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FP&A is the finance function's forward view: budgets, forecasts and scenarios.
We explain what FP&A does, how it differs from accounting and how it works in a group with several entities.
FP&A stands for financial planning and analysis. The FP&A team produces the budget, the forecast and the scenarios, and explains the gap between those numbers and the actuals. Finance directors often invest in FP&A once the board's forecast can no longer be traced back to the ledgers.
- The 4 activities
- FP&A covers 4 activities: planning and budgeting, integrated financial planning, management and performance reporting, then forecasting and modelling.
- The tools
- Most teams use spreadsheets. Teams that outgrow them move to Abacum (FP&A software), Anaplan, Workday or Pigment.
- Where we sit
- Constancia is an EPM consultancy. We start our FP&A work by checking the actuals the plan will be measured against.
FP&A in finance means building the budget and the forecast, then explaining them against the actual results.
FP&A in finance is the team and the process that sets the budget, updates the forecast each month and writes the variance commentary. The accounting team records what happened. FP&A says what happens next and why the last forecast was wrong.
All 4 FP&A activities read the actual results that the month-end close hands over.
In a group, FP&A also owns the drivers behind the plan. Headcount comes from HR, pipeline from the CRM and volume from operations, and each driver has an owner outside finance.
FP&A covers 4 activities, and the board reads the forecast more often than the other 3.
- 01
Planning and budgeting
The annual budget is built bottom up from the entities or top down from the board's target, and usually both.
- 02
Integrated financial planning
The P&L, the balance sheet and the cash flow are planned together, so a hiring plan moves the cash line.
- 03
Management and performance reporting
The monthly pack defines each measure once and explains its variance to plan by entity and by line.
- 04
Forecasting and modelling
The rolling forecast and the scenarios are rebuilt each month from drivers the business owns.
A 14 week budget round takes up about a quarter of the FP&A team's 52 week year.
Most FP&A teams start in a spreadsheet, and 6 platforms serve the teams that outgrow it.
Most FP&A teams start in Excel. The budget template, the forecast model and the variance report usually began as a workbook somebody built, and the workbook lasts until 3 people need to edit it in the same week.
Teams that move off Excel choose from Abacum, Anaplan, Workday, Pigment, Planful and Vena. More than 7,000 companies plan on Workday.
OneStream (EPM software) runs the plan on the same model the group closes its books on. OneStream suits groups whose consolidation and forecast have to agree exactly.
FP&A differs from accounting in direction, since accounting closes the last period and FP&A plans the next 12.
| Accounting | FP&A | |
|---|---|---|
| What it produces | The trial balance, the statutory accounts and the audit file. | The budget, the forecast, the scenarios and the commentary. |
| Its time horizon | The period that has just closed. | The next quarter, the year and the 3 year plan. |
| Its standard | IFRS or FRS 102, and the auditor's opinion. | The board's decision, and whether the forecast was right. |
| Its data | Every transaction in the ledger. | Balances by account, entity and period, plus drivers from outside finance. |
| Its systems | The ERP and the consolidation. | A spreadsheet, or a planning platform reading the consolidation. |
| Where the 2 meet | The actuals it hands over when the close finishes. | The variance report that compares those actuals with the plan. |
| Who signs | The financial controller and the auditor. | The FP&A director, and the CFO for the board pack. |
FP&A can only be as good as the actuals the close produces, since every forecast is measured against them.
A forecast is only as reliable as the close it reconciles to. FP&A teams working from exports they cannot trace spend each cycle rebuilding the comparison.
When 3 subsidiaries book the same customer in 3 different ways, revenue by customer will never match between the forecast and the actuals. The analyst then spends the first week of the cycle working out why.
In a benchmark of 2,300 organisations, the median monthly close took 6.4 calendar days. FP&A cannot start the forecast until the close has finished.
FP&A across 12 entities needs a plan that uses the consolidation's entities and accounts.
In a group with several entities, the plan should use the consolidation's entity list, chart of accounts and calendar. Every variance can then be traced to a line in the ledger. A plan with its own hierarchy needs a mapping, and someone has to own that mapping.
Before we build anything, we check that the actuals can carry the plan. We fix the price for the build once that check is done.
For boards that want AI in the forecast, the same check shows whether each driver has a single definition a model can learn from.
We answer 2 common questions about a career in FP&A.
Is FP&A a stressful career?
FP&A work peaks during the budget round and at each month-end forecast. Most of the pressure comes from rebuilding the comparison against actuals that arrive late. Teams whose actuals load from the ledger each month spend the cycle on the variance, and the peaks are lower.
Is FP&A easier than audit?
Audit checks numbers that already exist, while FP&A produces numbers for the months ahead. Accountants who move across from audit bring the ledger knowledge a forecast needs, and they learn the drivers on the job.
Our pages on xP&A, the 6 planning platforms and FP&A consulting go further.
xP&A
How xP&A joins the operational plans to the financial plan on 1 model, and what has to be in place first.
Read about xP&AFP&A software
We compare 6 FP&A platforms and the group structures each one suits.
Read the software listFP&A consulting
We set up budgets, forecasts and scenarios on drivers the business owns, and fix the price after our survey.
Read about FP&A consulting
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