The document discusses factors that finance and FP&A teams should consider when customizing their processes and tools to achieve efficiency and relevance for their specific company. It emphasizes the importance of understanding a company's industries, size, geographic reach, product reach, and other forces to build effective processes. Three main causes of perceived ineffectiveness are identified: issues with FP&A processes, how objectives and evaluations are defined, and potential cultural issues. The document provides detailed recommendations on how to analyze market dimensions, resources, costs, and other factors to design end-to-end processes that capture essential data.

1. Watch your FP&A processes.
Toolsand processes usedbyfinance andFP&A (commercial management,billing, accounting,
operational statistics, competitive intelligence, planning,budget,forecast,varianceanalysis,reporting)
needstobe customizedin orderto achieve bothefficiencyandrelevance. There isnothinglike on the
shelftools.Company’s industries,size,profile and positioning,geographicreach, productreach, etc. …
constitute “forces”thatneedstobe understoodinorderto buildarelevantandefficientsetof tools.
There are debatesaboutthe relevance of (someof) these tools. Suchas,is so call “traditional”budgetor
variance analysisstill relevant?orbeyondbudgetsupporters orwhatgranularityforchart of accounts,
etc...These are basedon (supposed)opinion thatCFO’sand/ormanagersare notsatisfiedwiththe
resultsof theirownprocessesortools.
In fact, such opinionsare generally developingfrom
(i) effectivenessissuesin FP&A processes
(ii) and/orin the waysobjectives,bonusesandevaluationsare articulated
(iii) not to mentionpotential cultural issues eitherinthe finance functionorinthe management
teamconcerned.
Prior reinventingthe wheel,I would strongly suggestto thoroughly analyze these three “causes” and
to take necessary actions.
First,lookat the two lastareas thenconcentrate onthe processbuiltandorganization. Obviously,there
are interactingbutitisstill important andmore easy to analyze themseparately.
1 - A wide range of potential issuescan be originatedfrom culture:
o From a finance perspective,
o It can come from a “statutory” visionthatmayimpact/reduce/tintthe whole finance
outputto the detrimentof a“business”vision.Thiswouldtranspire inthe waythe
chart of account isbuilt,the waythe data flow are capturedand reported, the
reportingismade, etc.…There is a definitivelyneedforboth vision!
o It can come from an ownershipissue.Inotherwords,up to whatpointfinance
(FP&A inparticular) isan active businesspartnertothe otherfunctionsoronlya
“beancounter”and “reporter”of other’sperformances.
o Finance set the truth! No,unfortunately,itwouldbe tooeasy! Ourtoolsare limited
and notperfect.We will see how tobuildan effectivesetlaterbutstill atendthe
businessvariablesandrealitiesmaybe quite more complex anduncertainthatwhat
we may think.
o From a managementperspective,
o Power struggle!Planning,budget,forecasting,reportingare definitivelyamongthe
“battle fields”of internalpoliticsandpowerstruggle.Let’sface it(ratherthan
unnecessarilycriticizingthose processes).
o Ownershipissuesi.e.Upto what pointmanagersbuyinthe plan,budgets,…

2. o Realityperceptioni.e.Up to whatpointmanagersunderstandtheirinternal and
external environmentandface iteffectively. The “realitycountry”isdifferentandfar
more demandingthanthe “theorycountry”.
These cultural issuesimpactthe image of the finance outputs andneedstobe assessedandconsidered
as such.
2 - The ways objectives,bonusesandevaluationsare articulated have alsoa major impacton the
perceptionsof the finance output.Obviously,managers (andemployees) like andwanttobe considered
as successful andtoreceive the financial andotherelementsof recognitionthat goeswithit. Assuchthe
toolsusedfordefinitionsandmeasurement,are subjecttoa lotof pressure,inparticularwhenthe
environmentisdifficultoraggressiveandwhenresultsare notinline withexpectations. Questionsabout
validityof the objectives definition oronthe wayperformance ismeasuredwill forsure be raisedand
may be valid.Thisisa complex issue andIam afraidthat no simple andsingle responseexists.
I wouldstill advocate the factthatplan,budgetandforecastshall be setas perthe bestunderstanding
on the businessconditionsandenvironmentandshall notbe pollutedby“aggressive”or“defensive”
individualsobjectivesandtargetssettings. Thissuppose acertainlevelof disconnectbetweenthe two
setof tools.
3 - The relevance and effectivenessofthe finance processes isdefinitelyafinance responsibilitybut
involve inputsfromall parties.Overthe statutoryandtax obligations,finance processesmustbe design
inorder to give companymanagementthe bestchancestotake necessarydecisionsinatimelymanner.
Thisbringsus to the first“dimension”thatneedstobe looked at:the time dimension.
The competitive or market intelligence isthe nextdimensiontobe analyzedi.e.the marketswithits
differentcomponents:
o The geographicreach,
o The company profile,
o The customersor customerprofile(s)
o The products
o Andtheirtrends(developmentstage,volume,price,competition…)
The external and internal resources are the nextdimensiontobe analyzedwithitsdifferent
components:
o Inputs(rawmaterials,components,services)
o Structures(factories,premises,…)
o Equipment(manufacturingequipment,IT,…)
o Staff.
o Financing
o Andfor eachcomponent,theyare elementswith differentdegree of strategicimportance
for the business.
The time dimension:
The “statutory time”tendstonaturallydrive the financesprocesses.Accountingwouldbe the prime
example anditmaybe satisfactoryforcertainbusinessorindustries.The calendarmonth/quarter/year

3. will drive the differentfinanceactivities (commercial andoperational statistics,accounting,planning,
budgetandforecast,reporting…).
Still, some industries orbusinesstype require adifferentwayto “respire”andthenitisessential totake
thisinconsiderationinthe designof the overall process.Some industrieshave a material seasonality,
some have a veryshort order to revenue time (immediate tofew days) whereforothersitismonth(s)
potentiallyyear(s).Thisneedstobe correctlyassessedandintegratedinthe wholetime table i.e.from
orderreportingtoforecastingandreportingboth interms of timing/delayand in terms of periodicity.
A furtheraspectof timingtobe integratedintothe processesisthe “time…to”.Time fromproposal to
order,time fromorderto revenue,time fromcontracttoorders,time from launchto delivery,justin
time ...dependingonindustryandcompanythere are alwaysacertainnumberof key“time to” which
needstobe managedand whichare critical for the accuracy of the forecastingexercisesandinthe
explanationof the variances. Theiridentification,measurementand properapplication are in most
case vital to the qualityof the overall process.
In certainbusinessyoumaywantto reportand analyze revenuesonadailybasisconsidering week-ends
and publicholidays(distribution,restaurants…).Atopposite inothers,the contractororderto revenue
cycle issuch that evenmonthlyreportingandanalysisistooshortto properlyintegrate anymeaningful
changesintrends. A material change ordelaymay impactsyourrevenuesandrevenueforecast.
Optimisticoraggressingviewsmayverywell impactsthe qualityof yourforecast.
Market dimension:
The market dimensionanditscomponentsare keysthatneedtobe properlyintegratedwithinthe
designof the overall finance processed(endtoend).
o Geographicreach will setconstraintsthatdependbothonmarketsandcompanysize.For
purely local marketsandcompanies, thiselementisnotsoimportantandstatutorymay
prevail.Still forinternational andglobal markets itbecomesanessentialelementof analysis,
froma purelygeographicpointof view butalsofromacurrencyperspective.The statutory
entitydimensions(country/currency) needsthentobe complementedbythe delivery
countryand the pricing/billingcurrencyinorderto correctlycapture,analyze,forecast the
evolutions.
o Company profile, The legal structure inlarge companiesdonotreflex accuratelythe actual
businessorganization(centerof excellence,production,call orlogisticcenters,crossborder
teams,…).Itisthenof upmostimportance thatthe organizationisproperlyrepresentedin
the way the whole datastructure and flowsare organized.Overdetaileditmaybe heavyto
manage,too“simple”i.e.simplistic,itmaylose relevance.
o The customer profile(s),needstobe carefully takeninconsideration while buildingthe
process.Fromfewcustomersto a verylarge/diversified customerbase,fromdirectto
indirectsales,the overallprocessneedstokeeptrackof the fundamental characteristic of
your customer base. Itmay be more or lesseasyandthere isalwaysa cost benefitratioto
be considered,stillatend,youneedtoensure thatyouhave a meaningfulendtoend
customer(orcustomerprofile) trackingand management.

4. o Products or servicesneedalsoan endto endtrackingand management.Like forcustomers,
thismay correspondtodata amplitude thatcanrange fromfew to millions.Sosimilarly,
througha propercost benefitratiothe productdimension shall be organizedandfollowedin
a way that isboth manageable andrelevantforthe business.
Those data dimensionswillobviouslycombineonadynamicway.This shall permittocapture and
measure accurately(inthe mostextendedconfiguration) (i) who sell whattowhominwhichcurrency
percountry destination atorderprocessinglevel(ii) the revenue generationandassociatedCostof sales
inthe same data configuration(billing/accounting) (iii) inordertocompare topast periodsandto budget
and/orreforecastmade alongthe same lines. Thisendtoendchainis essential.
Effectivenessandrelevance will getreducedeachtime the chainis”broken”(oroversimplified).One
“traditional”place iswheninformationexistingatorderandbillinglevel are “aggregated”ataccounting
level whereasbudget/reforecastwouldbe supposedlypreparedbasedonbusinessdriversthat“miss”
some of the dimension. Example withcurrency,if the pricingandbillingcurrencyinformationislost
whenconvertedtostatutorycurrencyinaccountingand if budget/reforecast isbuildusingthe latest
revenue trendfromaccounting,anychance toaccuratelyand efficientlyunderstand,reportandforecast
incidencesof currencyfluctuationislost. Similarissuescanbe metif the customer(orcustomerprofiles)
islost alongthe process or if the product granularityisoversimplified.
o Key trendssuch as developmentstage,volume,price,competition… of marketsneedsto
be gatheredandstructuredin orderto understand,reportandforecast.Eachcompany
needstounderstandwhich combinationproducts/customers/geography ismeaningful in
termsof marketevolutionandcompetition,andtodevelop/implementcompetitive
intelligence alongthose lines. Pricesandvolumesare the mostcommon;those depend
more generallyonthe developmentstage of the market (developing/mature/declining
marketsand/orinvestmentversusreplacementmarkets) andlevel ofcompetition.
Competitor’smovementandmajorproductchange/innovationare alsokey andmustbe
tracked.
Whereasfinance mayconsolidate all information,salesandmarketingshallbe key
contributors.Companyobjectives/targets (budget/reforecast) shall be logical withthe
market trends, correspondto a clear set ofstrategical and tactical options/hypothesisand
performance shall be “benchmarked” tothese options/hypothesis.Mostof these
options/hypothesisrepresent real decisionsratherthan simple “forecast”. Overthe quality
of the process,thisisthe qualityof these decisions thatiskeytothe final result.Itmeansa
necessaryandmaterial involvementof the managementstructure all alongthe process.
Those decisionsmustbe captured/imbeddedinthe final output.Theyshall be testedwith
realityatend.If inany forecastthere isa part of mechanical datagathering,there isalsoa
fairamountof managerial pro-formadecisions anditshoulddefinitivelyavoidall formof
wishful thinking.
Withoutthose elementsthe relevance andeffectivenessof the planning,budgetand
forecastprocesses thusreportingare questionable aswell asindividualobjectivessetting
and evaluations.Thisisthe mainsource of the uneasinesswiththoseprocesses.

5. The challenge in-there isintwofolds:
o Accessto marketdata, evaluationandanalysis (marketor competitive intelligence).
Difficultyhere coversawide range of possibilityandcomplexity.A reasonableeffort
shall be made but itshall be understoodthatitmay not be perfector witha large degree
of accuracy.
o Capture and analysisof equivalentdataforthe companyshall be more easyand
manageable providedaproperorganizationisputinplace. Ratherthaneducatedguess,
capturingand analyzingthe volume andprice evolutions(includingthe specific
incidencesof currencyvariances) foreachmeaningful products/customers/geography
combinationwithreasonable accuracyfrompastto present shall notbe such an issue,
nor forecasting(budget/reforecast). The total volume andthe unitprice maywell notbe
sufficient.Forexample,the order/deliverysizemightbe akeycomponentof the
effectiveprice billed (discounts/regressiveprices),insuchcase this analysismustbe
structuredinthe process(actual/forecast/variance analysis).
External and internal resources
In eachcategory,the degree of importance maylargelyvaryfromstrategicto common/easily
exchangeable.Thismaybe linkedtothe importance intermsof costs,tothe scarcityor uniquenessof
such resourcesorany otherindustryspecificreason.The whole processshallthenattachmore attention
to those resourcesthanto the more commonone. Data structure decisionsare not justtechnical
decisions,theyare keyfundamentaldecisions impactingbusiness.
o Costsof sales (rawmaterials,components,services).Those willlargelyfollow the analysisof
the revenuesintermsof overall “volume”variances.Still theymayalsohave theirown
particularelementtobe trackedandanalyzed.Currencymaybe one of them (i.e. whenthe
buyingcurrencyisdifferentfromthe sellingcurrency) creatingpotentialvariance inmargin.
Price evolutionmaynotbe linkedorsimilartothe one of the relatedproductssold…
Whereasinthe “theorycountry” evolutionof costsshall reflexinthe pricesof productsold,
inthe “realitycountry”itisfar to be sosimple andautomatic.Somethingverysimilarand
parallel torevenue mustthenbe designandimplementedforthe goods/suppliers /
geographycombination(atleastforall strategicones).Purchasingshall be akeycontributor
in-there.
The combinationof revenue andcostof salesprocessesshall permittounderstandandforecast margin
on cost of salesevolution. Inmostbusiness,the revenue,costof salesandmarginconstitute the major
businesschallenge andthusthe areawhere effortinanalysisandforecastshall be concentrated.
The other costsand investmentswillbe capture,analyzedandforecastedfollowing the company
organizationstructure using enoughgranularitiestohave adetail breakdowncoveringeveryprocessof
the companyand matchingit to the managementstructure. Certainnon-strategicfunctionscanbe
profitablyoutsourcedtomore specializedfirms.
o Structures(factories,premises,…) and
o Equipment(manufacturingequipment,IT,…)

6. Againdependingonindustriesandcompany those canrepresentquite adifferentchallenge.
Overthe traditional analysisof the costsandinvestmentsitrepresents, it’stheirproductivity
and utilizationrate that must be measured,analyzed and forecasted.
o Staff.
Dependingonbusinesstype,the weightof staff andassociatedcostscanlargelyvaryin
percentage of revenue orevenof the marginonCostof sale.Servicesindustrieswould
concentrate large percentagesinstaff costswhereasmanufacturingorextraction industrieswill
concentrate a far lowerpercentage.
The head countby ranks and the statutorycosts by functionare largelyinsufficient.Itshall be
complimentedbyatrue qualitative analysisinparticularfor the keycompetences. Associated
costs such as training,recruitment,redundancy,…shall alsobe substantiatedoverandabove the
“traditional”statistical trend.
o Financingandtreasury.
A companycannotsurvive withoutproperfinancing.Itsupposesadedicated /structured follow up
and forecasting(thatisa subjectinitself).
Finally,keepan eye on your communication.Efficientlygatheringandanalyzingdata,furthermore
producingrelevantsynthesisrepresentsprobably90% of finance work.Still,whatmaymake the
difference isthe last10% i.e.the waythose are communicatedinternallyandexternally.