Welcome back to Count Me In,
IMA's podcast about all things affecting the accounting and finance world.
This is your host Adam Larson,
and I'm here with you again to preview another insightful conversation about
financial planning and analysis. Here in episode, 171,
Mitch spoke with Larysa Melnychuk about trends in modern FP&A.
Larysa is a leading FP&A professional and influencer.
She held senior roles at top organizations before establishing the international
FP&A board in 2013,
which has since expanded to 27 chapters in 16 countries across Europe,
the Middle East, Asia, Australia, and North America. In this episode,
she discusses how FP&A has evolved and explained some trends,
including XP&A and digital FP&A.
Keep listening to learn more as we head over to the conversation now.
Larysa with your international FP&A board project and speaking with
you previously, I understand you've traveled through many countries,
16 countries. There are 27 chapters for this project, across Europe,
Asia, Australia, the Middle East, North America. You know,
this is a wide covering project when it comes to the topic of FP&A.
So you've obviously seen a lot. You've heard a lot. To start things off.
I would like to first get your definition of modern FP&A,
and how does it kind of vary across these different regions?
Thank you, Mitchell. first of all, thank you for inviting me, to this podcast.
It's especially pleasant, to talk about, trends and FP&A
at the beginning of the year, when we all look ahead,
in order to understand what is happening,
with our environment and with our profession. So,
there are really a lot of definitions,
of FP&A from, different account and boards from, different practices,
practitioners. The one that I really love, it came from one of
our meetings and, it was the definition,
very practical definition from my former CFO at Swiss Re in Zurich
in Switzerland.
This definition he shared at our meeting and,
actually he shared that his company really adhere to
this definition in terms of their FP&A,
so he said that,
FP&A helps to manage the value of the company by five different
ways. First one is, helping to understand the value of the company,
describing extraction steering,
and reporting it to the key stakeholders. So fantastic definition that,
really described, the strategic value of FP&A
and how it helps to sustain the value of the
company. Our FP&A trends definition that we
checked at, 26,
27 different chapters in 16 countries around the globe. It's,
that FP&A is a proactive force that helps to manage,
the understanding of the business,
the understanding of the value of the business.
It supports a decision making process at different levels of organization,
and also it integrate,
organizational processes of strategic financial, and operational planning.
It provides a critical, insights for the decision making.
So this is my answer, what FP&A is.
That's excellent. And thank you for sharing, you know,
I think in today's business environment,
as we really try to focus on our management accountants, right,
the finance and accounting professionals, you know,
that definition must be top of mind because as everything that they're doing,
today on the job, it really needs to be adjusted, you know,
if not totally transformed because of the direction the profession is going.
So to follow up on your definition and what you've shared from your experience,
what are some of the trends and potentially some of the challenges really that
go along with modern FP&A,
as you define and supporting the transition in the evolution of the management
accountants role.
First
of all, the trends I defined,
but this incredible business environment that we all experience. So,
at the moment we are talking about applying and forecasting,
in the environment of high uncertainty and what it means,
it means that, our traditional management accounting methods,
they're working only within this span of predictability,
span where we can really, apply our, variance analysis method,
one plan, one forecast. But, the problem,
with a current environment is that the span of projectability
is decreasing. So we really have to look at different methods,
how we can plan and forecast, and make decisions under,
uncertainty from this point of view, the first obvious,
and very important trend that we observe,
especially for the last two years, it's moving,
not only to scenario planning,
I would call this scenario management. So everything at the moment, it's,
about looking at,
futures and deciding what is going to work. And of course,
organizations that are able, to play, scenarios very quickly,
practically in real time at different levels of the organization, really,
with analytical insights,
those organizations are at the leading stage and they really are at a good pl
ace. We looked at many different case studies and interesting to see that,
practically every organization at the moment are trying to be there. But though,
in order for us to be, at this, stage when,
scenario management works in agile manner, we really have to look at,
the way how to achieve it and, those stages,
those next trends that I would like to outline here. They definitely,
those important trends that are needed in order to be at this scenario
management stage.
I would say that the second one and very important one,
is driver based planning many would say, oh,
we are talking about driver based planning. For
many years, it's not the latest strength, but I would say that,
at this particular environment we are talking about not traditional driver based
planning, where you have all your defined and well known,
drivers, but actually it's trying to look at those drivers, that,
you never realize exist. And now we have to acknowledge that,
they are helping us to define those drivers.
So with help of predictive analytics, for example,
we can define even behavioral factors, you know,
how,
behavior or expectations let's say of our customers will change the way
how we do our business. So let's put it this way.
A driver based planning that is at the next generation driver based planning
that is based on identifying those key driver,
20% of drivers that can explain 80% of the results.
And also those drivers that, we never knew they existed, and,
a lot of things happening now with external drivers as well, not only internal.
So this is the second trend.
The third trend I would say of course, is, digital FP&A.
It's this, predictive prescriptive technologies that are transforming FP&A,
it's artificial intelligence machine learning that helping us to automate things
and also to take into consideration those things that
we can't do with our human intelligence, you know, the
full strength. It's FP&A architecture. What I mean by FP&A architecture
is the combination of process and technology, how,
FP&A can really help, to be this flexible and dynamic. Yeah.
So how to, create this value chain, together with,
combining both technology and process. And of course the fifth one,
it's the role of FP&A digitized, we call this digitized FP&A business partner.
And also we have a lot of emerging roles,
to the classical role of FP&A analysts,
but we will talk about this a little bit later. Mitchell,
those are trends if I'm talking about, the challenges,
those are also quite interesting. The first one,
I would say one of the biggest challenge,
which is very obvious in this environment, it's,
disconnect between strategic financial and operational plans in organization.
Amazingly, 60, 67 organizations. They say that,
they fail they're well formulated strategy,
and only 2% of, leaders, are confident that they will achieve their,
80 or 100% of strategic goals. You see, and obviously,
it's a big problem for organizations.
And I would say that FP&A
has the role to play there, through integrations, through using technology,
through using cascade of drivers and so on. Another
challenge is, of course, reducing span of predictability,
something that already mentioned the third one, it's a traditional budget
and culture. It's still so much embedded in, organizational culture. You see,
so all of those traditional plants,
when people try to negotiate targets and allowances for the next year,
not thinking about, that the environment is changing and of course,
data, quality, data democratization put it this way.
It's one of the biggest problems as well. And another one FP&A talent.
It continues to be a problem to find well-rounded FP&A
professional. And it's not only true here in the UK or in north America,
but actually travel in the globe. I saw that it's happening everywhere.
So those are trends and challenges that we see.
And you did a great job summarizing everything. Thank you.
I know you mentioned briefly that we'll talk a little bit about them,
later on in this conversation. I also know that we spoke before this recording,
and we would love to jump back on again and dive deeper into some of these
trends very specifically, but for today, we will keep things at
a higher level and, you know, to get us to that next part of this conversation,
I'd first like to take a step back,
because when you first started your response,
you talked about how some businesses are still operating with these, you know,
outdated processes, outdated technologies,
even FP&A cultures that are not up with where they need to today to adapt
to these changes. So, you know, from your perspective, from your experiences,
once again, in speaking with these professionals across the globe,
what would be your advice on key steps that are needed to initiate this FP&A
transformation, you know, is there a practical roadmap or a way for,
FP&A professionals to lead and jump on these trends?
It's a great question. And before, I give my nine steps of FP&A
analytical transformation or FP&A transformation,
I would like to share with you,
amazing results that we see similar results on our
FP&A transformation, survey for the last four years.
It started from year 2017. We don't see,
the improvement, in the, percentage of value, activities, in FP&A teams,
you know, so starting from year, 2017,
the time that is spent on value and activity
is only from 20 to 22%
in the last four, five years.
So it's amazing consistency that shows us that the things should be done,
what could be done from the point of view of analytical transformation and in
you that,
we're all in new environment when we
need, to play scenario management techniques, to be flexible and dynamic, to be,
really very quick with the support and decision making. So,
I would say that, even simple steps they would help. And,
I will,
I'm about to tell you about nine steps that we defined at international FP&A
board. But obviously it doesn't mean that they could be,
should be in this particular order. They could be in parallel.
It's a good age year to start at least from the first steps.
You know, the approaches could be different.
So the first one it's about analytical culture,
the interesting thing that,
if organizations still in traditional budget and mindset,
sometimes they're not ready for this incredible change.
So it's all starts from there. It all starts from the top,
data quality, the obvious one, makes sure that,
it's harmonization of data. It's, it's democratization of data.
And many people say, oh,
we have so many problems that when we fix the problems with data,
we, it probably would be in the next three to five years.
I saw incredible examples when it could be done in parallel when,
the short steps of improvement, they really make incredible difference.
So just start and see what you can do, of course,
collaboration, between different parts of organization, you know,
between planning processes, key drivers, we already,
talk about importance and the new age of, driver based planning,
think about the key drivers and not those traditional that you always
had, your models rely on, but those that are really hidden,
we already talk about this. Many people would be, really surprised to see,
how many hidden drivers are there, driver based model. It's an important one,
implement the system, the
six step, automate with team, as much as you can, it's quite easy to do,
with the modern technologies and actually it's even not
so expensive. And of course, create your scenario planning infrastructure,
in order to,
perform this scenario management and of course support decision making.
So those are nine steps. But I would say that,
those steps they're going in circle they're, always, may be in spiral.
Yeah. So you are always after decision making, you adapting,
your it's influencing your analytical culture.
You are working on data quality and collaboration, key drivers,
driver based model system. It's all working,
in circle, I would say, yeah, with the improvement at every stage.
Now, as we take these steps, and as you said, may not be that specific order.
They may happen over and over again,
because there are so many different trends and different things that you need to
adapt to. I'd like to take this opportunity to then now transition,
take a step forward into some of those trends specifically,
going back to 2020 Gartner introduced a new term of XP&A.
And I believe you mentioned that earlier.
So I just want to get a little bit of a summary as far as what is your view on
this, and is this something that's completely new, you know, going back to 2020,
obviously we're now, a couple years out from the introduction of the term, but,
you know, what is your perspective on what this means to today's FP&A
professionals?
Another great question. Thank you. I would say that,
definitely the concept that was introduced, it's not new.
We observed this for at least the last seven to 10 years,
and it's about the fact that, FP&A
is becoming more strategic, and analytical, and it's,
going beyond of just finance function.
So this is the main concept of this extension that it's not financing
in FP&A,
is not the function just consolidate and operational and strategic plans,
but actually it's doing this,
it's collaborating and it's challenging and changing those.
I would say that, other words, other definitions,
that are similar to the concept of expanded planning and analysis. This is this,
integrated FP&A where we have to integrate plan from different levels of
organizations. And at the beginning of this conversation,
I mentioned three important plans that we really have to integrate.
It's strategic, it's financial and operational. And if financial plan,
this is our traditional role. Yeah. With, XP&A,
we are going to strategic function. We are helping with strategic planning,
and we connect in these to financial plan and operational plan and
also help in operational plans, to realize through, one approach through,
analytical, and driver based approach as well. So, and of course,
it's all about, the technology. Gartner mentioned this,
that it's about IML. It's about predictive and prescreen.
Definitely. This is the world that is expanding at the moment,
and we should expect a lot of things happening there. So this is my view.
Well, thank you. And, you know,
I want to continue on some of these trends and things that you've mentioned
previously. So in many webinars, different things that you've talked about,
different things that, you know, the board and the project have discussed,
digital FP&A I know it's very important to our audience,
you know, our members at IMA, a lot of curiosity.
So I'd like to get, your opinion on how AI, you know,
artificial intelligence machine learning has changed FP&A specifically?
Oh, yes. We started to observe,
the first strengths when, FP&A,
started to use a IML, it's happened approximately,
four and a half years ago. I remember,
at one particular meeting in San Francisco,
one of the board members shared the experience,
how they started, to,
experiment with a machine learning forecasting process.
So from year 2018, we created, our non-for-profit,
artificial intelligence machine learning FP&A committee. So, since then we,
the number of meetings, all meetings are, a digital format. And,
I must say that we looked,
the members are coming from different countries and,
different leading organizations, such as Maersk, Amazon, DWI,
government of Ontario, Jaguar, all the Microsoft,
Pepsi and many others.
We looked at a number of amazing case studies and normally what we do,
FP&A professionals and also some thought leaders. We
look at, the trends, how it's changing,
where we are at the moment. What is the gap?
The main conclusion is that definitely it's already happening. Definitely it's,
creates a lot of opportunities, especially I mentioned to you that,
we still continue to spend a lot of time in FP&A
in non-value activity. Yeah. So one case of Microsoft, it's definitely, worth,
looking at, we had several presentations from, Microsoft people,
both in Japan and also in, America, in Europe as well.
So in Microsoft, something that was done, by,
many people within several months at the moment it's automated and done by,
maybe one or two people with push of the button.
So practically the revenue forecasting, and one of the biggest,
company in the world,
it's automated at the moment and it's automated to really,
granular level. And when people say that, oh, we are quite complex,
we are quite big. It's not for us. It would be difficult to do this.
I always say that if it's possible for one of the biggest company in the world,
it's a huge, huge message to all of us. So,
but the main conclusion is that, artificial intelligence machine
learning matters, they create additional, opportunities for us in FP&A,
because they release time, they allow us, to move away from that boring,
firefight and, jobs,
where we look at a lot of spreadsheets where data are not working,
we really can move our profession to the next level, because our belief is that,
it's artificial intelligence and human intelligence that really
create, the best in class of FP&A.
Now, as we take a step in the direction of, you know,
adapting to these trends and everything, you just mentioned,
what it really means to the professional.
I think our listeners need to really understand not just the concepts and the
theories of what's out there,
but what does it actually mean to them as an individual? So as far as, you know,
the skills and the capabilities of today's FP&A professional,
you just talked about it a little bit, as far as the technological skills,
the human skills, but, you know,
what should our listeners really be focusing on far as personal development when
it comes to adapting to these emerging roles?
Thank you for this question. What I would say that,
our traditional role in finance in management accounting is
analyst. Yeah, we are really good analysts. We are,
in FP&A we're really good at, model buildings
in Excel, at understanding the main methods and all of these.
But the reality is that our traditional role of analysts is expanding. So,
really to be, at the age of FP&A professionals,
we have to develop the skills, but at the same time, I don't want,
to say to people that they have to become, data scientists and, influencers and,
you know, they have to be programmers. It's not the point.
What we have to understand that FP&A
department, it's a multidiscipline department.
This is department of different specialized roles and
different general roles as well. So, the T shape FP&A professional,
it's quite a popular, subject at the moment. Isn't it?
So the reality is that, yes, there are some emerging roles,
and I'm about, to share those with you.
We identified five key roles that should be at each FP&A
department in order for this department to be a functional in order for this
department to be a really effective in this incredible environment.
But what I want to say,
it doesn't mean that you have to have minimum five people in your department bec
ause people can combine roles. Yeah.
And what I want to say that when you listen about this, please don't think that,
oh, I don't have a chance because, you know, I don't have time,
or I don't have capabilities in that particular role.
It's about the team. it's about how it goes. So,
let us start from some very interesting, roles that we,
identified at the marketplace. The first one is FP&A architect,
emerging role, the role that previously,
at least here in the UK was called system accountant.
Or I can see that in the us it's called FP&A
model, or in different countries it's means different things.
But what I want to say that, FP&A architect,
it's not only system accountant or modeler, it's much wider than this.
So the term architect,
so this is the building of, this infrastructure,
decision making process that consists of, not only technology,
but the process in order to make sure that we implement and
the drivers from the raw data, it goes,
directly to the systems to driver based model. the system analyze it, transform,
is to decision sets where let's say
storytelling, platforms, and decision makers.
They look at these at different levels. So obviously in order to create such,
infrastructure, it would require, not only technology,
but also the process.
So FP&A architect is the bridge between IT and many other departments
and the person who can do this. Yeah. So this is the first role emergent role,
another role, we call this FP&A data scientist.
It's not a classical data scientist with university degree in quotes and,
so on so far,
but this is the bridge between fine and data science function.
So this is the problem of, today's world that, we have so many,
different disciplines,
and we don't have translators bridges between those disciplines. So,
FP&A data scientist is someone who is skilled
in using predictive technologies,
such as IML to uncover those drivers and trends that will
be used for the planning models here, but at the same time,
this person can really translate, the land,
which can be translated between in data science,
world and FP&A world, other roles, that we identified,
there could be more like from the IT side, of the shape,
of course, FP&A storytelling,
it's FP&A influence in particular influence and without the authority.
Yeah. So those are the roles they should be fueled.
But please remember that depending on the talents and abilities people can
develop in one of, or two of those, and always,
could be at the age of this profession.
And, you know, lastly,
now that we have introduced maybe some new trends to our listeners,
maybe some new roles, you know,
maybe the listeners have heard about these different topics,
but need to know more,
what are some additional resources that you would recommend as far as staying up
to speed with FP&A, and everything that we've talked about today?
I would say that there are a lot of resources available at the moment. Yeah.
And, I know that at IMA,
you have a lot of resources that are so relevant for FP&A
recently we started,
to collaborate with your Institute as well at some of the webinars.
And of course, I would like to recommend our FP&A website,
where we have a lot of, articles and videos and,
practically every week have,
webinars and digital FP&A boards.
You also can download some of the, papers that we do, research papers, survey,
inside papers. And of course,
there are a number of books.
Some of them I can recommend, I really love,
book by Steve Morlidge and Steve Player is called Future Ready:
How to Master Business Forecasting. It was written some time ago,
but I think it's a fantastic classical book, in order,
to understand the forecasting world. Yeah. from my side, with
my colleague, Michael Ko,
we are writing a book that is based
on the, results of the travel to 16 countries,
27 cities around the globe. Hundreds of meetings with FP&A professionals,
looking at hundreds of case studies and actually looking at the trends around
the globe. It should be ready somewhere this year.
So it's another thing that I would like to share
with people. Thank you.
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