How to organize my FP&A suite

1. My FP&A suite
(How to organize my FP&A suite)
By FP&A suite,we shall understand herethe differentelementsthatare neededtomanage agiven
business.Obviously,industryisakeepdifferentiatorbuthow doesthisreflectinpractice? Whatare
the keyelementsthatneedstobe inthe suite andon whatbasisshall itbe customised?
Duringour studies,we all learnthataccounting,forecasting,analysisandreportingare the basis. This
can be furthersubdividedinmore detail tools ormethods suchasgeneral andcost/analytical
accounting,Plan(withfewqualificatives),budget,rollingforecast, zerobase, driversbased ...etc.
Furthermore,we learnthatfewtechnologies andmultiple products permittoautomate/industrialize
those tools.
Still,whenwe face the challengeof managingourcompanies,we are leftwiththe more important
and difficulttaskwhichis howto choose, to customise, to implementthe most relevantsetof tools,
methods andsystemsforour business. The majorconcernsare generallymore aroundthe revenues
and associatedcostsof sales(onwhichI will focusthe following).
My first point,here,is thatin the listabove there isone keymissingtool thatneedstobe
considered. Competitive andbusinessintelligenceisessential inbuildinganFP&A suite.Atleast,the
part of itthat permitto understandthe keyunderliningelementsthatstructure thatspecificindustry
segmentoractivity.
1. At the top,will be the positionof the companywithinthe matrix of possible strategicchoices
below(inasyntheticform).
A pure vertical integration (i.e.internalisthe response forall the line of activity) isfartobe
the onlyreal-lifesituation.Somecompaniesare essentially“subcontractors”i.e.they
produce parts forothercompanies.Those othercompaniesinreturnconceive,assemble and
sell the product.Differentcombinationsof activitiesare possibleaswell aslevelof
cooperation.Furthermore,the strategymaybe to evolve fromthe presentstatus.
Each of those combinationsreflectonthe waythe FP&A suite mustbe designedand
organized.
2. Nextwill be the type of productsandservicesproposed.Isitconsumable (one-time usage),
investment(multiple timeusage) orrecurrent/contractual services?
Activities Internal Partners Outsourced
R&D
Parts production
Assembly
Logistic/distribution
Commercialisation to end users

2. In mostcase,it will be a mix.Itwill be organisedin some, more orless, sophisticatedlinesof
products soldas standard, but itcould also existascustomisableorcustomerspecifictype
productsor services. Pricingmayfollow several practicesfrompure catalogue priceswith
potential discountsstructure toproposal specificpricing.
Sellinganddeliverymayturntobe from extremelyshorttolengthyprocesses.These key
“time to” (time fromproposalstoorders,time fromorderstorevenues) shall drive your
basicschedule foranalysis,reportingandforecast.
Those productand services are mostprobablysubjecttofew businessexternal influences
(Season,weather,othertype of events)ordependences(economic,social,technological…)
on topof a particularcompetitionandmarketstatus. Maturitycycle,pricesevolution,
entry/exitbarriers,change incompetitionare importanttounderstand asgeneral business
culture andmore specifically, how itimpacts your way to capture information,measure,
analyse and forecast.
3. Companiesactingoninternationalorglobal marketswill needto understand the evolution
and consequencesof theirgeographical reach.Thismaybe achievedthroughexport,multi-
local or global presence andbringtwodifficultsubjects:
o currencymanagement(bookingandconsolidationcurrencyversuspricingcurrency).
o Deliveringversus Sellingversus Destinationcountries(whichinthe mostcomplex
global situationscanbe 3 differentcountries/organisations).
4. Finally,customerprofilesandevolutionsare tobe understood,measure,analysedand
forecasted.Thismayinvolve small toverylarge numbersof customersandcan alsobe
complex due tothe mix of channelsused(directconsumersorBto B, B toB to C,
distributors/resellers).Whereassome of themwouldbe partners/VIPcustomersothermay
be only“purchasers”. Your suite will needtogive youaccessand analysisof such
information.
5. In manycase,the cost of saleswill be followingordriventhe same logicthanrevenues.Still
thismay notbe the case andthe specificneedstobe understood. Inanywayitisessential
that youcan measure andanalyseyour marginon cost of sales(byproduct line,customer
types, countries,by project…)
The secondstep will be topicture howthis “intelligence”impactsonyoursuite andthe company
operational systems.Inotherwords,whichinformationshallbe captured,where,inwhatformatand
howthisinformationistransferredtothe FP&A suite intime,efficientlyandwithquality.
Thisbrings several issuestobe decide uponandsolutiontobe implemented:
 Data structuresto put inplace throughthe differentsystems(referential),
 Managementrulesforthose referential anddataflowsthatwill capture the
information,
 Systemscapabilitiesandinterfaces,
 Periodicityof datatransfer,analysisandforecast.

3. Many differentcombinationscanbe envisagedandwouldbe correctaslongas theyproperly
representthe companyactivitiesandbusinesses. Forsimplicity,some trade off mayhave tobe made
but make sure theyare noton essential dimensions/items.
As an example,here wouldbe the suite definitionfora theoretical global conglomerate thatwould
have mostof the businesstypes.
 All typesof data pointscodesare structuredas the bottomlevel of hierarchies.Onlythe
basiccodesare capturedin the data flow.The hierarchiesare usedinreportingandanalysis.
 Statutorychart of account isstandardand make sure it doesnotin-bedanyof the other
analysis.
 Legal entitiesstructuredbygeographies,correspondtobookingentityandisinlocal
currency. Intercompanyflows,consolidationentriesandconsolidatedresultsneedstobe
clearlyidentifiedandpotential associatedcurrencyconversiondifferencesisolated.
 Organisation code structure forcosts and investmentsrepresentingthe company
organisationandstructuredassuch i.e.base teamcode associatedalonga hierarchymade of
Services(N3) intoDepartment(N2) intoDivisions(N1) totopmanagement(N0).Couldbe
more level andthe base teamcode can be associatedtoanylevel. Those wouldinclude
amongothersthe sellingorganisation/geography.
 For revenuesandcostof sales (andinventories) the organisationcode wouldbe replacedby
a Product code structure.Inlarge companiesthe basiccodesusedinproductionandbilling
may notbe movedassuch to the financial systemsbutmaybe mappedtoa financial code
that constitute assucha firststepinthe hierarchy.Fromthere the financial codes are
structuredinlogical productlinesoverfew meaningful level(usuallyconsistentwith
marketing/salescatalogues).The financialcodeswillbe individualisedtothe pointthateach
code can be associatedtorecurrent/none recurrenttype revenuesaswell asstandard,
customised,customerspecificproductandpricing.
 If a single currencycode table isinplace,itwouldbe usedindifferentfieldtypesin
transactioncoding:
o The entitywill be naturallyassociatedwithitsnationalcurrency,(Entitycurrency)
o The transactionwill alsocapture the billingcurrency(transactioncurrency) andrate,
o (Fewbusinessesmayhave pricingcurrencythatare differentfromthe billingone.
That is a more complex case thatneeds tobe manage.)
o The analysisandreportingsystemwill permitcurrentandconstantexchange rate
analysis(i.e.FXimpactsisolatedfrombusinessimpacts).Forecastactivitieswill be at
constantrates.
 A somewhatsimilartocurrencyissue existsincertainindustryonthe pricesof certainraw
material (oil,coffee,cooper,...).Similarsolutionswillneedtobe implemented.
 Customeraccountcodesand/or Supplieraccountcodes(fromreceivables/payables) maybe
interfacedtorevenuesandspecificcostaccountswhenverylarge portionof such costs or
revenuesare done withverylarge ones.In addition, orinall cases, those receivable/payable
codesmay be mappedto customers/suppliers’ typesorcategoriesthatare movedwiththe
transactions. Insome case,projectcodingwouldbe necessary.
 Whereaslegal entityandorganisationcodesare generallysufficienttopicture the delivering
and sellingcountries,thereisaneedinmanybusinessestoalsoencode the destination
countries(exports) ororigincountries(imports).

4. This data structure will be used through the differentsystemsincludingconsolidation /
reportingand forecasting.By differentsystemsImeanfrom(potentiallyproposals)toOrdersto
billingtoaccountingtoreportingandforecast.Thisisto insure coherency andqualityof dataand
subsequentanalysis.
It shall permityoutomeasure andexplain:
 Actual variancesfromperiodtoperiod,
 Variance tobudgetor forecast,
The periodstocompare shall take inconsiderationyourbusiness.Amongthe possiblechoices
not all make businesssense. WeekonWeek, Monthonmonth,Quarteronquarter,Year to date
on prioryear to date,Monthon Prioryear month,Quarteron prioryearquarter,Seasoncycle on
seasoncycle,etc…there are a lotof combinationthatare mathematicallyeasytoproduce with
moderntools.Still whatisimportantare the onesthatare relevant/meaningful foryour
business.
You shouldbe able to identify,explainandmeasure the variance comingfromFX,the one
comingfrompricingeffects,the onesassociatedwithvolumes,the one comingfromcustomer
wonor lost,the one comingfrom delays…Youwill onlybe able todoso accuratelyif thiswas
thoughtthroughwhendesigningthe overall suite.
Competitive andbusinessintelligencewillbe neededinordertocompare or evenbenchmark
those resultsversusthe surrounding.Comparingwithourselvescanbe quite gratifyingbut
irrelevant.Resultsmaybe well inlinewiththe forecastorbudget,improvedfromperiodto
periodetc... andstill the FP&A teammay be givinga false securityimpressionif the competitors
or the industryisdoingfar betterthanthe company. It meansthe companyshall getorganise to
capture and assessthiskindof intelligence (tobenchmarkactual andtoassessbudget/forecast).
At end(withinreasonablemargin!) the datastructure andthe integrationall alongthe dataflow
ismore importantthanthe systemthemselves.Sizingmaybe a critical issue inlarge companies
and needstobe considered.Ease toextractand compare data andreport isalsoa keyelement.
A lotof focus,nowadays, tendtobe putto the abilitytopresentsyntheticand…sexyreports,
keepinmindthatthisis probablylessthan5% of the work to be done (althoughthe most
visible).The other95%are fullydependantonthe qualityof yourdatastructure,data flows,
systemintegration,abilitytoanalyse.
Of course, the example Iuse picture arelativelycomplex case andnotall companiesneedthe full
extend.Eithersome dimensionsare notneededorcertaindimensionscanbe more or less
complex. Still,keepinmindthatthe shortcutsthat may have been made createsblindspots that
reduce yourabilitytoefficientlysupportyourcompany.
The key “Time to …” will have huge influence insucha design. Proposal,orders intake and
portfolio analysis,reportingandforecast are of essence forlongsalesand/ordeliverycycle
and/orfor recurrentrevenuestypes, itjustdoes notexistwhenthose cycle are immediateor
short (saylessthana monthin total) and/orfornone recurrentrevenue type. Italsoconditions
the frequency andtimingof suchanalysis,reportingandreforecast. Thisschedule(andits
potential changes) shallbe knownlargelyinadvance.

5. In otherwords, if the large majorityof a product line revenuesare recurrentwithdeliverycycle
(time fromorderto revenues)of 2 to 6 monthsand an average sale cycle (Time frominitial
proposal tocontract thenorders) of 6 to 12 months, Proposal,Contracts and orders in takes and
revenue monthlyanalysisand reporting associatedwith forecastexercisesevery6months
(budget/reforecast) isquite sufficient. The Viewisprobablybestwith18monthsactual + 18
monthsforecast. Inaddition,specificmeasure,reportingandforecastforthe deliverydelaymay
be necessary inorderto explainvariance comingfromthe delayvariances.
At the opposite,anon-recurrentand shortcycle type productline will necessitateadailyor
weeklyrevenueanalysisandreporting(Noproposal/orders) withweeklyormonthlyrevenue
forecastexercises andarollingview thatis3 to 6 months.Several otherscheduletypescanbe
advocate correspondingtodifferent “time to”situations.
Seasonal andor/projecttype productlines,will be analysing,reportingandforecastingalongthe
seasonal cycle orthe projectphases.
Specificmaterial none forecastedeventsmaygenerate the needforadditionalreforecastor
impactsanalysisE.g.If a customercontract/projectrepresentingamaterial partof the revenues
islost or wonand whereasthe contrarywasforecasted;A majorprice reductionnotforecasted.
A revolution/War/economiccrisisinacountryor a groupof country, Etc. In sucheventsthe
minimumshall be animpactanalysisi.e.evenif notturnintoa complete reforecastforthe
comingperiods (thiswilllargelydependonhow compressedisyourschedule).
The revenuesandcost of salesgivingthe margin is the most sensitive part for most business.It
may drive toa schedule that isdifferentfromthe othercostsandinvestment.
Whereasforecastingisconcerned(beenmulti-yearplansorbudget/forecast),detail zerobase
type activitiesmaybe aplusin certaincircumstanceswhereasinothersderivingcostsfromthe
revenuesandmarginthroughratiosor driversmaybe sufficientandmore efficient.Inanycase,
considerthatmeasuring,explainingandforecastingthe financialweight(ratiocosttorevenues
or to margin) of each keyfunctioninthe company isa must. Itmay be usedto planand forecast
or to arbitrate on resource allocations.
Example of a summaryschedule (inpractice itismore detailed)
In summary, insure that you understandyour businessand your company in order to builtyour
FP&Asuite.There are numeroustools,systems,methods and practices on the market. None
Main report stream Closing Analysis Reporting Forecasting
Commercial proposals Monthly (day-2) Monthly (day-0) Monthly (day2) Monthly (day10)- Current month
Orders received Each Monday Each Tuesday Each Wednesday Monthly (day10)- Current month
Billing Daily Weekly Monthly (day2) Monthly (day10)- Current month
Revenues and margin Monthly (day-2) Monthly (day-0) Monthly (day3) February (to year end) - July (to following year end)
Order portofolio Monthly (day-2) Monthly (day-0) Monthly (day2) Monthly (day10)- Current month
Other costs Monthly (day-2) Monthly (day-0) Monthly (day3) February (to year end) - July (to following year end)
Investments Monthly (day-2) Monthly (day-0) Monthly (day3) February (to year end) - Juiy (to following year end)
Inventories Monthly (day-2) Monthly (day-0) Monthly (day3) Monthly (day10)- Current month
Receivables Monthly (day-2) Monthly (day-0) Monthly (day3)
Cash Monthly (day-0) Monthly (day-1) Monthly (day3) Monthly (day10)- Current month/following month
Full legder Monthly (day-0) Monthly (day 2) Monthly (day3)

6. can be use as on the shelf.Youmust insure than you selectthe more relevantand customise
them inorder to fityour business presentand future topologyand needs.