More and more, financial planning and analysis (FP&A) software is being used by nearly all management professionals and finance leaders. It is also becoming more important for other financial functions such as reporting, consolidation, forecasting, and overall business planning.
So what is FP&A and how does it work exactly? FP&A provides a single source of truth or a 360-degree view of the business for financial decision-making. Its main purpose is to optimize the performance of a company by providing financial information and analysis through real-time data access, standardization and automation, consolidation of information from multiple systems into a single view and the ability to drill down for more detailed analysis for better operational planning.
As time passes, FP&A trends have revolved around companies increasing their need for collaboration and creating synergies between departments to improve performance. Collaborative FP&A software has risen as the solution to help other departments better understand how operational decisions affect the company financially. Thus, in the 2020 Strategic Roadmap for Cloud Financial Planning and Analysis Solutions, Gartner coined the term as Extended Financial Planning and Analysis (xP&A).
What is xP&A?
Basically, extended planning and analysis (xP&A) is an approach that helps to bring the best out of financial planning and analysis by extending it to other departments. This helps improve the planning process and allows the finance team to improve financial forecasting, budgeting, and modeling as a business unit.
xP&A is becoming a more stable and consistent way of financial planning and reporting. It is designed to drive more accurate decision making, which will provide key stakeholders with strong competitive advantages in the future. xP&A can also help businesses avoid risks or losses connected with poor decision-making at all levels of their organizations. Ultimately, xP&A helps finance leaders improve their cash flow management, support continuous planning, and improve their overall financial planning strategy as a whole.
The methodology behind xP&A applies FP&A tools and processes to the various departments within the company, linking data, systems, and people both horizontally and vertically. This enables businesses to unify, integrate and align business planning and forecasting activities throughout the entire structure.
Once an organization starts using xP&A, it increases the possibilities of success and helps to avoid losses, inefficiencies and financial problems. xP&A is a great addition to FP&A because of its ability to give financial professionals more information about different aspects of a business' decision-making process, that later help them make informative decisions for their operational planning.
Why xP&A?
xP&A is a valuable way to transform finance automation and financial planning today. In the AFP 2021 xP&A survey on the challenges faced by finance teams, 82 percent of respondents pointed to the heavy manual effort needed to pull together different data sources. Ultimately, implementing xP&A can eliminate data silos that slow down decision making Through strategic budgeting, scenario planning, forecasting, and modeling, finance teams are able to compile data from different departments and create a more strategic operational plan moving forward.
Because xP&A takes into consideration many different factors, it provides a broad view of all possible risks and opportunities that the business will face in the future. Strategic finance is usually one-dimensional, but xP&A creates some continuity between strategic thinking and specific decisions.
In addition, only 30 percent of finance’s partners in the business and operations teams can understand the financial impact of their decisions. xP&A is a great way to overcome this hurdle and reduce the time and effort required to put together and share forecasts and plans.
Key benefits of xP&A
xP&A allows businesses to have more control over continuous integrated planning, forecasting, advanced analytics and performance monitoring. With a more accurate approach to financial planning and analysis functions, companies can see quick benefits. Some of the benefits of finance automation are:
Gain real-time data accessibility
When an organization gets its hands on real-time data, it brings a lot of advantages with it. Real-time data is very important because businesses are running faster than ever today and they need help keeping up with customer demands. xP&A allows organizations to get real-time data so they can make decisions based on (almost) live information instead of old or non-existent ones. Having real-time data also leads to better decisions because decision-makers can now see the big picture of their operations and business processes.
Better understanding of the business
When looking closely at decision-making processes and the data that goes along with it, you realize that there is a lot to be improved. Having xP&A is an advantages because it allows businesses to see what works and what does not, what is important and what can be improved.
Improved decision-making & productivity
xP&A helps businesses to make better decisions by giving them accurate information that shows where they can increase their productivity and operations. Better decisions create greater profit opportunities, expansion of operations and an optimized overall performance. On the flipside, it also helps decreased operational expenses through improved operational processes and disciplines.
Improved business alignment
With most departments aware of the data and the big picture, it becomes easier to align strategic planning, operations and overall business outlook. Executives and decision-makers will also have a better understanding of their business strategies and policies.
Automated & continuous integrated planning
xP&A is a dynamic solution and because real-time data is available, planning does not need to be just a monthly routine. Rather, getting other departments to be thinking constantly about financial planning can create a rhythm where everyone is always thinking two steps ahead.
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Extended planning and analysis is a long-term process. An organization’s agility depends on the ability to understand the current situation and make or change their course of action. The challenges faced by companies in accessing non-financial data and creating actual-to-plan variances, limit the ability to understand results and easily create out-of-cycle reforecasts.
However, evolving FP&A and including xP&A can help with real-time decision-making process, eliminate the data silos and eventually lead the company to finance automation and integrated processes that align strategic, operational and financial goals.
With Abacum, we empower finance teams of high-growth tech companies to become true strategic partners in the organization by driving time-to-insight with powerful automation and seamless collaboration. Request a demo now to see the product live and start your own transformational journey.
