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What Is Financial Planning and Analysis (FP&A) and Why Is it Important?

Financial planning and analysis, usually referred to as FP&A, is a discipline within financial management that involves analysing quantitative and qualitative data to assess business performance. Financial planning and analysis teams take this data from internal and external sources and use it to build reports and forecasts.

The insights that emerge from this process help build recommendations that will maximise operational efficiency and ultimately steer top level business strategy.

In this article, we’ll explain more about financial planning & analysis, including typical approaches and positions within an FP&A team. We’ll then cover what businesses need to do to get the most out of their FP&A operations.

What is financial planning and analysis? (FP&A)

FP&A is a foreign concept to many smaller businesses. But in larger companies it can serve a key role in realising top level strategic vision. FP&A departments build plans around key indicators of financial performance. As such they have a heavy focus on viability within the constraints of a company’s real-world financial health.

Financial planning and analysis is especially important in larger companies with a focus on growth or high exposure to forces outside of their control. This may be because they’re moving into a new market, for example. It helps keep them on track through turbulence and helps them react to uncertain market conditions. Effective financial planning and analysis has the power to drive shareholder value and business outcomes. But, equally, inaccurate forecasts and poorly conceived plans can set a business off track.

Traditionally, businesses primarily conduct financial planning and analysis in a top-down manner. Here, the FP&A team is tasked with building financial plans to fit the strategic vision envisaged by C-level executives. But it’s increasingly becoming an advisory function which makes direct recommendations to the strategic plan and budget, i.e. in a bottom-up direction.

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FP&A departments collect and analyse financial data from a variety of sources to construct conclusions about a business’s health. A big part of this is the business’s preparedness for new initiatives. Internal data is the main source of data for financial planning and analysis. This includes financial data, like revenue streams, cash flow and investments, as well as operational data and other parameters. Throughout the process, this internal data is combined with data from a variety of external sources. For example, wider macroeconomic data, industry forecasts and consumer trends, etc.

Since the start of the pandemic, FP&A has trended towards cross-functional planning. In other words, many businesses are now pushing for increased collaboration between FP&A and departments outside of finance. Digital transformation has made this easier given the increased volume of data at hand, and more powerful tools at businesses’ disposal for analysis and forecasting.

What is the difference between accounting and FP&A?

While financial planning and analysis does overlap with many functions of accounting, the two disciplines are fundamentally different.

Accounting is concerned with recording financial transactions and assessing the state of a business’s current financial position based upon what’s already happened. This involves collecting and compiling financial records from across the business, including receipts and invoices, and using them to create financial reports. A key part of this is proving tax liabilities.

The data and reports that come out of the accounting process are used in FP&A to build a plan to help the business achieve strategic goals. Crucially this plan is built directly upon real business performance data to ensure that it sticks to realistic outcomes that are determined by the company’s actual performance. Where accounting reports on the state of the business’s finances, FP&A focus more on why things are happening. It will then provide suggestions on the most appropriate course of action on a strategic level. In this sense, financial planning & analysis is more forward-looking.

To sum it up succinctly—accounting focuses on the ‘what’, while FP&A focuses on the ‘why’. The ultimate purpose of FP&A is to provide accurate financial insights, forecasts and recommendations to the C-level decision makers in a business. In some cases, FP&A is carried out for individual business units, rather than the company as a whole.

The financial planning and analysis process

The scope and depth of processes involved in financial planning and analysis varies significantly from company to company and team to team. This largely depends on the needs and specialities of the business. FP&A is most effective when it’s free to give impartial insights, so it needs full buy-in from upper management in terms of resources and the ability to influence company policy. In general, the process can be broken down into the following areas:

Budgeting and forecasting

Budgeting and forecasting are the foundations of FP&A. Both activities involve analysing data to build insights that will help the company move towards long-term financial success. However, each one is unique in its workflows and the value it brings to the table. Budgeting involves analysing past financial data and reports to build a solid plan for the business to allocate its financial resources and spend its cash going forward.

Forecasting, on the other hand, is more focussed on predicting what will happen to the company using data around current and past performance. Forecasts are continuously updated taking into account various variables.

Recommendations & decision support

Decision support is another key part of effective FP&A which can add huge value to a business. This involves providing the CFO and other C-level executives with the information and insights they need to make informed decisions when steering company strategy and policy. Sound, well grounded recommendations are essential to instil confidence among shareholders and the wider company organisation.

Process optimization

Best practice now dictates that FP&A insights should be developed continuously as part of an ongoing process. Developing a static plan and reporting once per year is no longer sufficient for optimal results. In most organisations, the FP&A department has to demonstrate the accuracy of its predictions and findings for stakeholders to understand the true value it brings to the business. This requires constantly updating the various processes, models and structures the department uses for maximum efficiency.

FP&A team roles and responsibilities

The size of a business’s FP&A department largely depends on the size of the organisation and the sector in which it operates. The financial planning and analysis department often plays an important structural role because it liaises closely with both corporate and operational departments. As a result, the final reporting and recommendations need to be clear and comprehensible for people who don’t necessarily come from a financial background.

Larger businesses often have dedicated financial planning and analysis departments with multiple layers of analysts and managers who report to a Director of FP&A. The department director usually reports to the Chief Financial Officer, or the CFO may head up the FP&A department themselves.

FP&A is separate to other finance departments that report directly to the CFO. For example, the financial controller, whose department is primarily responsible for bookkeeping and accounting, and the treasury, which is responsible for managing the business’s capital flows and liquidity. That being said, there’s no real set blueprint for an effective FP&A department structure.

Let’s look at three common positions and their typical day-to-day responsibilities:

FP&A Analyst

FP&A analysts are responsible for most of the base-level analysis in the FP&A process. This involves analysing data from past financial reports and forecasts, as well as financial modelling and conducting competitor analysis.

In large organisations, the FP&A analyst may be assigned to a single product or product group over which they’ll assume responsibility and conduct all reporting and forecasting. It’s the analyst’s job to find useful takeaways and present their findings to higher ups. In many cases, analysts will specialise on a particular aspect of analysis and continue in that vein as they progress through their career. According to Indeed, the average London salary for an FP&A Analyst is £56,000, but this figure can be significantly higher depending on experience.

FP&A Manager

Above financial analysts you have FP&A managers. They analyse the results and insights presented to them by analysts. As they sit further up the hierarchy, they tend to digest data from multiple analysts with their own areas of speciality. As such they also need good project management skills. FP&A managers add their own observations and insights to reports and recommendations.

According to Indeed, the average base salary for an FP&A Manager in London is £71,000. This usually comes with performance-related bonuses on top. It’s possible to become an FP&A Manager after around five years experience as an analyst.

Director/Head of FP&A

The Director of FP&A sits at the head of the department and reports directly to the CFO. As the head of the department and the owner of the FP&A process, the Director of Financial Planning & Analysis is responsible for ensuring the accuracy of all reporting and insights. This requires ongoing optimization of processes and KPIs across the department. They will also take charge of scenario planning for potential market conditions the business may face.

Using their expertise, the Director of FP&A will select key takeaways from the reports and forecasts produced by their team. They will then present them to the CFO as their immediate superior, as well as CEO and other key stakeholders. As a trusted advisor to the top C-level executives in a business, they can have a big impact on the strategic direction the company takes.

According to Glassdoor, the average salary for a Director of FP&A in the UK is £106,000 per year. As with all positions in the field, performance related bonuses can easily double or triple this figure. To reach Director of FP&A usually requires over ten years experience as an analyst/manager, or a related position within finance.

FP&A software

Businesses use a mix of pre-packaged software and in-house modelling throughout the FP&A process. While excel is still a cornerstone of the day-to-day financial tracking and modelling process, other more specialised applications are increasingly being used in its place.

Integration between different systems is essential for comprehensive planning. It ensures that insights are accurate enough to take into account a broad range of influences on a business. Having a unified repository of data that many different departments can access streamlines the FP&A process and helps the team provide better results.

Moss Insights

Using Moss Insights, you can bring together data from all of your business banking accounts to give a holistic view of exactly how your money is being spent. Pull together detailed reports on vital financial metrics and access relevant insights straight from our app. With all of your inbound and outbound cash flows in one place, you can streamline your financial reporting processes and save your teams time and money.

You can export data from Moss in .CSV format for use in excel models if that’s how you work. Or view insights and graphs straight from the Moss dashboard without having to export a single data point. You can export all your spend data directly from Moss at the end of the month and update your budgets on the fly whenever you need.

We also integrate directly with Xero and other accounting software systems, so your accounting team will benefit from a unified record of all your company’s transactions. No need to sift through records from different sources because they’re all brought together in one place. When it comes to running an accurate, efficient FP&A operation, these capabilities are exactly what businesses need.

Budget Trackers:
More control & visibility


What does FP&A stand for?

FP&A stands for financial planning and analysis. It plays an essential role within the wider financial arm of a business and is usually tasked with translating financial results and forecasts into a digestible format to help C-level leaders make important strategic decisions.

What processes are involved in FP&A?

FP&A can be broken down roughly into three different disciplines. First, there’s budgeting and forecasting, which involves analysing internal and external data to understand the current state of the business and possible future outcomes. Then there’s recommendations and decision support, which involves using the findings of budgeting, forecasting and planning to advise decision makers on strategic courses of action. And, finally, there’s process optimization which involves tuning and improving FP&A processes to give better, more accurate results.

What does an FP&A analyst do?

FP&A analysts conduct most of the foundational analysis and forecasting involved in the FP&A process. Using software models, analysts pull together key trends and insights that are passed up the FP&A hierarchy and on to the C-level.

What is a good FP&A manager salary?

In the UK an FP&A manager can expect to earn more than £70,000 plus bonuses. This figure can be significantly more depending on experience, the size of the company and the sector in which they work.

How important is FP&A?

FP&A is increasingly becoming an integral part of the top-level decision making process in many large companies. It serves as a connection between operations and corporate leadership. In many cases the FP&A department has the power to make its own recommendations to steer business strategy. 

Henry Bewicke
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