How FP&A Can Rescue Their CEOs

Predicting the future is always difficult, but now with markets and supply chains gyrating so quickly, it is nearly impossible. So Financial Planning & Analysis folks do what they’ve always done. They come to the rescue. A CEO isn’t asking for perfect predictions, just general directions about the landscape. FP&A should give the CEO an […]

Predicting the future is always difficult, but now with markets and supply chains gyrating so quickly, it is nearly impossible.

So Financial Planning & Analysis folks do what they’ve always done. They come to the rescue.

A CEO isn’t asking for perfect predictions, just general directions about the landscape. FP&A should give the CEO an overview like a map that presents the team with route options, conditional trigger points, countermeasures, and the costs associated with alternate routes. 

To extend the metaphor:

OPTION MENU: We have three routes: North, Interstate, or South. 

CHOICE: The North route through the mountains is the most direct way. 

CONDITIONAL TRIGGER AND COUNTERMEASURES: But if it is snowing, you might need to put on chains to get through the pass. Buy chains now, just in case. If a lot of snow is predicted, the pass will be blocked. Then you should take the southern route instead. You don’t have to make an irreversible decision until you reach this point on the map. 

RISKS: But if it is snowing in the North and raining in the South, the southern route floods 60% of the time.

COSTS: Bad weather delays for the North and South routes will add 10% to costs. However, the Interstate, which is a toll road, will add 15%, but guarantee an on-time arrival. 

Once the executive team plots a course, then the FP&A team can offer turn-by-turn directions.

If the organization uses an integrated real-time platform like ForecastEra’s Revenue and Sales Forecasting Suite, then the FP&A team can alert the team to potential problems. Accident ahead, turn off at the next exit to save time.

The type of person drawn to being an FP&A professional is by definition precise. They often feel incapable of creating any kind of map when all they can see is a few peaks in a fog-covered landscape. Winging it is outside their comfort zone. But it is exactly what the executive team needs. 

So how is an FP&A supposed to conjure such miraculous clarity where there is none?

Numbers-Based Vs. Problem-Based Scenario Planning

The chief complaint against FP&A, according to various surveys, is that they are too numbers-based and not sufficiently problem-based. Numbers-focused generally looks back, while problem-focused is about tackling future challenges.

To succeed with the problem-based approach, finance professionals need to be able to tell the executive suite a good story. The structure of good financial storytelling is as old as Aristotle: Problem, Conflict, Resolution. 

In act one, FP&A presents the problem. Sometimes each division sees the problem differently. FP&A should try to present the whole picture or at least look at it through a new lens.  

The second act of this story is the road of trials. All the conflicting choices, costs, and other variables. Frequently the CEO will ask numbers-based questions. FP&A needs to answer financial questions in the larger context of the organization as a whole. A good FP&A doesn’t necessarily need to advocate for one path, there may be several viable paths. The FP&A must fairly outline the costs and variables each path brings.

In the final act, the resolution is how to execute the chosen path best. They also need to outline how to respond if/when things go wrong at different junctures. 

If FP&A follows this structure, they will be very successful in becoming true business partners. 

We’ve shown many finance professionals how to make the most out of their forward-looking data from CRM systems like Salesforce to create scenarios that can be shared with the executive suite. If you’d like to consult with us on how to improve your revenue and sales forecasting performance, click here to schedule your consultation.  

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