Financial decision making is especially challenging in a business. In this context, FP&A is a valuable tool to optimize the use of resources and thus guide investments, increase profitability, and bring better results to the organization.
In practice, FP&A comprises a group of four main activities whose function is to assess and maintain the financial health of a company:
These activities collectively offer a comprehensive view of the financial situation, enabling the identification of trends and opportunities through the monitoring of the business’s financial performance.
Although the two concepts are related, they are differentiated in that they play distinct roles in a company. While financial management encompasses corporate finance activities more broadly, FP&A falls within the scope of financial management and is dedicated to strategic planning, analysis, and informed decision making.
While financial management encompasses accounting, cost control, cash flow, investments, and risk management, with a strong emphasis on documentation and operations, FP&A brings a strategic dimension to financial management. It focuses on analyzing the organization’s financial data to enable informed decision making and establish realistic, measurable goals.
In essence, while financial management aims to optimize day-to-day operations, FP&A leverages financial information to steer the company, mitigate risks, and optimize outcomes in the medium and long term.
To implement FP&A effectively, it is crucial to have accurate and reliable data sources. The financial management team should utilize data collection and consolidation tools, while also ensuring the availability of relevant accounting information for the various FP&A processes.
Some of the most relevant documents and information to support FP&A include:
It is important to highlight the existence of another strategic model called xtended Planning and Analysis (xP&A), which enriches the financial analyses performed in FP&A by incorporating additional dimensions.
It employs the best FP&A capabilities, such as forecasting, ongoing planning, and performance monitoring, and combines them with other metrics and information that are not typical of financial statements, generating a more comprehensive view. Data used includes employee turnover, customer acquisition cost, customer experience, etc.
Applying FP&A can be an important competitive differentiator. By providing detailed financial analysis, FP&A brings valuable insights that help identify savings opportunities, optimize resource allocation, and make financial decisions based on historical and predictive data, with controlled risks.
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