3 FP&A Trends Shaping Our Digital Economy

3 FP&A Trends Shaping Our Digital Economy

Finance professors often teach that markets are working toward efficiency—that they’re linear. The reality? They’re bumpy roller coasters full of ups and downs.

“Things are usually changing fast enough and people are imperfect enough that markets don’t always have it just right,” says Kevin Landis, CEO and CIO of Firsthand Capital Management and veteran technology investor.

Like COVID-19, unprecedented situations happen that leave the economy in flux. The best way for finance professionals to navigate the market’s uncertainty? By staying on top of current FP&A trends. In 2021, that means examining how agility, cloud technology, and microplanning are redefining FP&A.

Agility Is a Must-Have, Not a Nice-to-Have

When COVID-19 hit in 2020, many businesses were unprepared for the lockdowns and how the pandemic hit the market. Companies like 24 Hour Fitness and ALDO Group had to close down hundreds of locations or file for bankruptcy.

Agile financial planning can help during times like these. Agile FP&A involves prioritizing people over process, with a focus on continuous changes and proactive communication. The process makes companies more resilient to market disruptions by taking uncertainties into the equation. The key lies in being flexible (so you can quickly respond to change) and collaborative.

Many finance leaders understand the importance of agile planning. Following the start of the pandemic in 2020, 89% of CFOs found the “external economic and financial uncertainties facing their business as high or very high,” which was up by 34% from the previous quarter.

And CFOs expect the “ability to rapidly model the implications of business decisions,” to be one of the biggest challenges to plan for in the future. 

So, how can more finance professionals practice agile FP&A? The process involves challenging your existing beliefs, so you can prepare for various scenarios. From there, determine your strategy, drivers, and key performance indicators (KPIs).

To get started, Gartner’s Agile Finance Strategy CFO Toolkit provides some useful insights on how you can start thinking about agile financial planning.

Spreadsheets Are Dinosaurs Next to AI and Cloud-Based Planning

Spreadsheet errors aren’t rare and minor—there are so many incidents that have resulted in companies losing millions of dollars.

JPMorgan Chase lost $3.1 billion due to a spreadsheet error as they relied on copying and pasting information, and TransAlta lost $24 million due to a cut and paste error in a spreadsheet. Besides leaving room for error, spreadsheets are time-consuming to complete—taking up valuable time leaders could be using for decision-making.

Unfortunately, FP&A teams often rely on spreadsheets.

Many companies recognize the need for a more flexible and dynamic planning model; over 80% of CFOs, controllers, and FP&A heads plan to make “advanced data analytics technologies and tools in finance” a priority in 2021.

The transition to remote work increased the urgency of shifting away from spreadsheets with FP&A.

Due to COVID-19 and the transition to working from home, many companies questioned long-held views that FP&A staff must be present on office premises, and some companies think FP&A can work just as well virtually. According to Deloitte’s latest CFO Signals survey, “72% of respondents say more finance work will be conducted remotely post-crisis.”

With more people working from home, there’s an increased need for centralized, accurate data—a result that’s tough to achieve with spreadsheets. Cloud-based Enterprise Performance Management (EPM) tools and AI-supported process automation seem to be the answer.

The good news? Finance professionals are smoothly making the shift to cloud-based technology.

According to a survey by The Hackett Group, 31% of roughly 300 finance executives surveyed “have done large-scale deployments of cloud-based financial applications this year, up from 23% in 2020.” Moreover, 66% of CFOs say they’ll focus on robotic process automation (RPA) and other workflow automation as it brings “speed, efficiency, and cost optimization to finance.”

Elias Khnaser, VP analyst at Gartner, put it best: “If you have not developed a cloud-first strategy yet, you are likely falling behind your competitors.”

It’s never too late to migrate to the cloud. To get started, follow Gartner’s step-by-step guide for planning a cloud strategy.

Organizations Need Micro—Not Just Annual—Planning

The COVID-19 pandemic taught an important lesson: traditional annual planning isn’t sufficient to prepare for the future. Navigating unprecedented events requires looking at the most recent data impacting your company.

Dr. Barry Keating, professor of business economics and predictive analytics at Notre Dame, recommends “nowcasting”—conducting short-term forecasting with very recent data.

Ed Goldfinger, CFO at Quantum Metric, agrees.

“Only by looking at the data in a granular way can you really understand what’s going on in the business and draw the connections and the insights,” says Goldfinger.

The need for current data won’t go away after COVID-19. The future of work has changed and FP&A with it. With so many shifts in recent years, from workplace policies and company structures to digital transformation and constantly evolving markets, there’s always going to be a need for immediate, granular data to make accurate forecasts.

Microplanning requires the ability to pull and analyze data on the fly. A powerful cloud-based tool like Planful can make all the difference in increasing efficiency and productivity. Many companies have saved on close, budgeting, and reporting time as Planful eliminates manual processes through automation; easily migrates model structures, formulas, and formatting; and conducts ad-hoc analysis. The best part? You don’t have to learn new formulas—Planful works with existing spreadsheet formulas.

FP&A Involves All Corners of Business

Finance professionals aren’t recordkeepers—they’re business partners. Fulfill this role by keeping up with the latest FP&A trends, so you’re better able to predict how shifts might impact your company and its larger goals.
You’ll never be able to predict the future accurately, but you can boost the precision and speed of your FP&A with the right technology. If you haven’t already, consider investing in a powerful cloud-based tool to strengthen your company’s FP&A. Watch a short, on-demand demo to see how Planful can help.

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