Top Benefits of Financial Planning and Analysis

January 15, 2024

By: Jarred Liscio, Senior Associate

Companies of different sizes and stages in their lifecycle employ the Financial Planning and Analysis (FP&A) function. As a company grows, it often reaches an inflection point where leadership recognizes the need to thoroughly understand financial performance in order to achieve desired success. FP&A solutions become relevant at this stage. Expanding companies have various investment options – new equipment, advanced software, etc. – but they choose to invest specifically in FP&A for several key reasons.

What Financial Planning and Analysis Provides

FP&A teams can be internal or supplemented by advisory firm resources. They typically provide a suite of deliverables, including:

budgets,
forecasts,
variance analyses,
historical financial analyses focused on key performance indicators (KPIs),
board packages,
cash flow models (learn why forecasting beyond the income statement matters: “Why Just Forecasting an Income Statement Tells an Incomplete Story”), and
customizable ad-hoc reports tailored to the business’s needs.

These deliverables furnish essential financial insights to maximize profitability and minimize risk. This crucial support is why numerous companies elect to invest in FP&A services.

Key Benefits of Financial Planning and Analysis

While the enhanced foresight from FP&A offers countless benefits, four major advantages are:

1. Enhanced visibility into business operations

One of the greatest benefits of having FP&A team support is the enhanced visibility they provide into business operations. FP&A professionals aim to bridge the gap between financial performance and underlying operational data. For leadership, this brings the organization full circle and illuminates which parts have the most meaningful bottom-line impact.

When building forecasts, the team should construct them ‘bottoms up’ – meaning the models would predict revenues and costs and capture operations. This highlights for executives the crucial relationship between daily activities and their translation into financial statements. An FP&A team can also prepare dashboards and flash reports that continually monitor performance and track KPIs. This allows leadership to identify both areas performing well in real-time and those needing more attention, enabling data-driven course correction.

With comprehensive visibility across the business, management can more strategically guide the company forward.

2. The ability to measure performance and assign accountability

The next significant advantage of having an FP&A service supporting a business is that it can measure performance and assign accountability. One of the most influential and time-consuming deliverables produced by an FP&A team is a company’s annual budget/plan.

As mentioned above, these are built ‘bottoms up,’ so the businesses’ operational activities support the financial numbers. With a budget in place, management can set targets and outline their strategic goals over that year. Furthermore, it provides management with a picture of how to evaluate success in all business parts, equipping them to assign ownership to all units within the enterprise.

3. Improved decision-making

Next, with an FP&A function in place, management makes better-informed decisions. Financial Planning and Analysis teams produce regularly updated forecasts of current assumptions and internal and external data. This empowers strategic decisions based on the latest market and operational trends – where to optimize costs and which growth levers to prioritize.

Additionally, financial planning can track numerous KPIs so leadership understands exactly where adjustments may increase performance and profitability. However, an experienced FP&A team is invaluable in translating insights into tangible tactical and strategic changes that generate the most value.

4. Greater risk management

The fourth significant benefit is more robust risk management. Skilled FP&A staff can develop sensitivity and scenario analyses that stress test under factors like interest rate shifts or cost inflation. Mitigation strategies can be formed to prepare for market fluctuations by identifying potential financial risks.

Why Financial Planning and Analysis Matters

A key piece often misunderstood is that FP&A’s reports have little inherent value. Though much work goes into producing them, they are just numbers on a spreadsheet. Instead, skilled Financial Planning and Analysis advisors use deliverables as tools to drive continual improvement. Rather than hindsight-based reporting, the function provides real-time insight and foresight to optimize profitability, manage risks, and guide data-backed strategy quarterly and year after year. With an experienced partner, companies can transform financial analytics into actions today that strategically position them for long-term success.

FAQ

1. Is FP&A considered financial services?

FP&A isn’t usually categorized as financial services. Instead, it’s a core function within financial management, alongside areas such as accounting, cash flow and revenue management, governance, risk, and compliance (GRC), and other essential finance processes.

2. Will FP&A be replaced by AI?

No. AI accelerates, not replaces. While AI automates repetitive tasks, humans retain responsibility for interpreting results, making decisions, and ensuring alignment with business goals. The “human-in-the-loop” model ensures accountability remains with finance leaders.

3. What does a financial planning and analysis analyst do?

An FP&A analyst helps a company understand its financial future and make informed decisions. Their work includes creating forecasts, managing budgets, analyzing performance, modeling different scenarios, and providing insights to leadership. The goal is to guide the company in achieving, and surpassing, its business objectives.

4. What is the difference between a CPA and a FP&A?

A CPA (Certified Public Accountant) focuses on recording and reviewing financial statements to ensure accuracy, compliance, and proper reporting. An FP&A professional, on the other hand, uses financial data to forecast trends, build budgets, and provide insights that support strategic business decisions.