The finance function is evolving. Historically viewed as a cost center rather than a revenue driver, modern businesses are shifting finance teams away from being a back-office function to an essential driver of business strategy and growth. Today, the line between FP&A and its historically distinct cousin, Strategic Finance, is blurring. Finance teams are increasingly expected to handle both the ad hoc analytical and the recurring tasks.
While Strategic Finance activities and traditional FP&A tasks are closely related, they have some distinct focus areas. By leveraging the skillsets required for both functions, companies can benefit from the powerful combination of what they bring to the table.
What is FP&A?
FP&A is focused on the ongoing forecasting and budgeting of an organization's financial performance to support the day-to-day financial management of the organization. FP&A teams create financial models, analyze historical data, and develop projections for future performance. They also support departmental managers and other functional leaders by providing the information they need to make informed decisions, such as preparing reports and analyzing variances against budget and forecasted results.
The following tasks would fall under traditional FP&A:
Regularly recurring and process-driven financial activities. FP&A teams build a variety of reports that are used on a recurring basis. Some of the reports teams build include budget vs. actual analysis reports, financial statement analysis reports, cash flow reports, and Key Performance Indicator (KPI) reports.
Reporting financial results to stakeholders. The FP&A team typically reports financial results to stakeholders, including executives, investors, the board, and the public, through a combination of formal and informal methods. This may include formal presentations, board meeting materials, individual meetings with executives, written reports, and more.
Consolidation of financial results. If an organization has different business units or entities, the FP&A team will consolidate financial results to provide a rolled-up view of the organization.
Creating a financial plan or budget for the next year (or few years). The FP&A team will work with management to establish the company’s overall objectives for the upcoming year or several years. They’ll then be responsible for gathering historical financial data, gathering inputs from departmental budget owners, and using that information to build the budget. Budgets typically include projections for revenue, expenses, capital expenditures, and cash flow. Once the budget is approved, the FP&A team will monitor the actual financial performance against the budget and provide regular reports to stakeholders.
Forecasting or re-forecasting. Forecasting typically occurs quarterly or whenever operating conditions have changed enough that stakeholders need a refreshed estimate of how the year will close. Forecasts are used for budgeting, performance measurement, risk management, and decision-making. The FP&A team typically uses a variety of techniques and tools, such as statistical analysis, trend analysis, and scenario planning to create accurate and reliable forecasts.
How FP&A teams are structured
FP&A teams are typically organized within the finance department of a company and report to the CFO or a VP of Finance. The team may be arranged by function, product lines, or geography. Some team members may be dedicated finance business partners working closely with other departmental leads to provide financial guidance and support. While the size and structure of the team can vary depending on the size and complexity of the organization, a few of the critical roles that make up an FP&A team include
- Financial Analyst: responsible for creating financial projections, budgets, and analyses to support decision-making and strategic planning.
- FP&A Manager: responsible for leading the FP&A team and providing direction and guidance to financial analysts.
- Director of FP&A: responsible for overseeing the entire FP&A function and ensuring that the team's work aligns with the organization's overall strategy.
- VP of FP&A: responsible for providing strategic financial guidance to the C-suite and the Board of Directors.
- Business Partner: Business partners are typically FP&A managers or directors responsible for working closely with other departments and business units to provide financial guidance and support. This role is typically found in larger organizations.
- Financial Planning and Analysis Systems Analyst: responsible for maintaining and updating the technology systems and tools used by the FP&A team. This role is typically found in larger organizations.
What is Strategic Finance
Strategic Finance uses financial analysis to support the development and execution of an organization's strategy. Strategic Finance teams help to identify potential returns on investment, measure the financial impact of certain strategic decisions, and evaluate the company's ability to pursue opportunities. This includes analyzing potential acquisitions and divestitures, evaluating new business opportunities, and assessing the financial impact of different strategic decisions. Strategic Finance professionals work closely with senior management and other business leaders to provide insights and recommendations to support strategic decision-making.
Strategic Finance may be involved in a wide range of projects and activities that support decision-making and strategic planning. Reports or other asks that aren’t explicitly recurring or tied to a certain time are considered ad hoc requests for the finance team.
Strategic Finance will also perform analysis for a variety of initiatives, including capital structure, pricing, M&A, fundraising, exits, marketing program efficiency, investment decisions, compensation, total rewards, and more.
FP&A vs. Strategic Finance: how they work together
Strategic Finance tasks and traditional FP&A tasks work together to provide a comprehensive understanding of an organization's financial situation and help guide strategic decision-making. Large companies may have a Strategic Finance team focused on the company's long-term strategic goals and an FP&A team focused on forecasting and budgeting for the short term. These teams will work closely together to provide a comprehensive financial picture of the company. However, more often, one team performs both responsibilities, especially at small and medium-sized companies.
Small and medium-sized companies with only one finance function may refer to that team as either FP&A or Strategic Finance. These singular teams provide a comprehensive understanding of an organization's financial situation. Strategic FP&A teams help identify potential opportunities for the business, assess the financial impact of different strategic decisions, and evaluate the company's ability to finance certain projects. At the same time, they perform traditional FP&A activities, including developing forecasts and budgets, analyzing variances, and supporting departmental managers. The function is responsible for helping an organization's leaders make informed decisions that balance short-term financial needs with long-term strategic goals.
FP&A teams may use a variety of software tools, including financial planning and analysis software, business intelligence and data visualization software, and advanced analytics and modeling software. Solutions such as Google sheets and Excel are also commonly used. In fact, most modeling and analytical work still occurs in Excel and Google sheets.
Business intelligence and data visualization software
Business intelligence (BI) software is a type of application that allows organizations to analyze and understand their data to make more informed business decisions. Data visualization software is a type of BI software that focuses on the graphical representation of data, such as charts, graphs, and maps.
While ownership of these tools commonly falls under the CTO, finance teams can use these tools to visualize and understand financial data like budgets, forecasts, and actual results.
Advanced analytics and modeling software
Advanced analytics and modeling software for FP&A teams are specialized tools that help organizations analyze and model large and complex data sets to make more informed business decisions. These tools typically provide advanced features such as statistical analysis, machine learning, and predictive modeling, allowing finance teams to gain deeper insights into their data.
The tools enable FP&A teams to perform advanced data analysis, create predictive models, and automate forecasting and budgeting processes, which can help organizations improve decision-making, reduce costs, and increase efficiency.
FP&A software like Vareto helps teams consolidate many data sources and collaborate with cross-functional partners while providing an up-to-date, holistic view of the business. Next-generation FP&A software tools help teams increase accuracy and productivity, make more effective decisions using real-time data, and collaborate more effectively.
FP&A software gives finance teams real-time access to financial data and insights, including composite metrics from different business systems. Finance teams can leverage integrations with ERP, CRM, HRIS, BI, and other tools to bring data directly into their FP&A platform, serving as the main source of truth for operational and financial data.
It also offers advanced analytics and modeling capabilities, allowing teams to adapt quickly to changes in the market. FP&A software’s ability to automate many FP&A tasks can help reduce errors and save time for teams, allowing them to focus on more strategic initiatives. These capabilities lead to more effective collaboration between teams and ultimately increase trust and transparency between finance teams and business stakeholders.
Help your team do more
Tools like Vareto can help you make better, faster operational decisions while saving time on recurring and manual tasks. See it in action today and take a step toward becoming true thought partners across your business.