What is financial planning and analysis (FP&A)?

There's no denying that FP&A has been growing in importance and as a field. But what exactly is it? What does FP&A do?

FP&A is a broad field with many responsibilities, but ultimately it's the core forward-looking finance function, responsible for strategic planning and budgeting.

In this article you'll learn all about FP&A responsibilities, functions, job roles, tech stack, and even the future of the field.

FP&A meaning and definition

FP&A stands for financial planning and analysis. It's the set of planning, budgeting, forecasting, and analytics activities that support a company's business decisions.

High-level FP&A enables companies to tell the story of the numbers: the budget, expenses, financial statements, and financial ratios present a story of a company's growth, struggles, and trajectory. FP&A is how companies find that story, tell it, and direct it to the ending they want.

Let's break down each of the components of FP&A.

Financial planning

Financial planning is the process by which a company identifies a desirable end state and makes a strategy to achieve it.

For example, if a company wishes to achieve 2x revenue growth in a fiscal year, the FP&A team will be tasked with outlining a strategy to achieve that growth.

How do they do this? By using the tools we're about to cover: financial analysis, financial forecasting, and financial reporting.

Financial analysis

Financial analysis is one of the core financial activities a company needs to perform. Financial analysis helps companies understand how their money gets used and how effective that usage is.

There are many kinds of financial analysis, from budget variance analysis to ratio analysis and horizontal/vertical analysis to scenario, sensitivity, and flux analysis.

In other words: financial analysis is the building block of the story that FP&A tells.

Financial forecasting

Financial forecasting is how the FP&A team peeks into the future and projects the results of their analysis.

Financial forecasting commonly looks like scenario modeling, where the FP&A team makes an assumption and projects the state of the business based on that variable change.

Financial reporting

Financial reporting is the final core component of FP&A, and it's critical. Financial reporting's biggest deliverables are the financial statements: the income statement, balance sheet, and statement of cash flow.

The FP&A team then uses these financial statements to guide its planning, to use as a base for analysis, and to create forecasts and models.

Likewise, the FP&A team reports on important financial ratios—like the debt-equity ratio or the quick ratio—to stakeholders, board members, and investors who want different views on the company's overall financial health.

What is FP&A's role in a company?

Historically, FP&A was relegated to the back office. But now FP&A is emerging as a command center for a company's strategic vision, directing operations based on financial data.

It typically sits beneath the CFO, in the finance department, and is separate from other finance activities like accounting, treasury, and compliance. That said, FP&A works with those departments, as it's responsible for creating and maintaining the fiscal budget.

FP&A job titles

Someone working in FP&A typically has "FP&A" in their title, but they might also be referred to as a "financial analyst" or "financial analysis manager."

FP&A analyst: This is FP&A's individual contributor level. The FP&A analyst can be entry-level, associate, senior, or a team lead. Regardless, the FP&A analyst is responsible for performing analyses, scenario modeling, creating financial statements—the core FP&A work.

FP&A manager: The FP&A manager oversees the activities of the FP&A team. At smaller companies, there might be only one FP&A manager or director responsible for all things FP&A. However, at larger companies the FP&A manager will see a team that's responsible for a specific portion of the company. This is especially true for companies with multiple entities and more disconnected finances.

FP&A director: The FP&A director oversees FP&A processes and will have a greater role with connecting the FP&A team with other teams as needed. Directors will present financial reports and typically have a seat at the table to drive business plans, as well as contribute to broader company decisions. The director of FP&A is often considered a stepping stone to the CFO position.

CFO: The C-suite level, the CFO is rarely involved in the day-to-day work of a company's finances and instead is the spokesperson for the company's finances at board meetings or planning meetings. The CFO is the steward, operator, strategist, and catalyst of a company's finances and financial decisions.

What's the difference between FP&A and the CFO?

The difference between FP&A and the CFO is that the CFO is a role, while FP&A is a function. The CFO oversees the FP&A department but also is responsible for other finance departments like accounting and the treasury. 

Basic steps in the FP&A process

What's involved in the FP&A process? While the FP&A team does so many tasks, there are four large buckets we can group them into.

1. Data collection, consolidation, and validation

Also known as the preparation tasks, the FP&A team is often tasked with collecting data, validating it, cleaning it, shaping it into a usable form, and then consolidating or packaging it.

They then use this data in their analyses, plans, and forecasts.

2. Planning and forecasting

The planning and forecasting steps are core FP&A work. Planning is how a company identifies its goals and the strategies to achieve those goals, while forecasting is more granular and is how a company projects its future state, usually to assess the reality of a strategy or the efficacy thereof.

Tasks like scenario planning and financial modeling fall under this bucket.

3. Budgeting

Budgeting is how a company allocates funds to achieve its plans. FP&A teams are increasingly ditching spreadsheets to budget with tools like Prophix, which help them work faster and eliminate many of the headaches associated with spreadsheet-based budgeting processes like cleaning data, broken references, and complex, unknowable formulas.

Budgeting is, of course, one of the most important tasks that the finance department is responsible for.

4. Performance monitoring and reporting

Finally, the FP&A team is responsible for performance monitoring and reporting. Producing financial statements and doing analyses measures how effective a company's operations or initiatives were.

Performance monitoring also extends to human capital management, ensuring that employees are able to output a level of productivity aligned with what the business needs to realize its plans.

The rise of xP&A

xP&A stands for extended planning and analysis. Coined by a 2020 Gartner analysis, xP&A was originally a buzz word that's finding staying power as more teams think about how to integrate the power of FP&A into their long-range plans. This isn't a new idea—xP&A was previously called integrated FP&A or collaborative planning. Both of those are based on the idea that the FP&A team is often required to analyze scenarios in real-time co-operatively, multi-dimensionally and at different levels of the organization.

So xP&A is the process of linking strategic, financial, and operational plans for greater visibility. The end result is that all plans across the organization become more aligned and agile.

FP&A software and tools

Like any modern business function, FP&A relies on its share of tools and software to work. Here are the basic building blocks for the FP&A tech stack.

The FP&A tech stack

FP&A requires a few pieces of technology to function.

ERP, GL, and/or accounting software: The ERP (enterprise resource planning) or accounting tool functions as the source of truth for a company's numbers. The GL (general ledger) often lives within a broader ERP and records transaction data, while something like an HRIS (human resources information system) or HCM (human capital management) tool contains important payroll and headcount information.

Spreadsheet or financial analysis software: Typically the spreadsheet (especially Microsoft Excel), but preferably an FP&A tool (like Prophix). This enables the FP&A team to perform faster analysis and unite their data.

Finance teams at larger companies will often have a spend management tool, a separate payroll system, AP (accounts payable) and AR (accounts receivable) software to handle billing and payments, and vendor management tools, among others. If you can think of it, there's probably a tool for it.

But many pieces of software handle multiple functions. Prophix’s Financial Performance Platform, for example, can handle your financial close and consolidation needs in addition to your FP&A tasks, so you can address the entirety of your finance processes in one platform.

Benefits of FP&A tools

FP&A software helps CFOs, finance leaders, and FP&A professionals ensure their organization's financial health. It helps them report, analyze, plan, and forecast without the headaches associated with the traditional FP&A spreadsheet.

Here's a quick overview of the top benefits of FP&A software.

Better data preparation: So much of the FP&A team's time is spent on preparing for analysis rather than actually performing an analysis. FP&A software helps teams import, clean, deduplicate, and consolidate their data much more quickly than they would be able to in Excel, which saves a lot of time for the important work of analysis.

Faster analysis: FP&A software comes with much of the analysis that teams would need to do manually in Excel, or that would be unwieldy in Excel. For example, most FP&A software makes it easy to create multiple scenarios, but in Excel that requires a lot of copying, pasting, and managing files, which can quickly get messy.

Easier reporting: Creating financial statements and other financial reports always takes time, and creating visualizations of complex datasets even moreso. FP&A software often contains dashboards to help leadership get an at-a-glance understanding of the company's financial performance, which leads to faster overall reporting.

The future of FP&A

While FP&A was historically a back office role, recently FP&A has been emerging as a central command center for a company's operations, often hand-in-hand with the CEO and other visionary leaders.

With that said, FP&A needs to continue to evolve to best partner with CEOs.

AI and ML

FP&A teams will make heavy use of artificial intelligence and machine learning, especially when it comes to the predictive modeling work involved in financial forecasting. However, there is training and skills development that comes along with the use of AI and ML for FP&A.

Heavier investment in the cloud

Traditionally, FP&A work was done locally, on an individual's machine, in a local Excel file. But with the rise of cloud-based FP&A tools, that processing center is changing from a local desktop to a cloud-based server.

Cloud-based platforms make it easier for FP&A teams to work together better and to pull in the data they need. It also helps them divide parts of a project or analysis and recombine them later, leading to faster efficiency.

Frequently asked questions about FP&A

As FP&A is such a big topic and is still emerging as a major business function, there can be a lot of confusion around what it is. Let's clear that up.

What's the difference between FP&A vs accounting?

FP&A stands for financial planning and analysis. FP&A is a forward-looking function, concerned with the company's future: its plans, its projections, and its strategies. Accounting is more of a backwards-looking function, concerned with an organization's historical performance.

FP&A and accounting work together, as accounting is necessary for providing the historical data that the FP&A team uses as a base for its projections and models. Likewise, the FP&A team builds the company's budget and produces financial statements in part based on the chart of accounts maintained by the accounting team.

What does a financial analyst do?

A financial analysis is an individual contributor-level role in an FP&A team or department. The financial analyst is responsible for analyzing a company's finances, performing tasks like ad hoc analysis, scenario analysis, and flux analysis. The financial analyst is also responsible for reporting and will be involved in the creation of financial statements and other metrics as needed.

What is the hierarchy of FP&A roles?

From most to least senior, the most common hierarchy of FP&A roles is as follows:

• CFO
• FP&A director
• FP&A manager
• FP&A analyst

How do you get into FP&A?

There's no one way to get into FP&A, which makes it an exciting career path for finance professionals. A background in finance, economics, accounting, investment banking, entrepreneurship, data analysis, and even software engineering or consulting are all good foundations for a transition into FP&A.

Many interested professionals will skill up via FP&A bootcamps or online courses before applying for internships or entry-level jobs as financial analysts.

Another path into FP&A is to be an early finance hire at a growth-stage company.

Even if you're not responsible for FP&A, there will be plenty of FP&A work that needs done, and employees are smaller companies often wear multiple hats anyway.

Conclusion: World-class FP&A with Prophix

Now you know all about FP&A. What is it, how it works, what it's responsible for, and even how to break into it.

And if you're an FP&A professional, it's a great time to invest in an FP&A tool that handles the manual, error-prone work that many FP&A teams feel saddled with. Try Prophix to handle your financial reporting and analysis needs in a cloud-based environment that liberates you from the tyranny of the spreadsheet.

See what you can do with Prophix’s Financial Performance Platform.