Financial Planning & Analysis (FP&A) is critical to an organization’s ability to understand and manage its cash flow profile, financial position, and long-term strategic direction. These abilities are fundamental to competitive survival and to success. That said, they require a financial planning process and technology that are geared to save time while maximizing accuracy and transparency.
It’s a wonder then that many organizations still rely on Excel spreadsheets for FP&A, or for budgeting and forecasting in general. Desktop spreadsheets are ill-suited for this at the enterprise planning scale. That said, rapid change is underway. From healthcare to heavy industry, organizations are undertaking new ways of planning and collaborating — in the cloud.
Why? The reasons are as numerous as they are compelling. For the purposes of this short post, let’s boil it down to three.
1. Time and effort in Finance
The traditional spreadsheet-based planning process demands that financial teams manually aggregate data, format and reformat inputs, build spreadsheet models, and perform limited (but time-consuming) analyses. Not only is this task arduous, but a lot can go wrong along the way.
- Simple data input errors
- Complex modeling errors
- Formatting and reporting issues that complicate efforts, drain human resources and add to costs.
In addition, the financial forecasts and budgets that are produced are often painfully inaccurate.
2. Cloud capability (and cost) in Finance
Advances in cloud computing, data synthesis, and workforce connectivity are already changing how FP&A and other financial teams function. While many still rely on spreadsheets, increasingly more are migrating to cloud-planning systems. They seek real-time computing environments that emphasize forward-looking functionality over traditional business intelligence (BI). This means the ability to automate monthly rolling forecasts using built-in analytics engines, or the ability to bring together forecasts, plans, and other data from across the organization to reconcile gaps and build consensus action plans.
Bottom line, automation and connectivity cut production and reporting time in budgeting and forecasting from weeks to minutes. Based on our experience (and depending on the size and complexity of the client), labor hours dedicated to financial forecasting drop by as much as 95%. That’s a potentially huge return on a relatively small investment.
As for forecast accuracy, automated analytics are demonstrably superior to manually stitched spreadsheet models. To wit, an increasing array of cloud-planning platforms come pre-built with advanced-analytic forecast engines. The most capable of these systems are able to combine seasonality, inflation, product life-cycle effects, and statistically tested assumptions to generate remarkably accurate predictions. Some also let finance teams what-if test unlimited sets of scenarios, or competing courses of action, to reveal best-possible (and most probable) outcomes. Hands down, they will generate a more accurate pro forma, cash-flow projection, and roll-up than is otherwise possible.
Additionally, advanced forecast automation enables continually rolling forecasts and knowledge updates. This speeds responsiveness to sudden changes in liquidity need, investment opportunity, or market conditions. There’s money in that. In fact, the Kansas Department of Transportation (a client) nets millions annually just from better cash flow forecasting and financial planning – a still-growing return. For more information, read KDOT Case Study.
3. Cloud collaboration in Finance
Increasingly collaborative computing and workflow environments increase the effectiveness of Sales and Operations Planning (S&OP) and continue to spur the adoption of Integrated Business Planning (IBP) processes, which merge sales and operations data with financial data for even more highly coordinated enterprise planning and forecasting.
These trends will continue, especially as finance teams increase their use of predictive analytics, using historical data, and in some cases real-time market data.
At the same time, a host of cloud planning tools are making it faster, cheaper, and easier than ever for companies to migrate legacy-based FP&A. Most cloud planning tools offer standard BI for data management and reporting. These tend to be aimed at C-suite execs and the analysts who support them. A select few, however, have evolved well above the fray of BI to deliver full-suite analytics and optimization capability, built-in.
Match that with friendly UIs and near self-service options and business users across the organization gain access to powerful modeling, simulation, and reporting – not just a handful of experts. Ultimately, that should help FP&A and other financial planners increase their value to the business as a whole while continuing to advance cloud-based planning.
It sure beats spreadsheets.