Learn More About FP&A Software
What is FP&A Software?
FP&A (financial planning and analysis) software manages the strategies that large companies use to monitor the performance of their business activities. FP&A software is used to create and implement methodologies and processes, allowing corporations to track key performance indicators (KPIs) relative to corporate business objectives. This type of software is implemented across the corporation and is used by managers and executives responsible for improving the business performance of the company.
In some cases, FP&A software may only be deployed by accounting departments to analyze financial performance and track the profitability of a company. While that is still the primary focus of most FP&A solutions, tracking performance has been extended to most departments of a company, from sales and marketing to operations and IT. This type of software should not be confused with business intelligence (BI) software, which provides generic analytics features that are not always focused on business performance. Many BI providers also deliver KPIs or metrics for corporate performance, either as part of their core offering or as separate solutions and add-ons.
What are the Common Features of FP&A Software?
The following are some core features within FP&A that can help users create and achieve goals, forecast costs and revenues, and create and measure KPIs.
Corporate goals and objectives: Company goals need to be detailed enough to be relevant but also easy to communicate and understand. It is essential that objectives are measurable and realistic, which requires a lot of business data and feedback from employees and executives. FP&A software provides prewritten goals (revenue, profit, sales quotas, etc.) for all departments, such as sales, accounting, HR, or procurement. It also allows users to customize them according to their requirements. Objectives can also be categorized and aligned to ensure that the entire company has the same goal in mind.
Strategic planning: Strategic planning involves defining and implementing what needs to be done to achieve corporate objectives. Strategic plans are used for long term projects, such as mergers and acquisitions, capital investments, restructuring, or expansion into new markets, that are intended to transform the company. Since these projects are costly and crucial, strategic planning leaves little room for error. FP&A software provides features to create strategic plans and adjust them periodically to take into account any changes in the company and its environment.
Forecasting: FP&A helps forecast future costs and revenues for business operations and strategic plans by pulling data from multiple sources, such as sales data, income and cash statements, and budgets. To function correctly, a company needs to have an idea of what resources it needs and how many sales it can generate to be profitable and support future growth. For strategic planning, costs can be very high, which is why it’s crucial for executives to understand how much they need to invest. The results of strategic planning are only visible in the long term, which is why it’s important to estimate them before making costly investments.
Corporate KPIs: KPIs and metrics are used to track actual results and compare them
with what has been forecasted and planned. Metrics are critical for companies to understand how successful they are, what business areas need to be improved, and how future performance can be optimized. FP&A software includes prewritten or industry-specific KPIs and features to monitor them at all levels in a company.
Other features of FP&A software: Data Visualization, Scorecards, and Version Control.
What are the Benefits of FP&A Software?
FP&A software can help by improving employee productivity, increasing revenue, and sustaining company growth.
Improved productivity: Although FP&A software includes monitoring employee satisfaction and retention, sometimes, its main focus is improving communication throughout the organization, aligning and executing organizational strategies to improve productivity for the company as a whole. This is done by streamlining workflows and identifying problem areas that need improvement.
Increased revenue: Using FP&A software allows companies to align with their strategic priorities and focus more on KPIs, as well as other business metrics that must be maintained to improve sales, revenue, and profits. Finance teams can use FP&A software to develop cost and revenue modeling to help them understand the implications of their forecasted numbers.
Data automation: FP&A software can streamline and automate the collection, aggregation, and reporting of real-time data from multiple sources, with consistency and increased accuracy, providing faster results with shortened period-end closes. FP&A software utilizes information from one source and improves data security with the numbers produced from it.
Who Uses FP&A Software?
Accounting professionals: Accountants use FP&A software to monitor and improve financial performance. It helps accountants compare budgets with actual expenses and revenues at different levels of the company. Accountants also use FP&A software to create forecasts for future revenues and corporate expenses and identify opportunities to reduce costs and improve profitability.
Department managers: Managers of any department benefit from using FP&A software by tracking the business performance of their own departments. Each department has specific goals and metrics that need to be aligned with the other departments and the overall objectives of the company. FP&A software allows managers to budget for future expenses, identify discrepancies between expected and actual revenues, and understand how their operations impact the efficiency of the other departments.
Executives: Executives use FP&A software for strategic planning and to oversee performance at the company or group level. When required, executives also need to be able to drill down to find details on metrics and transactions, that had an impact on corporate performance.
Software Related to FP&A Software
FP&A software often complement or are often used in conjunction with the following tools:
ERP systems: Enterprise resource planning (ERP) software provides a lot of the information used by FP&A systems but also uses performance analysis data to optimize operations managed by the system. For instance, forecasts generated using FP&A are used in ERP to determine the production capacity or the quantity of raw materials needed to supply the demand. ERP also helps compare estimates with actuals and identify discrepancies between forecasts and outputs. These discrepancies will be used in FP&A to optimize forecasting and create performance objectives with increased accuracy.
Accounting software: Accounting and finance software provides the financial information required to monitor the profitability of the company. It also helps create and manage budgets, which need to be aligned with corporate objectives. This is particularly important because companies can only function within the confines of their financial limitations. Executives and managers may have ambitious plans to improve performance, but may not have sufficient funds to implement them.
Business intelligence software: BI software can be used to replace FP&A software for companies with basic needs. It can also be used to gather, clean, and prepare all the data used to monitor and improve performance. Most FP&A vendors provide features for integration with BI and data management software to provide a high level of data accuracy.
Financial consulting providers: Financial consulting service providers can help companies define and implement performance metrics and KPIs that are specific to their operations or their industry. Consultants can also assist companies with determining strategic and contingency plans or improve their forecasting and budgeting processes. Large financial consulting firms also provide benchmarking services based on consolidated data from thousands of customers. Benchmarking can be very useful for companies to compare their performance with their peers or competitors.
Challenges with FP&A Software
FP&A software solutions can come with their own set of challenges.
Complexity: FP&A software can be challenging to implement and maintain. Consolidating and analyzing different types of corporate data can be difficult and requires ongoing management and processing. Some FP&A solutions are made of multiple products or solutions, which need to be integrated with each other and with other software such as ERP systems or accounting.
Data accuracy: FP&A software uses large amounts of data from multiple systems, which is why the information must be accurate. Accuracy can be a challenge when companies use various software systems and data sources of structured and unstructured data. Data duplication is another challenge, which can be caused by double entries in multiple systems used by different departments for different purposes.
Implementation: FP&A software is often technical in an accounting or finance sense and it would be beneficial for companies to have employees with accounting or business experience when implementing this software.
Which Companies Should Buy FP&A Software?
The functionality that FP&A software provides can be beneficial for businesses across a variety of industries. As FP&A software monitors and manages financial and operational performance to set and meet corporate goals, any organization that has an internal accounting or finance team can benefit from purchasing this software.
How to Buy FP&A Software
Requirements Gathering (RFI/RFP) for FP&A Software
When selecting FP&A software, it is important to look at how a business operates, and familiarize oneself with the different types of software available. Users should make sure the FP&A vendors in their list have prebuilt integrations to their ERP system. Ideally, one which provides connectivity to the general ledger tables so users can report, drill down, and budget according to their requirements.
Compare FP&A Software Products
Create a long list
The buyer is advised to create a long list of software that is designed to help businesses in their industry. For example, there might be platforms specifically built for businesses in retail, manufacturers, restaurants, as well as for many other types of commercial organizations. Another factor to consider when creating this list is whether the software is cloud based. FP&A solutions are generally easier to manage in the cloud, with automated reporting tools upgrades, frequent releases, and user-friendly interfaces.
Create a short list
After reviewing and researching the software on the buyer’s long list, they can cut down the list based on their budget. FP&A software is available to suit all budgets and some general FP&A applications may be downloaded for free or bought at a low price. However, more specialized software is generally more expensive. It’s because the user base for specialized software is relatively small. If the buyer wants something specific to their industry or customized for their company, they would have to pay more.
Conduct demos
Companies should make sure to demo all of the products that end up on their short list. During demos, buyers should ask specific questions related to the functionalities according to their priorities. They should also communicate key objectives and critical needs to vendors and demand that these be covered in software demonstrations.
Selection of FP&A Software
Choose a selection team
The employees who will be using this software must be involved in the selection process. It may be preferred that the software chosen is compatible with the ones they currently use. Every business is different and the end users are most likely in the best position to offer an educated opinion about which one is the best choice for their particular needs. They may even be able to help the buyer install and set up the software of choice.
Even after purchasing software, most platforms allow for addons or modifications. However, choosing the right software is still important as it is still a big commitment of time and money. To see solid ROI, buyer’s can’t change their minds a few months later and switch software again.
Negotiation
Negotiating a software contract is important to minimize risk, whether it is in terms of performance protection, security protection, or simply making sure that both parties are in complete agreement on their expectations. The buyer has the option to ask for a discount in return for annual upfront payment, and many software providers are usually happy to make that deal. Usually, some implementation services will be included in a software provider's first offer. The buyer can ask for these services to be removed. Also, if the company will use the software for a long time; they can negotiate longer terms, which often results in more favorable pricing.
Final decision
The final decision should be based on all the information gathered previously. Buyers must prioritize their needs and select a solution that meets most of their requirements. It is recommended to run a pilot program to test adoption with a small sample size of users. If the tool is well-used and well-received, the buyer can be confident that the selection was correct. If not, it might be time to go back to the drawing board.
FP&A Software Trends
Shifting from on-premises to cloud
Due to constant technological advances in FP&A software, more vendors are investing in SaaS platforms because they offer a wide array of advantages compared to legacy on-premises solutions. This is because support costs are reduced, flexibility is increased, and it’s generally more user-friendly. With cloud-based software comes more modern licensing models which brings a lower initial investment for the customer, giving more companies the option of utilizing FP&A software.
Niche players
As technology like the cloud becomes more accessible, small vendors started creating solutions and add-ons that can partially replace or complement FP&A. While this trend can be useful for small companies that do not need complicated FP&A software, large companies may end up using multiple systems and tools, which can create confusion and double entries and complicate data management.
