Guessing is overrated. FP&A can help
- CHIP MAURI
- MARCH 3, 2019
“Analysts keep having to pick away at the scab that the patient tries to form between himself and the analyst to cover over his wounds. The analyst keeps the surface raw, so that the wound will heal properly.” – Janet Malcolm, author and New Yorker journalist
Congratulations are in order.
That company-altering deal you’ve been trying to close for the last nine months? You just won it, and you are at the bar giving kudos to your team on “a job well done.”
The following morning you schedule time with your CFO, as you have immediate thoughts on how to utilize the cash windfall, and possibly have thoughts on how this will alter your financial statements. You walk into her office, and sitting at the ready is NOT your Accounting Manager….
….its your FP&A analyst.
First things first….what the hell is ‘FP&A?’
For starters, it stands for ‘Financial Planning and Analysis,’ but since that’s a mouthful, we just call it FP&A. FP&A analysts do a lot of things, but let’s start with this primary definition from the Corporate Finance Institute:
FP&A analysts….utilize both quantitative and qualitative analysis of all operational aspects of a company in order to evaluate the company’s progress toward achieving its goals and to map out future goals and plans. Unlike accountants who are in charge of recordkeeping, financial analysts are charged with examining, analyzing, and evaluating the entirety of a corporation’s financial activities, and mapping out the company’s financial future.
So, in layman’s terms, FP&A analysts have conversations about the connection between information, data, activities and their impact on the company’s financial outcomes, both historically as well as in the future.
Analysts aren’t the bookkeepers/accountants, but they know the company’s financial records like the back of their hands. They aren’t on the shop floor producing the widgets, but they know all of the materials and activities that happen on the production floor. They aren’t digital marketers, but they can play key roles in quantifying marketing spend and ROI.
You get my point: analysts know things, including how to model likely future outcomes for company decision-makers. Without FP&A, leaders lack data, insightful analysis, and scenario planning that studies best/worst case outcomes. Without FP&A, decision makers are left to intuition, experience, and all too often, guessing.
Ok, got it. So what are you trying to tell me?
In a nutshell: if you don’t have an FP&A analyst, go get one. Even a part-time, contracted analyst can deliver a huge impact.
In a previous post, I shared PWC’s 2017 robust study that looked at roughly 600 companies and their accounting/finance teams. Graphically, here are their conclusions:
With a closer read, you can see PWC’s conclusion: despite paying ‘insight’ professionals (read: analysts) more, top companies yield higher value creation. Interestingly, the total cost of ownership for accounting/finance, as a percentage of revenue, is significantly better for top quartile companies than those that avoid expensive analysts.
Top quartile companies have come to realize that these ‘costly resources’ more than pay for themselves. Those companies staring up at the top group continue focusing on how to get away with less, and struggle as a result.
Let’s clear up a couple of misconceptions about FP&A analysts
Misconception #1: FP&A is an Accounting/Finance function. It’s more appropriate to think about FP&A as a company-wide function. Yes, FP&A analysts consume/produce lots of financial and other confidential data, and accounting and FP&A typically have a yin-yang relationship (they rely on each other heavily). But FP&A doesn’t spend much time ‘at home’ in accounting/finance; they are often out working hand-in-hand with operations, marketing, sales, HR, and most importantly, the executive team. Ideally, analysts are a functionally-shared resource, having conversations, connecting data and discussing derived insights. The quicker the Chief Marketing Officer develops a partnership with FP&A, the better off she is.
Misconception #2: Analysts are brainiacs who are impossible to relate to. If they are hard to relate to, that’s a problem. The primary mission of a good analyst is communicating insights. Good analysts flex their communication style to ensure their insights are understood across various audiences.
Misconception #3: Analysts are simply accountants with Excel skills. Yes, FP&A analysts uses Excel much like a plumber who uses his work van – it is an extremely versatile and powerful tool for those who know how to use it. But accountants and analysts have two very different missions. The accountant ensures the company’s financial records are accurate and conform to GAAP. The analyst, on the other hand, is thinking about the future direction of the company and helping decision-makers grow the firm in the most impactful and efficient way possible.
Top attributes of FP&A analysts
No two analysts are alike. Different career experiences, interests, mentors, work ethic, etc….well, there are a lot of snowflakes out there. So, unless you have a need for a highly-experienced subject matter expert in a very unique field, consider these attributes:
- Despite not being accountants, analysts need to be grounded in accounting. If the Operations Manager says, “We’re going to hire a third technician for 2nd shift,” the analyst must be able to quickly/accurately ascertain how/when the decision will specifically impact the ledger (read: financial results of the company).
- Good analysts are not scared off by mountains of data. Even if the data is not ideal, is missing a few pieces, or not yet completely understood what resides within that data, data-savvy analysts will still explore with gusto. To good analysts, 50,000 rows of data is oftentimes much more preferable to 50 rows of data. Grip it and rip it.
- The best analysts are natural problem solvers. When foreign, complex challenges arise, they start thinking through the problem immediately. The harder it is, the more they’re licking their chops to show off their best skills and help get decision makers “unstuck.”
- Superlatives are heaped on those analysts who can flex their skills, perceptions and attitudes to “what is needed at the time.” In one moment, the analyst is quickly synthesizing accounting data; the next moment she’s helping the CEO create the most compelling, influential presentation possible. The latter may be rooted in forward-looking suggestions and intentions that corresponds to strategic growth; the former is calculating growth ratios of historical accounting metrics. Both have their proper place and time.
Let’s wrap up with the following quote from Warwick Hunt, PWC UK COO and Managing Partner International:
“You could be the greatest and most skilled finance graduate in the world,” he says, “but if you don’t have the emotional intelligence, the interpersonal sensitivity to recognize nuanced messages from the business, and respond in a manner that resonates with the business, you’re actually not worth much.”
Your next big deal is looming in the not-too-distant future. If you don’t have an FP&A analyst, go get one. You’ll thank yourself later.
A side note relating to Janet Malcolm’s quote above: She was specifically referring to relationship between the psychoanalyst and his/her patient. I couldn’t resist….the parallels between the financial analyst and her executive team can be, well, ironic.
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