Historically, Financial Planning and Analysis (FP&A) has supported an organization’s financial health with tasks such as planning, budgeting, forecasting, and performance management. The 2020 global crisis impacted virtually every aspect of business and created the urgent need to be able to reassess financial health—and fast.
While forecasting and scenario thinking have always been an integral part of FP&A, they are changing and we’ll continue to see those changes for 2021. The sheer volume of data continues to grow for businesses. The amount of data they capture, both financial and nonfinancial, how it is combined with other data sources in the organization, and how it is used to make decisions, will also evolve in 2021.
1. Extended Planning and Analysis (xP&A): The next step of truly unified planning is extending planning, reporting, and analysis beyond finance to the rest of the organization. Extended planning capabilities offer a vast, largely untapped potential for organizations in areas where data is generated but can end up sitting idly by. This presents new opportunities for more accurate plans, better budgets, and forecasts. By streamlining processes and breaking up the data silos across departments, and replacing them with a single source of truth, organizations can work more efficiently and effectively. In other words, xP&A is not only used by the office of the CFO. The power of xP&A unfolds at the intersection with other business functions, and is without question a top trend for 2021.
2. Scenario Thinking: 2020 has shown that plans can become obsolete in no time, mostly because their underlying assumptions don’t hold true anymore. With modern tools for planning and analysis, thinking in scenarios rather than planning for only one possible outcome is heavily supported. These tools allow organizations to quickly plan for multiple scenarios by adjusting assumptions in dynamic financial models. By considering different possibilities for the future, organizations become more resilient and better prepared for what might lie ahead, instead of being caught by surprise and thus being more susceptible to turmoil. With the accessibility and decreasing cost of planning for different scenarios, this will be seen more frequently throughout 2021 and beyond.
3. Cloud: The advantages of cloud became even more obvious in the uncertainty of 2020. Internal IT had all “hands on deck” in 2021 to ensure a smooth remote working experience. With critical FP&A infrastructure residing in the cloud, scaling and most data security considerations were taken off their shoulders. Availability—both in general access and device independence—flexibility, and scalability become increasingly important, as the requirements in dynamic times change fast. Cloud is also a prerequisite for using data lakes and AI/machine-learning capabilities. Organizations will be looking for flexible and scalable infrastructure as well as solid security that meets increasing global regulations to further increase their resilience in 2021.
4. Shorter Planning Cycles and Faster Adjustments: In their 2020 study “Sound Decisions in Dynamic Times,” analyst firm BARC reported that 42% of companies switched from year-end forecasts to rolling forecasts. The global crisis shed a very harsh light on how the old methods for forecasting are now virtually useless. Being able to revise budgets and make adjustments easily to enable a quick response to internal developments and global market changes will be key, as well as the ability to better understand the impact of those changes. Real-time planning and analytics becomes reality.
5. Leaving Legacy Behind: The global crisis also highlighted that old and outdated FP&A systems are now inefficient for the increased need for agility and resilience. This also highlights a very common issue of having multiple systems and data sources that don’t easily fit together. Inconsistency and inaccuracy due to fragmented technology ecosystems hold organizations back and requires extensive, time-consuming, and costly manual reworking, where instead they could thrive. Still, while a great tool can be really useful, insufficient data is still going to be insufficient data in 2021 even if it looks pretty in a report.
6. AI Maturity and Accessibility: While AI generally suffered from being overhyped in recent years, we are now seeing real-world use cases within xP&A. Especially for data preparation, forecasting, and simulations, vendors of modern tools for finance and beyond recognized the need for better accessibility of their AI solutions. Thus, for finance, AI is much more than just a buzzword and is surprisingly closer within reach than most companies realize. 2021 is the time to revisit AI applications, adopt best practices, and take advantage of the powerful capabilities it offers when combined with an organization’s financial talent and expertise. This is also seen in the final FP&A trend for 2021, self-sufficiency.
7. Self-Service Tools and Self Sufficiency: FP&A professionals should not have to set up sophisticated algorithms themselves or need advanced data science skills to keep pace with the evolution of finance. Enhanced and modern FP&A solutions dramatically reduce the necessity of writing extensive code and scripts and bring back the focus on value creation for the office of the CFO. With the financial impact of the global crisis still being felt by many, implementation and overhead costs will be an even greater consideration. Can your top FP&A talent easily use the tools designed to make their jobs easier and more effective or do they have to lean heavily on IT resources and external help?
Broader collaboration, increased agility, and increased resilience will be at the top of the list in FP&A trends for 2021 as the evolution of how to effectively support an organization’s financial health continues.
