Financial Performance Management

The Strategic Planning process at many companies is in sore need of an overhaul. As many of you know, the “Strat Plan” can take on a life of its own. It was not too long ago that I was the guy who had the pleasure of creating and consolidating the Strategic Plan along with all the initiatives created by our VPs and functional areas. The greenfield initiatives. The cost savings initiatives. The sales and marketing initiatives. The IT initiatives. The “I have this great idea that will generate millions in revenue with zero cost” initiatives. Need I continue?

They all sounded great and many of them had reasonable assumptions, but it was simply not possible to complete all those initiatives in the year. On top of that, there were diminishing returns with each cost savings measure and many of the strategies required access to the same resources and capital. The owner of each initiative treated the benefits as if their initiative was the only one that would take place. It became my job to push back and infuse a bit of realism in the numbers since I had the big picture view and was crafting the overall story. 

I frequently said to myself, “Wow, I wish I had known about all of these great initiatives at the beginning of the planning cycle.” As I added all the initiatives to my model, along with all the goodness they were supposed to create, I was left with a huge same store decrease as my plug. Or I played the inflation factor game and increased my cost assumptions. As Anders Liu-Lindberg said in “Why FP&A Must Transform the Strategy Process,” “…by the time FP&A gets involved it’s often too late to shape the strategy, so FP&A resorts to cooking up some numbers based on the strategy.” My P&L was substantively complete before I received the strategic components that summed together to support it! Now that I had all these “good guys”, I needed to create “bad guys” to offset them so I didn’t end up with an unrealistically high profit in my plan. 

It is critical to include FP&A in your strategic planning process as early as possible. Become a true Finance business partner and engage with the respective owners before they begin to create the pro forma P&L for their initiative. Once those are all created, compile a summary of them and send it out to the entire team. In my experience, that sparked discussion amongst the senior team since they could now see the same overlaps that I did. Communication is almost always the answer. This will allow you to become a facilitator of the process rather than an actor who appears in the closing scenes of the movie to tie up the loose ends. 

I have written in the past about the importance of Finance acting as the conductor/storyteller. By involving FP&A earlier in the process, we can ensure that the story is centered around a unified vision rather than a piecemeal strategy that is more akin to a book of short stories. The latter provides everyone something that may be important to them, but the collective is weaker as a direct result. Utilize your FP&A team to make the tough decisions early in your strategic planning process so the company can rally around those initiatives and create a roadmap to get there.

Read more posts in Brian’s FP&A Done Right Series:

FP&A Done Right: 5 Signs it’s Time to Rethink Your Process

FP&A Done Right: Creating a Shared Vision Between Finance and IT

Why, Why, Why, Why? – The Hallmark of a Great FP&A Practitioner

If you have been following this blog series, you know that I am a ‘people and process’ guy. I’ve discussed how we become so good at circumventing the process that those workarounds become the process. Keep in mind, however, that a workaround, by definition, is meant to be temporary. When you are stuck in the weeds of your daily tasks, it’s almost impossible to see that your process is askew. If that is the case, how can we recognize that it’s time to step back and rethink our planning and reporting process?

Based on my years of experience in FP&A practice and consulting, I’ve pulled together 5 signs that it’s time to rethink your process. Some of these can be corrected with minor tweaks to our systems while others may require a major overhaul.

Offline manipulation of data

This is a telltale sign that something is off. There are any number of reasons that we do this. I used to do it because my boss wanted a different number than my system-generated reports were producing. Note that I said different, not necessarily right. Oftentimes, we have multiple metrics and KPIs with the same or similar names, but different calculations. Maybe we want to back out a few GL accounts from a certain Revenue metric or we have a series of ‘one-time’ exclusions. (On a side note, that’s an interesting phrase. In my experience, those one-time exclusions are used many times…) It is easier to simply massage the data or create our own math in Excel to complete the task at hand. After all, I can justify anything with a footnote! We should, however, be challenging the intent behind these requests. Perhaps your reporting capabilities are limited and you use Excel schedules to standardize outputs. Sometimes we export data so we can marry it up with data from other systems and reports. At the end of day, when you manipulate data offline, you lose the power of your planning and reporting tool and you turn it into a basic report repository.

I’m sure you can think of many other reasons why you need to manipulate data offline.  I will argue that each of them can be solved with process or system changes. 

No standardization across your business units and functions

This is a big one for me. The lack of standardization and automation of technology and process makes it difficult to streamline your actions and to understand the root cause of an issue. I frequently heard, “Brian, we don’t do it that way. It’s different in my department . You don’t understand.” If you choose your metrics and processes correctly, that is not true. Management and FP&A must have the ability to drill from the macro to the micro. If I see a variance or issue on a report for my global rollup, I need to be able to drill all the way down to the store front or profit/cost center to see what the driver is. If every location is not using the same metrics, calculations, or account granularity, my analysis can be misleading. I love ranking and quartiling reports. By focusing on metrics at the individual locations, I can learn what works and what doesn’t work and then educate the front line on changes they can make that are working for their peers. This only makes sense, however, if you have an apples-to-apples comparison.

Keep in mind that while working towards standard processes, you must ensure you get universal adoption. Without that, you will find that people will revert to their previous methods and will ignore your new process (see the first sign above). 

Last-minute changes to your forecast or budget cause a frenzy of activity

I can still remember the feeling when my phone rang at 5:29pm the night before a big deep-dive review or Board Meeting. You know what I’m talking about. THE call. You finally completed running the last round of budget changes through your process, validated the numbers, copy/pasted all the charts and graphs and you are printing the books. “I’m going to get home for dinner tonight!”, so you thought. Your next call is home telling your family you will be late again because you have another long night ahead of you. It doesn’t have to be this way. 

The reason I dreaded that call was because we didn’t have a clearly defined, connected process that allowed me to make changes quickly and flow them all the way through my system to produce the requisite output. Instead, I knew the pain that was about to ensue. I was going to cobble together my financials and hope that I didn’t miss anything (which I often did). Your goal should be to have a rock-solid process such that you can make changes quickly and then seamlessly push them through. Easier said than done, yes. But, I know you can do it. We’re here to help.

Lack of integrated functionality within your legacy applications

Many times, we have disparate systems and processes across business units, geographies and corporate functions. The concept of a single source of the truth seems like a myth or fable. We may feel as if we are on a quest for fully integrated 3-statement reporting (P&L, BS, CF). The lack of integration is also a root cause for other items that I have discussed. Since our systems do not speak to each other, we export everything to Excel, The Great Aggregator. This leads to using offline schedules to generate reports which leads to a lack of data governance and control which leads to confusion at best and misdirection at worst. There are steps you can take today to improve this while you are working towards a longer-term solution.  Automation of certain items is easier than you think.

You do not have real-time, collaborative tools

Instant feedback is extremely important when timelines are tight and decision support is needed quickly. The pace of business today is so fast that collaboration is becoming a requirement. If you are still driving your forecast and budgeting process with Excel, you have an opportunity for improvement. Stop the proliferation of static Excel files that constantly get changed or broken. There are many tools that will allow you to become more collaborative. The answer to this doesn’t have to be the implementation of one of the planning, reporting, and analytics tools on the market today (although I highly suggest this route). I have seen collaboration accomplished with Google’s suite of products, Smartsheets, Box or other shared access products. The key is that you need a platform that allows you to be nimble and quickly react to changes on the ground. Enable each group to input their items and have them flow throughout the system so everyone sees the impact immediately and can approve or deny and create actions plan. Make sure to create a roadmap that charts your path from where you are today to that future state where you have a planning, reporting, and analytics solution that can provide instant gratification, feedback, and ease of use. 

Did any of these signs strike a chord with you? Most of us probably see these in everyone else’s process around us.  But guess what, others may these signs in your planning and reporting process. As we approach the start of next year’s budget season, set aside some time to question the steps you are about to take. Perhaps it is time to rethink your process.

Read more posts in Brian’s FP&A Done Right Series:

FP&A Done Right: Creating a Shared Vision Between Finance and IT

Why, Why, Why, Why? – The Hallmark of a Great FP&A Practitioner

Guest blog post from Adaptive Insights: How to Improve Cross-Team Collaboration