28 February 2022
xP&A: the future of finance
Where do you see you and your team in five years’ time?
For many finance leaders, there’s a clear ambition to become more strategy focused. Collaborating much more closely with other areas of the business, they don’t just want to present the figures or be in the room when big decisions are made: they want to put their expertise to work by driving those decisions. This includes analysis of what’s happening on an operational, not just a financial level.
Reflecting this ambition, finance leaders also need more from their technology. In response, global consultancy specialist, Gartner has identified a big increase in interest for what it calls extended planning & analysis (xP&A). This is defined as:
“The evolution of planning, combining financial and operational planning on a single composable platform”.
Here’s a closer look at exactly what it means, and how it could shape the future direction of your finance team.
xP&A: what are we talking about?
It’s sometimes easy to forget, but planning is not just confined to the finance department. HR has plans in place to control headcount. Sales has its schedules and forecasts. Production has mechanisms in place to control inventory, manage supply chains and so on…
All major corporate performance management (CPM) solutions offer planning and analytics capabilities. Under the traditional CPM framework, finance usually has ownership over the financial and strategic elements of performance management. However, lots of operational planning processes are happening elsewhere - usually controlled by different systems.
In simple terms, xP&A delivers a joined-up approach to planning and analysis. More specifically, an xP&A solution lets you do three things:
- It enables all operational and financial planning on a single platform.
- It holds the data required for those planning processes on the platform.
- It has predictive learning and machine learning capabilities for more accurate insights.
Why is xP&A a hot topic in 2022?
“69% of finance leaders say the effects of the COVID-19 pandemic are accelerating digital business initiatives” (Gartner Research)
If we change the strategic focus of the business, what, exactly, will this mean for pre-existing operational plans?
If we make a rapid operational change (e.g. on headcount), what will this mean both for other operational areas (e.g. production) as well as for cash flow and, ultimately, our bottom line?
Just as the pandemic subsides, a new set of challenges arises: energy price hikes, supply-side inflation and recruitment shortages being the most notable. The last few years have provided a wakeup call to many organisations. As circumstances change, they need to analyse their options and see what the impact of their decisions will be on the whole business.
Gartner makes the point that xP&A is not just “new technology for new technology’s sake”. Rather, it has emerged as a direct response to business needs.
Planning silos restrict visibility
“By 2024, 70% of new FP&A projects will become extended planning and analysis projects” (Gartner Research)
Let’s say your chief operating officer’s team has produced a number of alternative proposals for de-risking your supply chain.
Ideally, you want to be able to measure, compare and contrast how each proposal will impact different areas of the business. You also need an accurate picture of how much each proposal would cost to implement, and how it will impact topline metrics such as operating margin and cash flow.
If there are multiple data silos and department-specific planning processes in play, it’s going to be very difficult indeed to get the ‘joined up’ picture you need. The major benefit of xP&A is that it successfully breaks down these data silos. You could have a single plan that pulls in data from multiple departments. With this ability to integrate data from right across the enterprise, you can generate quicker, more accurate answers.
How it works…
Under the standard finance planning and analytics (FP&A) model, independent data and operational silos send data to each other, and/or send data to an FP&A system. The FP&A system consolidates these plans: i.e. by incorporating the bottom line figures from various operational plans and feeding them into financial plans.
With xP&A, all these operational planning processes take place and are connected within the same platform, along with financial planning.
Find out more
MHR has an incredibly successful record in enabling both private and public sector organisations to put world-leading CPM solutions to work. Customers are benefiting from production planning, demand planning, supply planning, sales & operations, financial forecasting and integrated business planning all in one place. For the finance function, it means a much more accurate view of the health of the business, along with a clear opportunity to add strategic value.
Learn more about how to put an xP&A strategy to work within your organisation...