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FP&A leadership

FP&A Done Right: The Value of Scenario Planning

September 17, 2021 by Revelwood Leave a Comment

This is a guest blog post from our partner Workday Adaptive Planning, highlighting the value of scenario planning in modern finance.

Considering all that’s happened over the last year, the case for robust scenario planning has rarely been stronger. Scenario planning—the practice of establishing strategies for variables (possible futures) in key business factors—helps organizations thrive amid uncertainty. To put it simply, scenario planning arms finance with the ability to incorporate responses as changes happen.

Without the ability to adjust revenue and expense assumptions over time, model multiple scenarios simultaneously, or see the impacts of new markets, staffing changes, or regulations, companies won’t have the ability to weather whatever comes next—much less respond to changes in real time.

In a recent webinar by the Association for Financial Professionals, two panelists explored the value of scenario planning and management in modern finance.

“COVID-19 has been described as being the great accelerator and really has forced all of us to do some sort of scenario or contingency planning over the last year,” said Jack Alexander, a former CFO turned adviser, author, and coach. “And my hope is that finance and operating executives will utilize scenario planning broadly in the future and integrate those more into the key planning and management activities.”

Alexander described working with a client pre-pandemic that was facing two major uncertainties. “In this case, the company was unsure whether the economy would continue to expand or contract, and they also had a significant contract that was up for recompete. So they had basically four possible scenarios on a two-by-two matrix combining those two uncertainties,” he said. “And then I also encourage the development of a black swan scenario too—low-probability, high-impact events—and that sort of covers things including what happened with COVID.”

Kinnari Desai, vice president and head of corporate finance at Workday, described a multistep process for accelerating the scenario planning process.

Align leaders’ top priorities

First, organizations need to identify their top two or three priorities. “This could be top-line growth, margins, or cash flow, but it’s very important to be clear on those upfront,” Desai said. “We get perspectives from our executive team and align with them on what is important.”

It’s also critical to understand what is top of mind for business leaders, whether they’re in sales, services, G&A, technology, or other departments. “We need to ensure we have scenarios that are relevant cross-functionally and not only within finance,” she said. “This really helps us incorporate multiple perspectives and inputs into what is important, and we know where that knowledge belongs.”

Alexander echoed Desai’s process of speaking to the C-suite to understand competitive threats, market forces, and developing factors, as well as key personnel who have a view of such areas as critical raw materials and supply chains. “So it really has to be a broad participation across all functions,” he said.

Identify key drivers of sustained value creation

Another key step is to perform analyses to pinpoint the relevance of important factors and focus on the ones that matter. “How much could they influence the outcome? We also get an understanding of which variables and outcomes can be controlled in a short timespan versus ones that will take longer to pivot,” Desai said. “We do not try to optimize every variable but just focus on the ones that matter incrementally, and then we bring them all together in our scenarios.”

Bring in external data where relevant

Finance should develop a perspective that is informed by outside data. “It could be from industry, our peers, customers, economic data,” Desai said. “And at Workday, we use our software called Workday Prism Analytics, and that helps us marry this external data to our internal data, which informs our scenarios.”

Evaluate the frequency of scenario planning and adjust accordingly

“Not all variables, as we know, change on a similar cadence. Some need weekly attention, some monthly, or some even daily,” she said. “And our finance organization combines this power of scenario planning and continuous planning, which allows us to move in an agile fashion.”

Desai added that while there are many variables that impact the business, not all of them have a material impact. For her team, the top six variables garnered most of their attention. “And then we spent all our time understanding how they were going to shift,” she said. “Now, no one has a crystal ball, but the best we could do was to determine how those six variables would move. And those were the big rocks for us that were going to change our outcomes, not the 15 others.”

Three elements to enable agility

Alexander’s approach emphasizes three elements: vision, recognition, and response—all of which are aided by scenario planning and lead to better business agility.

“Even in terms of the vision, it helps because you’re going to be identifying critical assumptions, and you’re going to consider alternative outcomes other than the primary plan,” he said. “And if you combine that with business intelligence, external outlooks, a focus on customers and competitors, that really helps.”

As a year of uncertainty has shown, organizations better able to adapt to rapidly changing environments are often more optimally positioned to withstand crises or uncertainty. In order to build organizational resiliency, scenario planning performed correctly can help the enterprise identify its key business factors, take into account critical cross-functional needs, and create the agility necessary not only to survive, but to succeed.

This blog post was originally published on the Workday Adaptive Planning blog.

Home » FP&A leadership

Filed Under: FP&A Done Right Tagged With: enterprise performance management, Financial Performance Management, FP&A, FP&A done right, FP&A leadership, modern finance, what-if analysis

FP&A Done Right: 3 Strategic Skills for FP&A Leaders

July 9, 2021 by Revelwood Leave a Comment

This is a guest blog post from our partner Workday Adaptive Planning, recommending strategic skills for FP&A leaders.

You stay late to meet your deadlines. You triple-check your reports to keep them error-free. You turn around one-off requests at the drop of a dime.

But you still haven’t gotten that big promotion.

That may mean there’s a disconnect between the work you’re doing and the work your boss would like you to do. Research from Robert Half Management Resources has found that finance leaders want FP&A professionals who can look beyond the bottom line to see the big picture. A study found that 86% of CFOs said strategic thinking abilities are important for accounting and finance professionals, with 30% of those reporting that these skills are now mandatory.

And this demand is only expected to increase. In one popular Workday Adaptive Planning survey, CFOs predicted that the time spent by the FP&A team on strategic tasks will double—to as much as 50%.

To show that you’re ready to take on more strategic responsibilities, start by demonstrating that you can make smart decisions. Developing these three skills will help you highlight your potential—and get picked for the next promotion.

1. Study Every Angle

Strategic thinkers plan by identifying several potential paths forward and weighing their likely outcomes against each other. And according to another survey of ours, 48% of CFOs said that, during a market contraction, finance teams provide the most strategic value by planning for multiple scenarios.

That means FP&A professionals who can identify, model and analyze how different factors could impact the company are more likely to stand out as problem solvers. The right software can help you quickly create projections based on potential risks and opportunities on the horizon—and identify actions that could help your company meet its strategic goals. This type of proactive planning can give you the ammo you need to make well-informed recommendations when it’s time for your boss to make the next big decision.

2. Create Compelling Visuals

When making a presentation to your CFO or board, don’t make your numbers do all the talking. Data is an integral part of the conversation, but it doesn’t tell the whole story. Leaders need you to explain what metrics really mean.

Data visualization can help you cut through the clutter and deliver comprehensive, easy-to-digest analysis. And this is exactly the kind of presentation executive teams crave. According to published reports, 31% of CFOs indicated that improving visualization skills would help FP&A teams represent data more effectively.

Learning how to create visuals that explain variances, period-over-period performance and sales projections will help you deliver the wow factor that will put you in the leadership pipeline.

3. Build Bridges

Sometimes, sitting down with people from other departments is all you need to gain a fresh perspective or uncover a new approach to a common problem. And this type of collaboration is what execs are looking for from their finance team.

According to an off-cited EY report, when CFOs were asked about their top goals for the finance function over the next five years, 95% listed improving business partnering with other units as either critical (58%) or a significant priority (37%)—making it by far the most popular priority.

But collaboration doesn’t have to happen around a table, looking atspreadsheets and a whiteboard. If the company’s data exists in a centralized repository, collaboration can happen virtually. Different teams can drag and drop figures into sharable reports that others can comment on in real time, making it easier to get leaders the fast feedback they need to make more informed decisions.

FP&A needs to put itself in the business leaders’ shoes. Anticipate their needs, and creatively look for ways to add value by providing insights and unique perspectives, improving the efficiency of key activities and introducing frameworks, models and structure to enable these business leaders to better plan, manage and run their operational areas.

Grow next-gen FP&A skills

Modern finance teams are more than number crunchers; they’re key partners in support of a company’s strategic vision. But not every new hire (or, frankly, finance team member) is going to have strong strategic acumen from the start. That’s OK, as long as CFOs and finance leaders are willing to nurture those skills with hands-on coaching.

It’s one thing to hire someone and then give them a list of functions they’re responsible for. It’s another to really check in on them, give them guidance, help them avoid certain potholes, and really help them bridge any gaps. Starting early with leadership training, having team members give presentations to strengthen their communication skills, and emphasizing one-on-one coaching sessions over classroom trainings can all be effective ways to build up skills that stretch beyond classic FP&A duties.

Above we presented the top 3 skills that will help you highlight your potential. In closing, we present the top 8 skills needed in FP&A teams, according to a leading publication for finance professionals:

1. Strategic and critical thinking

Automation technology frees you from the manual work and allows you to have more time to think about data critically and strategically.

2. Communication

To be successful, an FP&A professional needs to ask questions, listen objectively to various viewpoints, consider the information at their disposal, and respond appropriately to various stakeholders across multiple communication channels.

3. Tech Savvy Data analytics

New technologies can benefit your organization in various ways. To recognize them, you need to develop an enthusiasm for new technological advances and intellectual curiosity about what’s coming next. Being a tech savvy finance professional gives you a competitive advantage.

4. Technical accounting and finance skills

Undoubtedly, FP&A professionals must be skilled in their areas of expertise. You need to continue working on your education by learning new aspects of the professional.

5. Innovation

Automation will require finance professionals to be innovative and creative when it comes to solving business problems. This is one of the ways to contribute value to your organization.

6. Anticipating and serving evolving needs

Modern FP&A is not only about mastering skills in data analysis. You will need to recognize emerging requirements around you.

7. Leadership

Finance does not work exclusively with numbers. If you have emotional and cross-cultural intelligence and empathy, it will be easier for you to understand the needs of those around you. There comes a time when finance must be the reassuring voice and visionary.

8. Collaboration

Cross-functional collaboration is playing a major part in the overall success of your organization. FP&A professionals need to learn how to work with colleagues who have other skills. Their expertise and specialties can help finance develop the big-picture ideas. It is also important to keep working on your virtual collaboration and management skills.

This blog post was originally published on the Workday Adaptive Planning blog.

Home » FP&A leadership

Filed Under: FP&A Done Right Tagged With: enterprise planning, FP&A, FP&A done right, FP&A leadership, FP&A skills, modern finance

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