FP&A processes — budgeting, forecasting, financial analysis, and strategic modeling — play a crucial role in decision-making, cost control, resource allocation, risk management, and smart planning. The benefits of a healthy FP&A process are multifaceted and essential. They’re also hard to put a precise dollar amount on.
This means it can be hard to justify additional costs for the finance team, like adopting a dedicated FP&A software tool.
Making the case for FP&A software involves justifying its cost against the efficiency and speed gains it delivers, as well as the additional functionality it unlocks in your existing finance team, like quarterly reforecasting or real-time scenario planning.
While the precise ROI may be hard to quantify, the value of FP&A software lies in contributing to a financially sound and strategically aligned organization.
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First of all: What’s the ROI on FP&A?
The finance team is considered a cost center because its primary functions, accounting and financial reporting, focus on support rather than revenue generation. While essential for efficient resource management and compliance, the team's activities are associated with costs, including expenses related to financial operations and control.
Smaller companies typically have the same person conducting both accounting (closing the books, reporting numbers, etc) and finance (forecasting, scenario planning). Larger companies have these two functions separated as their business grows and frees up dollars for back office hiring.
The value that the finance teams adds — whether it's one person or many — is so obvious that few companies sustain significant growth without adding full-time employees to plan and track it.
But to put the value created in specific dollar terms is tricky.
The impact of FP&A activities is often indirect and varies across organizations, but the ROI on FP&A can be assessed by considering a few value-add benefits:
- Improved decision-making: FP&A contributes to better decision-making through accurate financial forecasting and analysis, potentially leading to more informed strategic choices that can positively impact the organization's financial performance.
- Cost control & efficiency: Effective FP&A identifies areas for cost savings and operational efficiency, contributing to overall financial health.
- Resource allocation: FP&A streamlines resource allocation by providing insight into where resources should be directed for maximum impact, aligning with organizational goals.
- Risk management: FP&A plays a role in identifying and managing financial risks, helping to guard against potential losses and contributing to a more stable financial position.
- Strategic planning: FP&A assists in long-term strategic planning, facilitating the alignment of financial goals with the overall business strategy and potentially leading to improved financial outcomes.
Assigning a precise dollar value to the benefits of FP&A is subjective, and depends on the context — every organization is different. But the ROI on FP&A as a whole must weigh the financial impact of these factors against the costs associated with maintaining an FP&A function.
How to measure the ROI of FP&A software
With all that being said, we know that the finance team is a fundamental part of a healthy business, and that their technology often gets left behind as the rest of the company updates the software tools they’re using (especially the profit centers).
Making the business case for FP&A software presents the challenge of justifying another cost for the finance team, but the right FP&A tool can be a force multiplier and efficiency booster that translates to significant overhead savings.
Incremental (but meaningful) improvements in efficiency & speed
One common pushback against adopting FP&A software is that it does the same thing that you can do in Excel “for free”. If you’ve used Excel to budget and forecast for a business that exceeds a certain level of complexity, you’ll know this “free” means hours or days of your time spent finding and fixing formula errors, or tracking down versioning issues.
The choice between hiring a new full-time employee or empowering your existing finance team with powerful software can be the difference between sinking or swimming
Time savings equal money savings. Our FP&A software has demonstrated major time savings for many common finance team functions, like completing month-end GL trial balance & data validation in 30 minutes where it used to take a day, or spinning up what-if scenarios in hours where it used to take 2-3 days per model.
One of our customers was able to save 24 workdays per year in repetitive, manual work rolling up and summarizing P&L statements from different locations or reporting units. Based on the average Controller’s salary for the region, this translates to over $11,000 in work hours saved just for this one task thanks to efficiencies unlocked by FP&A software.
At this same company, the Controller using our software was able to defer hiring an additional accountant just to handle the P&L roll-up task. For growing companies, the choice between hiring a new employee or empowering your existing finance team with the tools they need can be the difference between sinking or swimming.
Zero to one improvements: Reporting capabilities unlocked by FP&A software
FP&A software leads to significant time savings, and time is money. But there’s another dimension to the ROI for FP&A software, which is to consider what is being done with all the time savings created by the boost in operational efficiency and speed.
More granular reporting leads to more informed and targeted decision-making, which leads to increases in revenue when the FP&A team is able to effectively inform business strategy in real time
The best FP&A software gives you the tools to put that time to use for strategic, value-added work, like regularly reforecasting or future-proofing your budget with detailed what-if planning.
- Quarterly (or monthly, or weekly) reforecasting
- Real-time scenario planning and what-if models created in minutes
- Easy roll-ups of P&Ls or other reports from multiple locations/departments/entities
- Budget contributors from across departments access a centralized database, not a file that’s shared around
Some of our customers chose Centage because performing the type of granular forecasting and reporting that the CFO or other leadership asked for required hiring additional staff just to perform manual calculations and inevitably find and fix formula errors. The cost of hiring and onboarding a new employee is high, and ramping up to full capacity can take a while — deferring this decision by empowering your current team with the right tools can be a cost effective decision.
More granular reporting leads to more informed and targeted decision-making, which leads to increases in revenue when the FP&A team is able to effectively inform business strategy in real time.
ROI calculator for FP&A software
Translating these time savings and efficiency boosts to approximate dollar values can give us a rough estimate of the cost savings that FP&A software like Centage provides to your finance team. Answer these questions and use our custom-built ROI calculator to get an estimate for your specific situation:
- A) How much does the software cost monthly? We post monthly pricing for Standard and Professional on our website, so you can easily make a cost estimate based on your current need.
- B) What are the time savings in terms of dollars? Estimate the time saved in hours or work days, then see how much that translates to as labor cost. In other words, if you saved X hours and Y is your hourly or daily rate (based on annual salary, plus bonus and benefits for a more complete calculation), it’s easy to calculate the dollar amount in terms of time saved. In addition to hours spent on manual Excel work in a given week, think about the total amount of time (in work days) you spend on the annual budget. Our users have reported getting this centrally important task done twice as fast with Centage.
- C) What costs does it eliminate? Does the operational boost and time savings enabled by FP&A software eliminate the need to hire full-time or part-time employees? Consider potential for cost savings and cost avoidance in the personnel budget unlocked by FP&A software that streamlines the work of the existing finance team. Cost savings would be a reduction in money you're already spending, while cost avoidance is the deferral of a future expense that you're not yet incurring.
The ROI in terms of money saved is the cost of the software (A) minus the dollar amount in time savings (B) minus the cost savings and cost avoidance (C).
Let's take an example using the data above, for a company with one Controller who is able to save 24 workdays a year on P&L roll-ups, and able to defer the expense of an additional full-time accountant:
- A) Professional edition = $1,950 monthly * 12 = $23,400 / year
- B) Time savings on manual/repetitive tasks = over $11,000 / year
- C) Personnel savings = average salary of a full-time accountant in the region = about $69,000 / year
A - B - C = $56,600 saved per year by Centage’s FP&A software
Try it for yourself:
The benefits of FP&A software that you can’t put a dollar amount on
Another way to evaluate the ROI for FP&A software is not just time saved on completing an existing task or deferred future headcount, but also cataloging value-added activities that the software now enables.
For example, FP&A software might help you find cost saving opportunities in your operations – identifying redundant expenses, or even expenses you had no idea about.
If you’re able to reforecast, spin up what-if scenarios, or compare budget vs actuals more regularly (some of our users generate these reports weekly where they used to be done quarterly or annually, if at all) — this is a return in value that benefits the business without being strictly calculable.
The ROI is in empowering the finance team to spend more time on analysis, which adds more value to the business. If removing 10 hours a week of manipulating files and data reconciliation is replaced by 10 hours of value-added analysis, what is the ROI? Every company will have a different answer, even if it’s not a dollar amount.
When it makes sense to purchase FP&A software
Ultimately, the ROI on FP&A software (or the finance function as a whole) will depend on your specific industry and competencies. While ROI is challenging to quantify precisely for FP&A software, its value lies in contributing to a more financially sound and strategically aligned organization.
If you’d like a more precise estimate of how much you could save using Centage based on your specific circumstances, schedule a quick call.