FP&A and BI: An Inseparable Bond

Finance is full of acronyms and capitalized letters. For example, where would a month-end financial report be without referring to EBITDA at least once? I have also noticed that these capitalized words often come in pairs: DCF would not exist without WACC, and LTV always appears alongside CAC*. Also inseparable are FP&A and BI.

In our projects, we often start by helping customers implement fully automated month-end financial reporting packages. Many of our customers are owned by private equity firms that require CFOs to provide a comprehensive review of their company’s financial performance each month. These reports typically include a variance analysis of actual performance against budget and prior year. The reports may also include a detailed analysis of sales and profitability by customers, end-markets, product categories and SKUs (yet another acronym), etc. These reports fall firmly in the realm of Financial Planning and Analysis (FP&A).

While FP&A reports are important to measure financial performance and often lead to valuable discussions between management and owners about the company’s value drivers, the reports are typically not available until the middle of the following month (after the books are closed). As a result, this review feels a bit like looking at the company through a rearview mirror, which leads to management and owners wanting more “real-time” analytics and key performance indicators (KPIs). That is where Business Intelligence (BI) comes in.

In our BI projects, we help companies build KPI dashboards that give management real-time insights into operational performance. For example, daily sales reports can give the CEO an indication of whether or not the team is on track to hit sales targets for the month. An operations dashboard may provide labor metrics by shift and by day, which gives a COO insights into whether or not labor costs per unit are on target. These examples are two of many KPIs that managers use to make effective decisions on a daily basis. The benefit is that BI dashboards provide valuable information long before the monthly financial statements are available.

KPIs that guide actionable decisions ultimately show up in the financial statements, and in the overall performance of the business. If the KPIs help managers and employees execute, then hopefully a CEO is reporting to the Board that sales are growing, margins are expanding, and returns on invested capital are increasing. Whether or not the results are above or below expectations, management has much better insights into what is driving the performance and they can make decisions to stay the course, or if needed, adjust. As a result, the daily performance metrics and month-end financial analysis become a virtuous feedback loop.

On our website, we present FP&A and BI as different services. We do that because we started by delivering stand-alone and fully automated financial reports. And while some of our customers are content with solid month-end financial reporting, more and more companies want to combine this periodic financial analysis with real-time analytics and actionable insights. So while it may be easy to think about FP&A and BI as distinct activities, we think of them as forming an inseparable bond that helps management and owners drive holistic corporate performance and shareholder value.

*For those of you less familiar with digital marketing terminology, LTV stands for Customer Lifetime Value and CAC is short for Customer Acquisition Cost.