A message to the CEO/CFO on why effective FP&A activities are critical to successfully running the business
The IMA (Institute of Management Accountants) just published an SMA (Statement of Management Accounting – July 2019) titled “Key Principles of Effective Financial Planning and Analysis”, authored by Lawrence Serven, an internationally recognized authority on enterprise performance management (EPM) and Kip Krumwiede, PhD, CMA, CSCA, CPA, who is IMA’s Director of Research.
A well-known and respected organization, the IMA, based in Montvale, NJ has over 125,000 members worldwide and is the organization behind the CMA (Certified Management Accountant) designation.
This paper can be downloaded here from the IMA website.
The main premise of this paper is that FP&A (Financial Planning and Analysis) is a decision-making platform. What this means is that everything performed in the various processes that make up FP&A is applied to generate the outputs used in the management decision making process.
I have read many papers, professional opinions and other material on various subjects associated with accounting principles and finance functions. To me, this is one of the most complete documents pertaining to FP&A processes, clearly explaining why every company should evaluate and engage in performing these functions. This is backed up by a comprehensive survey conducted by the IMA, with 700 companies participating, the results of which are included in this paper.
The introduction to this paper includes the following paragraph:
“This SMA discusses principles and execution of effective FP&A practices, organized into 12 principles, and how to prioritize them. It details what the best-run organizations do differently with FP&A and also discusses the role of technology, needed competencies of the people facilitating the process, suggestions for how to get started, and ways to persuade top management of the need for FP&A improvements. Appendix 1 provides survey evidence supporting the 12 principles.”
The survey results highlight the best performing companies, which are defined in the survey as:
“(1) Consistently meet or exceed the targets they set for themselves as a company/institution and (2) consistently meet or exceed the results of their competitors. It is important to note that both criteria are met, not just one or the other.”
These best performers, in following the 12 FP&A principles, distinguish themselves from the other two groups of companies identified as “middle performers” and “worst performers”.
Reading this paper, one realizes how important it is to implement and continually maintain an effective FP&A solution. Some of the main points delivered in this paper are:
- The best run organizations use FP&A more effectively
- Why senior management must fully endorse FP&A in order for it to be used successfully.
- The role of technology in delivering effective, reliable, complete and accurate FP&A solutions that can be adopted by every organization, regardless of size and industry.
This paper shows, backed up by the IMA survey results, what the best-run companies do differently with their implemented FP&A solutions and processes and the great role technology plays here. It also shows how to persuade senior management that FP&A matters and what can be expected if these 12 FP&A principles are followed.
This is an exceptionally insightful paper and confirms my belief that companies that implement an intelligent FP&A software solution, are more likely to be successful and continue to drive shareholder/stakeholder value. These organizations match the group of companies identified in the survey as the “Best Performers” category.
Considering all that, and drawing on past experience, FP&A does matter, and leveraging technology, now available to even SMBs (Small and Mid-Sized Businesses), is something that every CEO/CFO team should aim for.
Alan Hart, MBA, is Principal Consultant at Pacific Shine Group in Portland, Oregon, with responsibility for client business development and hands-on client project implementations. Prior to starting Pacific Shine Group, he worked in various executive accounting and finance positions with technology and growth companies. Notable is his 18 years in the hi-tech manufacturing industry where he served as Controller, Vice President of Finance and CFO of several privately as well as publicly held companies in the Hi-Tech industry, such as Hybrid Arts, Inc., Hamilton Bay Associates and Syncronys Software. In his role in management consulting, Alan has worked in diverse industries and with a variety of clients, including fortune 1000 companies such as Boeing, Delta Airlines, Intel, Wyndham Worldwide and others, as well as many mid-market organizations such as Guitar Center, Ducommun AeroStructures, Cypress Semiconductor, TriQuint Semiconductor and others.
Combining his skills and experience in engineering with deep understanding of technical accounting, he is able to assist small and medium-size manufacturing companies establish GAAP compliant accounting and reporting systems.