community struggled to understand the implication of rolling forecasts, but became more open to the idea. As the community began to embrace the rolling forecast idea, the logical conclusion that budgets were obsolete was also introduced. There was consensus that budgets were still considered a vital part of the FP&A role in most companies. Since rolling forecasts are a necessary prerequisite to eliminating budgets, emphasizing the development of a rolling forecast process seems to a be a more attainable goal -- once that has occurred the notion of "Beyond Budgeting" can be reintroduced.

I am interested to hear the perspective of anyone who attends many conferences, listens to many members of the FP&A community, or discusses the landscape of the space with industry analysts. Am I reading the tea leaves properly? Are there other trends? Please comment or link to your blog below.