3 reasons why your ERP isn’t cut out for FP&A

Stepping into a finance role often means inheriting the Enterprise Resource Planning (ERP) software that’s already in place.

ERP software is at the foundation of your finance processes – serving as a record of all your transactions. But have you ever stopped to consider whether your ERP is well-suited to financial planning & analysis (FP&A)? Or, have you ever had to make the case for investing in software beyond your ERP to take your finance processes to the next level?

After reading this article, you’ll have more insight into why your ERP may not be equipped to handle your FP&A processes and goals, and you’ll understand the three key challenges that finance leaders face with ERPs. This article covers:

1. Your ERP lacks forward-looking planning capabilities

ERP software specializes in recording your transactional and historical data but can fail to harness the full power of forward-looking planning. Consider these three areas where your ERP may be lacking:

Lack of proactive planning

ERP software is predominantly reactive. Since it focuses on documenting past transactions, it’s not equipped to help you plan for future scenarios. On the other hand, other systems, like FP&A software, can use your data to automate the creation of forward-looking plans.

Inadequate real-time reporting

ERPs often struggle to automate reporting and analysis in-real time, which is critical to understanding your business performance. ERP software can't offer real-time comparisons between projected budgets and actuals, which limits your ability to make strategic decisions on the fly.

Limited what-if scenarios

The ability to create and analyze what-if scenarios is crucial for any business. Unfortunately, this is another area where ERPs fall short. FP&A software, on the other hand, can leverage your data to simulate various scenarios, giving you a better understanding of potential outcomes and risks.

While ERPs are useful for tracking historical data, they lack the predictive capabilities and real-time analysis provided by FP&A software. To get a holistic view of your business performance, you should consider integrating your ERP with FP&A software.

2. Your ERP doesn’t support data analysis  

When it comes to data analysis, ERP software may not be the powerhouse you need. ERPs can struggle to perform in the following areas:

Limited reporting flexibility

The structure of ERP software doesn't offer the ease of click-and-drag functionality of FP&A software. This functionality allows you to manipulate and view your data from multiple perspectives, which can help you identify areas for opportunity. 

Quickly drill down into the details and manipulate your view of the data

Inadequate tools for detailed data analysis

Let’s use a construction company as an example – construction companies must analyze their margin fade across various parameters like project managers, geographic regions, and customers. Yet, ERP software is not designed to support detailed, multi-layered analysis, which can put you at a competitive disadvantage.

Lack of trend analysis over time

ERPs fall short when it comes to analyzing trends over time and by project phase. Unlike FP&A software, ERPs lack the capability to drill down to transaction-level details, which is crucial for making strategic decisions.

3. Your ERP doesn’t provide a holistic view of your business

When it comes to gaining a holistic understanding of your business performance, you might find that your ERP falls short. Have you faced any of the below challenges?

Limited data integration capabilities

ERPs often lack a capability to integrate with other tools and platforms. This limitation hinders ERPs from providing a complete picture of your business performance, which is crucial for strategic planning and analysis. In contrast, FP&A software can seamlessly integrate with your Project Management (PM), Customer Relationship Management (CRM), and Human Resources Information (HRIS) tools.

Insufficient forecasting ability

Consider the scenario of projecting potential projects from your CRM in sync with your work-in-progress (WIP) reports. FP&A software can handle more complex forecasting, providing more accurate predictions. However, ERPs generally fall short in this detailed, multi-layered forecasting process. 

Lack of cross-departmental collaboration

The integration of various data sources in FP&A software promotes cross-departmental collaboration, contributing to more precise cash planning. On the other hand, ERPs often work in silos, limiting the scope for inter-departmental collaboration.

While ERPs are great at resource management, they fail to offer a holistic view of business performance.

Choose software made for FP&A

Now that you understand where your ERP may be lacking, you might be wondering what software is best suited to financial planning & analysis?

The answer is FP&A software! FP&A software is also sometimes referred to as Corporate Performance Management (CPM) software or as a Financial Performance Management (FPM) platform.

FP&A software is specifically designed to meet the needs of finance teams who need to:

Want to learn more about how ERP and FP&A software compare? You can check out our guide here.

Comparing ERP and FP&A software

While ERP software is database for transactional and historical data, it is not the best suited for FP&A.

ERPs fall short in proactive planning, real-time reporting, and creating what-if scenarios. The structure of ERPs limits reporting flexibility and the software lacks the necessary tools for detailed multi-layered analysis. ERP software also lack data integration capabilities, sufficient forecasting ability, and does not promote cross-departmental collaboration, preventing a holistic view of business performance.

In contrast, FP&A software, with its advanced capabilities in planning, real-time reporting, scenario analysis, data analysis, and seamless data integration, provides a more comprehensive and predictive view of business performance, making it better suited to FP&A.

Read more on the differences between ERPs and FP&A software (or Financial Performance Management software) or FP&A software pricing.