Introduction
Financial planning and analysis (FP&A) is the budgeting, forecasting, and analytical processes that support an organization’s financial health and business strategy. There is a general lack of awareness about this function in many organizations.
The FP&A discipline combines in-depth analysis of both operational and financial data to help align business processes and strategies with financial goals and to evaluate progress toward those goals.
It relies heavily on statistical analysis to measure and plan business operations and forecast their financial impact, taking into account internal variables but also broader demographic and economic trends, as well as subjective, qualitative evaluation.
FP&A professionals often have the term FP&A in their titles or job descriptions and play an important supporting role for senior executives. They usually report to the chief financial officer (CFO).
FP&A vs. Accounting
FP&A goes beyond the record-keeping and financial reporting of accounting and instead involves analyzing the financial statements produced by the accounting process, along with other financial and operational data.
For example, an FP&A analyst is likely to monitor, analyze and help manage working capital — the funds needed to meet short-term obligations. The analyst calculates the working capital by subtracting current liabilities from current assets, which are both figures found in the balance sheet, a standard financial statement in accounting. The analyst might alert colleagues to a dangerous downward trend in working capital and recommend ways to improve it, such as speeding up the collection of accounts receivable or reducing inventory.
Likewise, the FP&A department has important responsibilities in tracking and analyzing cash flow, a measure of how much money is coming in and going out within a certain period, as recorded in accounts held in the general ledger, another standard tool in accounting. FP&A involves analyzing cash flow data to spot positive and negative trends that affect overall financial health and recommending strategies for improvement, such as borrowing to meet short-term needs.
FP&A Analyst Responsibilities
Besides monitoring working capital and cash flow, FP&A professionals monitor other popular gauges of financial health, such as liquidity, solvency and investor related ratios. They also analyze the financial impact of certain operations, such as the profitability of individual product lines and the efficiency of departments, as well as be responsible for coming up with scalable cost structures.