{"id":3088,"date":"2022-06-30T10:12:00","date_gmt":"2022-06-30T09:12:00","guid":{"rendered":"https:\/\/holisticds.com\/articulo\/what-is-fpa-and-why-is-it-important\/"},"modified":"2024-05-02T11:42:24","modified_gmt":"2024-05-02T10:42:24","slug":"what-is-fpa-and-why-is-it-important","status":"publish","type":"articulo","link":"https:\/\/holisticds.com\/en\/articulo\/what-is-fpa-and-why-is-it-important\/","title":{"rendered":"What is FP&A and why is it important?"},"content":{"rendered":"

In a context like the current one where financial instability and market volatility are so present, it is normal that every day more and more companies want to improve their Financial Planning and Analysis (FP&A)<\/strong>. In this article we would like to explain what FP&A is and go deeper into its importance for your organization.<\/span><\/p>\n

What is FP&A: Financial Planning and Analysis.<\/strong><\/h2>\n

FP&A is the acronym for Financial Planning and Analysis<\/strong>.<\/span><\/p>\n

Financial planning and analysis are the forecasts on the financial statements of the company as a whole (Income Statement, Balance Sheet, Treasury, Cash Flow), as well as the comparisons and analysis of the current situation with respect to the historical or the performance of the company over the previous forecast.<\/span><\/p>\n

Financial planning and analysis support the organization’s business and financial decision making. Forecasting also provides a snapshot to management on the evolution of the organization’s strategic plans and investments.<\/span><\/p>\n

Therefore, FP&A planning<\/strong> is about optimizing financial management, assisting executives in decision making and giving way to a strategy based on reliable and objective data.<\/span><\/p>\n

For many, many years, finance professionals have used Excel templates as an analysis tool. However, with the evolution of new technologies, this procedure has become somewhat obsolete.<\/span><\/p>\n

Today there are much more specific alternatives to spreadsheets: platforms designed to plan and simulate (Financial Planning, FP) or to analyze and make decisions (Analysis, A, thanks to Business Intelligence).\u00a0<\/span><\/p>\n

How is a FP&A process carried out?<\/strong><\/h2>\n

Broadly speaking, FP&A is based on four pillars: financial planning, scenario estimation, budgeting and monitoring, and management reporting.<\/span><\/p>\n

These 4 major tasks are performed on a cyclical and continuous basis. The frequency with which it is done and the complexity involved in its execution will depend on each company and context. For example, in times of rapid change or greater volatility, it is advisable to increase the frequency of these analyses. The difficulty also increases because the number of variables to be taken into account increases.<\/span><\/p>\n

Let’s see in detail what each of these parts involves.<\/span><\/p>\n

Starting point: data collection.<\/strong><\/h3>\n

The first task is to collect and verify data<\/strong> from different sources, both internal to the company (financial and operational data, ERP data, etc.) and external (global or sectoral economic data, demographic data, etc.).<\/span><\/p>\n

This is a very important phase since the plans and estimates generated will depend on the quality of this data. This makes it a task that requires a heavy investment in time, so it is increasingly common to opt for solutions that incorporate Artificial Intelligence and machine learning to reduce data collection times.<\/span><\/p>\n

Financial planning.<\/strong><\/h3>\n

The next step is the use of all the data collected to prepare estimates or financial projections for the company, a job performed by FP&A’s team of analysts. It is usual at this point to test multiple scenarios to study how the different variables behave in them and thus determine which is the best strategy to follow.<\/span><\/p>\n

In this sense, there are different types of methods to carry out the planning according to the data and technology available, among which are:<\/span><\/p>\n