The AFP FP&A Maturity Model, developed by the FP&A Advisory Council, was designed to help organizations determine the level of maturity of their current FP&A capabilities, identify what best in class looks like, and what specific actions can improve the team. It is organized in four domains:

• Business process
• Organization/people/skills
• Technology
• Data.

Each of these domains is then subdivided into five elements of FP&A practices. An FP&A team can self-evaluate on these practices on a one-to-10 scale into foundational, emerging, or optimized groups.

Business process

This month we are examining the five elements that make up the business process domain.

Planning/forecasting attempts to align various components of an organization in preparing for an uncertain future. The goal is to have plans and forecasts that extend beyond the current fiscal year, where all aspects of the organization have provided input and leverage the same assumptions. FP&A also tracks forecast accuracy in an effort at continual improvement.

Specific actions to improve this process include the following:

• Improving forecasts over time by measuring and reporting on forecast accuracy, including validation of assumptions and the effectiveness of forecast algorithms
• Extending forecasting beyond the current fiscal year and aligning with business cycles
• Engaging front lines in developing forecasted drivers and translating into predictive measures of performance and financial revenue/expense
• Linking operational drivers across the entire business to engage the organization in forecast development.

Resource allocation assumes that people, time, capital and assets are scarce, can be applied toward many possible efforts, and therefore need to be distributed most efficiently to derive the highest return. The aspiration is that financial and operational planning cycles are in sync, and that resource usage is planned jointly with the business. Plans to measure and consume shared resources are collaboratively prepared, using complex allocation methods.

Specific actions to improve this process include the following:

• Measuring utilization of shared resources by user groups across the business
• Planning for shared resource usage collaboratively by focusing on consumption by user groups in meaningful metrics
• Shifting usage measurement to a variable (driver-based) basis where feasible
• Fostering a partnering culture around shared services using clear service definitions and regular communication around plans for meeting user needs.

Performance management is the quantifiable assessment of how well an enterprise is achieving its stated objectives, and therefore its ultimate strategy. The aspiration here is that the information is trusted—it is error-free, consistently prepared and clearly understood, leading users to trust it and apply it confidently in decision-making.
 
Specific actions to improve this process include the following:

• Measuring and tracking error rates, incorporating validation and reconciliation processes
• Incorporating external and internal benchmarks into reporting
• Measuring across time series, including forecasts and prior periods
• Developing strategic measures and KPIs, linking across the organization where possible
• Ensuring that measures include a “balanced” set of financial and non-financial metrics.

Management reporting is both a process and the product that FP&A delivers to managers at various levels of the organization to help them make decisions. The goal is to deliver error-free reports that are forward-looking and actionable. The planning horizon is a rolling 18-24 months, and the business discussions involve leveraging metrics, the forecast and the overall plan.

Specific actions to improve this process include the following:

• Measuring and tracking error rates
• Incorporating validation and reconciliation processes into reporting process
• Surveying report users to ensure relevance and usability of reporting
• Extending reporting into future fiscal periods, emphasizing forecasting over historical analytics
• Engaging other stakeholders around the organization in extending management reporting
• Incorporating non-financial metrics and linking to strategic measures, adding internal and external benchmarks and time series analysis.

Analytics is the process of digging into data sources in order to find trends, facts or explanations of events that can lead to insights and actions. The aspiration is to leverage a single source of the truth—the unambiguous data set that everyone agrees on. FP&A should also have the skills to interpret the information to come up with forward-looking action items.

Specific actions to improve this process include the following:

• Identifying “gold sources” of data for financial and operational information, including rigorous data integrity and governance (this may be a common data warehouse)
• Ensuring that analytics are enabled with appropriate human skills and technology
• Engaging business partners in creating analytics with relevant business value
• Shifting emphasis to action and decision-making   
• Moving from financial variance to driver-based variance
• Adding predictive and forward-looking elements to analysis, with sensitivity based on multiple driver-based scenarios.

The FP&A Maturity Model and Addendum can be found here.

Bryan Lapidus, FP&A, is a contributing consultant and author to the Association for Financial Professionals. Reach him at [email protected].

For additional insights on FP&A, subscribe to the AFP monthly newsletter, FP&A in Focus.