FP&A: The recipe for success in turbulent times

The exercise of planning thoroughly every aspect is essential to ensure a business’s survival during its first year and, progressively, to reach goals and surpass objectives. It is necessary to plan for personnel, materials, and time, try to predict how the customer base will behave, consider the seasonal fluctuations that occur every year (how will summer affect the business? And the holiday season?), and leave some room for unexpected events.

As soon as all these variables are mapped out and their impact on the company is known, one thing becomes obvious: everything depends on the cash flow. How much is on hand, how much comes in, how much goes out (and, of course, when). In other words, financial planning is essential not only for a company’s success but also for its mere survival.

This planning may seem simple at first glance, but businesses do not operate in a stable and predictable environment. As recent crises have shown, unexpected events come like a tsunami and can bring down established and seemingly robust companies. For this reason, one of the objectives of financial planning must be to ensure companies have the agility needed to withstand all these challenges. But how?

Financial planning and analysis: anticipating and testing scenarios

It’s common knowledge that when an important decision is being made many create a typical list of pros and cons, even when it never actually gets written down and it just stays in our minds. This process, which we carry out so naturally and often without even realizing it, is a primitive form of scenario analysis. ‘What if…?’ we ask ourselves, and we imagine different outcomes.

Financial planning and analysis (FP&A) go hand in hand to achieve a common complex goal: on one side, to provide a clear snapshot of the company’s current financial state, including its strengths, weaknesses, threats, and opportunities, and on the other side, to help make better decisions by knowing, with a minimal margin of error, what will happen and what consequences will arise depending on how we react.

Although FP&A existed before, today’s technology has elevated the discipline to a previously unimaginable level. The snapshot it provides is accurate and thorough: no detail is left out, and it’s possible to zoom into each element to see its smallest components. It’s also dynamic: updated in real-time, ensuring that what we’re seeing is not outdated and that there is no new threat we aren’t aware of. The list of pros and cons is now the ability to test the effects of each potential decision in virtual environments. With all this information at hand, the desired agility appears. Unexpected events will still generate waves, but the business will stay afloat.

The recipe for modern FP&A: Technology combined with methodology

Technology propels FP&A into a new dimension, but the foundation on which the discipline is built—the methodology of financial ratios—has decades of history. Ratios such as ROI or ROE, which measure profitability, or liquidity ratios, among others.

These ratios, which are nothing more than percentages, offer a clearer and more direct way to visualize the company’s financial information. They are a fundamental element for planning and analysis. They allow us to know if the company is going in the right direction or not (and where it may be failing, if it is), if it is in a good position compared to the competition, how the year is progressing, etc.

The calculation of these percentages is now quick thanks to technology. Of course, there are different levels: a calculator that computes a financial ratio is considered technology, but not the kind that large corporations need. These companies, due to the scale of their operations, require specific FP&A software that leaves nothing out and is as personalized as possible.

This is where SAP S/4HANA Cloud comes in: an advanced software with FP&A functionalities, designed for users who can benefit from it even without a technical background. Here are some of its most important features:

• Cloud-based. This almost goes without saying: the ‘cloud’ in the solution’s name indicates that it is hosted in the cloud. In addition to allowing convenient access from anywhere, it facilitates collaboration within the company, even when the team is spread across the world. Furthermore, it is scalable and keeps the company’s data secure and protected.
  
• xP&A. Extended Planning and Analysis (xP&A) is a concept coined by Gartner that refers to the extension of FP&A activities across all departments, not just finance. The SAP Profitability and Performance Management application, outside of S/4HANA, is an example: performance and profitability data, along with strategy, are processed across the entire company.
  
• AI, ML, and automation. SAP S/4HANA manages to turn that vast amount of diverse and heterogeneous data into something not only intelligible but also something from which deeper insights can be extracted: predictive analytics, trend detection, etc. It achieves this thanks to its engine powered by artificial intelligence, machine learning, and automation, which are cutting-edge technologies.

The promises and potential of SAP S/4HANA are enormous, but its implementation is a complex endeavor. To get the most out of it, a preliminary analysis of the company’s specific needs is required; this way, the journey can begin with a clear understanding of everything the software can achieve and how it will help us as a company. For this, the best approach is to partner with an expert in the SAP ecosystem, with experience in the specific industry and knowledge of the typical challenges organizations face in these kinds of migrations. NTT DATA can be that partner, guiding you throughout the entire process: from the planning and initial analysis to maintenance, and, of course, through implementation. The resulting FP&A infrastructure will be a solid foundation to drive the company toward success.