What Is FP&A and Why Is It Important? A Short Intro to Finance’s Most Vital Function

FP&A is one of the most vital functions in Finance. But what is FP&A, exactly? And what activities fall under its umbrella? In this blog post, we will answer those questions and more. We will also explore how FP&A fits into the larger Finance function and why it is so important. By the end of this post, you will have a better understanding of FP&A and why it is such an essential part of any successful business.

What is FP&A?

FP&A stands for Financial Planning and Analysis and is a sub-function of an organization's larger Finance function. At its core is the creation and maintenance of the financial plan for a company. This plan includes short-term and long-term goals as well as targets for revenue, expenses, and cash flow.

What are the core FP&A activities?

Besides the creation and maintenance of the financial plan (or budget), the following core activities are typically subsumed under FP&A:

• Forecasting future revenue and expenses
• Analyzing variances between actual results and budget/forecast
• Providing decision support to senior management with regular and ad-hoc analyses
• Preparing financial reports

The purpose of all these activities and the FP&A function, generally, is to ensure that a company meets its financial goals. This is done through careful planning, analysis, and reporting.

How does FP&A fit into the Finance function?

FP&A is part of the larger Finance function. Let's look at the Finance function pyramid to see where exactly FP&A fits.

At the bottom of the pyramid are activities that are integral to any finance function. These activities include things like invoicing, payments, bookkeeping, and accounting. These activities are predominantly backward-looking (the outcome of bookkeeping and accounting activities is a reflection of the past). As we move up the pyramid, Finance activities become more strategic and forward-looking.

Please Note: You may have seen the above pyramid in a similar form. It is not meant to be comprehensive, and the order and the boundaries between the activities are simplified.

Why is FP&A important for any business?

The question of why FP&A is so essential can also be answered by looking at the above pyramid. FP&A is what turns Finance from a mere supporting function to a core value driver of any company. While payments, bookkeeping, or taxes in most cases have no impact on the performance of a company, FP&A can significantly influence a company's fate by defining and monitoring financial goals, ensuring that money is spent in the most effective way possible, and providing insights that help management make informed decisions.

Which tools are used for FP&A?

The FP&A function heavily relies on technology, specifically financial planning software. This is because the budgeting, forecasting, and reporting activities that are part of FP&A require data from various sources to be collected, processed, and analyzed quickly and efficiently.

There are many different types of financial planning software on the market. Choosing the right one for your company depends on several factors such as size, industry, the complexity of financial operations, etc.

If you want to learn more about FP&A or find out which tool is right for your business, please get in touch with us. We would be happy to help!

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