10 best practices in financial planning and analysis

Financials can make or break a company, and agile financial planning and analysis (FP&A) practices make all the difference. Efficient, automated processes that rely on the right tools allow organizations to anticipate risks and capitalize on opportunities.

Below, you’ll find 10 best practices for overhauling your FP&A processes. Implementing these will give everyone in your organization a better view of its financials, allowing for more strategic decisions, stronger goal-setting, and a better fiscal year.

Implement agile forecasting

Forecasting is crucial for navigating ever-changing markets, but traditional methods are slow and reactive. By switching to real-time forecasting and analytics, organizations can better adapt to changes on the fly, without sacrificing short-term goals or their budget. This allows businesses to quickly respond to opportunities and disruptions alike by improving the speed at which data can be analyzed to guide decision-making.

Embrace real-time data and predictive analytics

Using real-time data for analysis can be a challenge. Manually managing multiple sources is out of the question. FP&A software that can autonomously collect data and use AI-driven analysis not only improves forecast accuracy but also reduces workload and time. Using AI for FP&A can also provide alerts and notifications, monitoring data sources and automatically alerting you to patterns or activities that require your attention.

Integrate FP&A with other departments

The integration of FP&A with the rest of your organization is critical for maintaining comprehensive financials and strategic alignment across departments. When connected with departments like sales, operations, and marketing, FP&A software breaks down silos and creates unified financial strategies that reflect the business as a whole. Automating these integrations ensures that financial plans are up-to-date and informed by real-time data, without time lost in the collection and organization of that data.

Foster cross-functional collaboration

Cross-functional collaboration drives better performance organization-wide. For example, sales provides demand forecasts, while operations might highlight resource constraints based on that data. Working closely with other departments and using tools that help both sides to communicate and integrate seamlessly means your FP&A processes have all the necessary data without disrupting anyone’s daily work.

Utilize advanced data analytics

Advanced data analytics, usually algorithmic or AI-powered, have transformed FP&A processes by making deep analysis both rapid and accessible. These tools enable businesses to analyze huge datasets in real-time, highlighting trends as they’re developing, and identifying patterns that might otherwise go unnoticed. These tools free up valuable resources, allowing for optimized processes across FP&A tasks. This results in reports that are delivered more quickly and can be used with more confidence.

Leverage machine learning and AI

Machine learning and AI take advanced data analytics a step further by continuously improving through pattern recognition. AI algorithms used in financial tools adapt to your existing data to identify patterns and trends, and will detect unusual data patterns or discrepancies when it finds deviations and flag them. Leveraging AI this way means businesses can now intercept issues before they have a significant impact on financials.

See an example of how Prophix One, a Financial Performance Platform, leverages AI to quickly generate insights from your financial data.

Prioritize continuous performance monitoring

Continuous performance monitoring keeps leadership on top of an organization’s financial health. With software that tracks key performance indicators (KPIs) in real-time, businesses can identify trends, adjust strategies, and make informed decisions in record time without sacrificing accuracy or larger strategic goals.

Implement real-time KPI dashboards

Real-time KPI dashboards are a fantastic tool for leaders and stakeholders, providing them with immediate access to live data. These dashboards can keep data consistent and transparent across an organization. Whether it’s sales figures, operational metrics, or financial performance, real-time dashboards allow for a more collaborative and informed environment across departments, keeping everyone on the same page when it comes to data-driven decision-making.

Conduct sensitivity analysis

Sensitivity analysis helps businesses stress-test potential risks and opportunities through simulation. By analyzing how different variables impact outcomes—and to what degree—organizations can better explore, identify, and define probabilities that might impact their strategy. With the ability to stress-test assumptions, FP&A teams can refine their forecasts and prepare for more scenarios with greater precision. This is a vital part of integrated business planning.

Review your scenario planning capabilities

Efficient scenario planning lets organizations develop contingency plans for more potential futures. Creating "what-if" scenarios lets businesses evaluate the impact of external changes on their financial performance and operations. The goal is to anticipate challenges, mitigate risks, and capitalize on opportunities, all while staying within the organization's strategic goals. Streamlining these processes with smart FP&A software means more possibilities explored, more confidence in decisions, and fewer resources used in the process.

Center planning around cash flow management

Cash flow planning makes sure that organizations can meet their day-to-day operational needs. By centering financial planning around cash flow, businesses increase their stability and avoid possible disruptions. The effective application of both cash flow management and business driver management practices builds more agility and reliability into business planning.

Optimize your working capital

Regularly monitoring and optimizing working capital like receivables, payables, and inventory, provides companies with confidence that they have the liquidity needed for operations. Minimizing risks and maximizing opportunity within those constraints can be a challenge for finance teams. Finance software that aids teams in tracking and optimizing cash flow can help identify and capitalize on opportunities, while supporting greater accuracy in forecasts.

Establish rolling forecasts

Traditional static budgets can be outdated quickly after they’re finalized. Rolling forecasts provide better accuracy than traditional methods by constantly adapting to new data. By leveraging a live-data environment, regular adjustments can be made to forecasts, keeping businesses agile and responsive to changes in the market, without the need to manually recreate them.

Go beyond traditional budgeting

Transitioning from annual budgeting to rolling forecasts provides a more accurate and timely financial planning cycle. Organizations can track performance throughout the year, adjusting projections as new data becomes available. Rolling forecasts work best when live data is available from across the organization. FP&A software is an absolute necessity when building the data analysis capabilities necessary to sustain live forecasting.

Focus on driver-based planning

Driver-based planning focuses on identifying business drivers that directly impact performance. Shifting towards driver-based planning helps organizations keep their financial forecasts grounded in operational realities instead of being lost in a sea of spreadsheets. Identifying and understanding these drivers facilitates the creation of accurate and responsive plans that reflect the real-life factors influencing business outcomes.

Identify key business drivers

Common business drivers are sales volume, operating costs, and customer retention rates. For example, an increase in sales volume may directly lead to higher revenue, while rising operating costs would reduce profitability. By identifying these key drivers for your organization, and understanding their relation to outcomes, companies can understand the specific drivers underneath their financial performance and adapt their strategies around them. FP&A software will provide the benchmarking and tracking tools needed to determine what drivers are at play and when.

Automate routine FP&A tasks

Automating tasks like data collection, consolidation, and variance analysis frees up time for finance teams to invest in strategic, high-value activities that drive and sustain growth. Automation reduces the time spent on time-consuming, repetitive work, freeing up FP&A teams to concentrate on tasks that actually move the needle.

Increase accuracy and speed

When data handling and routine reporting are automated, reports are created directly from the data, with little opportunity for human error. By integrating finance software directly with data sources, organizations can be more confident than ever in the accuracy of reports, and generate them in record time.

Invest in technology and tools

Investing in advanced FP&A technology and tools is essential for streamlining financial processes and enhancing analytical capabilities. Modern software automates data collection, improves forecasting accuracy, and provides deeper insights into financial performance. By leveraging the right technology, businesses can make faster, more informed decisions, improve efficiency, and stay competitive in a dynamic market.

Prophix’s industry-leading FP&A solutions

Organizations need their financials and analysis to be agile if they are to keep pace in the market. They also need their software to be powerful enough to handle the wealth of data their organization generates. Prophix One, a Financial Performance Platform, has the tools you need to centralize your data, creating a single source of truth, and the power to analyze it in record time, providing FP&A teams with reliable data and the agility needed to adapt to ever-changing markets.

In summary: 10 best practices in financial planning & analysis

Traditional FP&A practices work, but they need improving. Using the right technology and overhauling stagnant processes lets teams do more, work faster, and have the agility to adapt to change in stride. Integration is key to streamlining the analysis of huge data sets from across an organization. Automation alleviates many time-consuming and repetitive tasks, which frees up FP&A teams to focus on the more crucial strategic tasks that only they can do. Using the right tools for the right process means better results at every level.