How Financial Planning and Analysis Will Change in 2022
By Didi Gurfinkel, CEO of DataRails
Much like 2020, 2021 has been pandemic pandemonium, defined by the slow but promising march towards a global recovery. And in an era where we can always expect the “new normal” to be anything but, the core business role of Financial Planning Analysis (FP&A) will see a lot of transformation.
Financial planning and analysis (FP&A) are a set of activities that support an organization’s financial health: planning and budgeting, integrated financial planning, performance reporting, and forecasting and modeling. In the past decade, FP&A has moved away from strict focus on budgeting and P&Ls, balance sheets, and month-end reporting, towards becoming stewards of “value creation”. The trends we will experience in 2022 will accelerate this transformation as they adapt to new realities.
Here are four that will shape the course of FP&A in 2022.
1) Embracing a Profit-Driven Mindset
Though many have adopted the role of profit driver, in 2022 the FP&A function will more definitively move from cost center to a supplier of economic growth. Instead of asking questions such as “How do I minimize costs?” the new questions by FP&A teams will be “How do we maximize business value? How can we improve future performance? And which are the right risks to take?” Small improvements in financial processes will no longer cut it.
2) The Great Resignation 2.0
In 2022 FP&A professionals will decide to work for companies that take an innovative approach to financial planning and analysis and not for companies which wear down their people through endless reporting and planning cycles. Data and new tech also stand to affect how finance teams identify, attract, and retain top FP&A talent. In the case of hiring, incoming jobseekers may be more inclined to apply for positions that promise seamless support from efficiency-boosting technology. And in the case of talent retention, the adoption of new methodologies, often a disruptive process of transition, must be managed smoothly. If current employees are not properly trained and prepared to work alongside incoming tech, companies run the risk of their own “great resignation,” a phenomenon that has already struck so many other industries.
3) Automation and data-driven technologies
Widespread adoption of digitization and automation was well underway prior to COVID-19, but there is no doubt that the pandemic affected the speed at which this trend took hold. Indeed, a study from Esker found that 83% of companies were forced to digitize some of their paper-based processes due to the outbreak and subsequent lockdowns. Real-time reporting is now table stakes in the rest of business and FP&A must follow. For instance, HP was able to quickly change its financial models used to predict success soon after the Japanese government set up a tender to supply every high schooler with a laptop during COVID-19 changing their entire economic forecast in the country.
4) More XP&A
With the unique ability to synthesize financial and operational planning on a single composable platform, XP&A has been defined as “the evolution of planning.” XP&A “extends” traditional FP&A solutions – those focused solely on finance – into other enterprise planning domains. With strategic and intentional implementation, these tools will boost companies’ capabilities beyond finance and into other business areas that have benefited from the data revolution – human capital management, sales campaigns, internal operations, and more.
According to Gartner, “30% of FP&A implementations will be extended to support operational finance processes with 50% requiring a substantial XP&A roadmap from the vendor.” With these numbers in mind, it is important to note that XP&A, in its current stage of development, may not be a desirable solution for every company. In fact, at this moment, it is estimated that fewer than 5% of XP&A implementations are successful. As with any new adoption, financial teams should closely evaluate how well XP&A can meet their current needs before setting on the road to implementation.
2022 will be a year as ripe for economic potential as it is rife with uncertainty. No one knows how COVID-19 will continue to unfold, and there is no shortage of external geopolitical risk factors that might ripple across our increasingly interconnected world.
Businesses must try – as best they can – to account for these uncertainties in their financial models. This is where the above technologies stand to improve and enhance the ways institutions utilize FP&A and reliable data. Not every business may be ready to integrate (or further integrate) these new technologies into their FP&A practices, as many of these new methods and technologies are still in their infancy. Therefore, workers should be prepared to experience further changes as the industry develops and hones best practices.
As with any new trend, adoption rates will vary. But those who are quick on the uptake and who get the formula right may far outpace those who miss the opportunity to join the cutting edge.