The finance department has undergone a dramatic transformation in recent decades, fueled in part by the widespread adoption of financial planning and analysis (FP&A). It’s been a winding road to get to this point, but today, FP&A teams have solidified themselves as a cross-functional strategic asset for most midsize to large businesses.
Understanding the past to predict the future is the core ethos of FP&A. With this in mind, we dove deep into FP&A’s evolution through the years, tracing its journey from humble beginnings in the back office to its current status as a critical value-driver for modern businesses.
In this post, we’ll shine a light on:
Part 1: How we got here
For decades, finance and accounting teams worked behind the scenes, focused primarily on bookkeeping and transactional reporting. Being confined to the back office often meant that finance professionals were less visible and, at times, undervalued relative to their revenue-generating peers.
Dismissively labeled “bean counters,” their repetitive tasks and meticulous attention to detail were seen as essential but lacking much strategic value. However, this seemingly mundane work of tracking every penny spent and earned by a business laid the groundwork for a profound transformation.
So, what was the catalyst that catapulted finance from back-office bean counting to transformational business strategy? Several factors are involved, but none were more impactful than advancements in technology.
Setting the foundation (1970 - 1990)
The 1970s marked the dawn of the digital age, and with it, a wave of innovations that changed the landscape of finance. The first spreadsheet program, VisiCalc, launched in 1979, was followed by Lotus 1-2-3 in 1983 and Microsoft Excel in 1985.
By the end of the 1980s, mass-production computers and basic spreadsheet software had become commonplace in most offices, finally giving finance some breathing room to peer over their stacks of paper invoices.
More sophisticated multi-dimensional modeling software, like those introduced by IMRS (later known as Hyperion) was also beginning to emerge. These technologies, while out of reach for the vast majority of businesses due to their significant cost and complexity, set the foundation for FP&A’s continued ascent.
The birth of modern-day FP&A (1990 - 2010)
While FP&A started taking shape in the previous era, the 1990s marked its true emergence as a distinct discipline. Although traditional accounting was still primarily responsible for preparing budgets and financial statements, the need for more advanced planning and analysis was increasingly evident.
The next wave of technological advancements, including personal computers, the internet, and data analytics tools, equipped finance professionals with a more robust toolkit. Armed with more data and the means to analyze it, the modern-day FP&A role was born.
Real-time data integrations revolutionized financial models in the 2000s, making them more reliable and accurate. Teams could now provide senior management and the C-suite with the insights needed to make smarter, faster decisions.
More and more companies started catching on, but FP&A was still far from mainstream adoption. The software and data integrations existed but were still expensive and time-consuming to implement. It was a nice-to-have, not a need-to-have...until markets imploded in 2008.
Awakening and early growth (2010 - 2015)
The Great Financial Crisis was a wake-up call. As companies sought to recover and build resilience, they began to recognize the pivotal role FP&A could play in reaccelerating growth and weathering the next storm.
This awakening began an exponential rise in awareness and demand for FP&A services. Just look at Google Trends—it reveals a tenfold increase in search interest for "FP&A" since 2010, mirroring its increasing prominence and permanence in the business world.
FP&A had evolved into the engine room of a business. Instead of just keeping track of financials and setting budgets, they were now tasked with creating precise forecasts, aligning teams, monitoring progress, and supporting strategic decision-making—and the list of responsibilities would continue to grow.
Organizations big and small realized that financial planning and analysis was now a necessity rather than a luxury, and began to ramp up investments in their FP&A capabilities.
Transformation and maturity (2015 - today)
Further technological innovations in the mid-2010s fueled FP&A’s continued acceleration. Cloud computing, cross-platform integrations, and advanced analytics tools became widely accessible and affordable, supercharging the strategic impact that finance could have across the business.
As McKinsey put it, “Next-level FP&A teams have figured out how to build more speed and flexibility into their own processes, which can trigger more efficient and effective operations throughout the company.”
Forbes conveyed a similar view, saying that “the role of FP&A has expanded beyond traditional financial reporting to include strategic insights…This shift in responsibilities has elevated the importance of FP&A as a strategic partner to senior management, enabling the alignment of financial goals with overall business objectives.
This step change in strategic value has led to a booming job market for FP&A professionals. The Corporate Finance Institute said that these roles are “extremely in demand and growing very rapidly,” and that companies are “investing in their people…and making sure that they are not merely reactive finance professionals, not merely focused on reporting, but they are much more focused on proactive thinking, positioning the company for the next chapter or phase of its life.”
Staffing firm Robert Half echoed a similar sentiment, saying “FP&A is now one of the top job titles in finance on the market, and the depth of skills that are being asked for is beyond anything I’ve seen before…FP&A experts are now in high demand across all corporate functions…and companies are starting to embed FP&A talent into operations.”
In short, FP&A is no longer a nice-to-have. What started as an elite practice reserved for the top 1% of businesses is now a must-have for businesses with as little as 100 employees.
Part 2: What elite FP&A looks like today
The cat is out of the bag
What used to be a secret weapon is now a well-known force multiplier for strategic decision-making. As noted by EY, “the finance function is uniquely positioned to hit all angles of long-term value creation (not only financial value).”
The sheer volume of data available, coupled with advancements in cloud technology and a robust market for innovative financial tools, has leveled the playing field. Now, even smaller companies can access sophisticated financial analysis tools that were once reserved for bigger players. This has intensified competition, pushing companies to find new ways to leverage FP&A to stay ahead of the curve.
These days, having a full-time employee wearing a part-time FP&A hat isn't enough. To truly stand out, you need a dialed-in FP&A function that leverages the latest tools and practices to make precise predictions and extract valuable insights from your data.
Here’s a snapshot of what that looks like today:
Typical responsibilities of a modern FP&A team
FP&A teams wear many hats, juggling a wide range of responsibilities that are essential to a company’s financial health and strategic direction.
Routine financial reporting
Generating monthly profit and loss (P&L) statements, variance analyses, and other regular finance reports are bread-and-butter FP&A tasks. It’s vital that teams complete these reports in an accurate and timely fashion, but they can eat up a lot of FP&A’s bandwidth, especially at the beginning of the month.
The less time finance teams spend finishing and distributing these reports, the more time they can spend on higher-level tasks like scenario planning and forecasting.
Forecasting
Precise forecasting is one of the best ways FP&A can add value to the organization. A bevy of benchmarks and business data have enabled leading finance teams to assemble hyper-accurate forecasts that give management a clear vision of what’s around the corner.
In many cases, though, FP&A analysts spend an inordinate amount of time on manual forecast updates—hardcoding new assumptions into forecast models, pulling data from different sources, reconciling everything, etc.
Just like with routine reporting, streamlining this data drudgery can be a game-changer. It frees up your team to focus on understanding the story behind the numbers and using those insights to refine forecasts so they’re more accurate going forward.
Strategic planning
Every organization has its own flavor of strategic planning. Some do it once a year, and project what the next 5, 7, or 10 years will look like. Others constantly update their plans throughout the year as new assumptions and strategies emerge.
In any case, FP&A plays a crucial role here by providing financial insights that inform headcount planning, key performance indicators (KPIs), and benchmarks. This is part art and part science—financial analyses are a vital component of well-crafted strategic plans, but it’s equally important to collaborate with other departments to understand what they’re expecting in the next several years.
Budgeting
While strategic planning paints the big picture, budgeting requires FP&A to determine how every dollar in the organization will be allocated for the upcoming year. In most cases, budgeting season and strategic planning season are on opposite sides of the calendar, since each requires such a heavy lift from FP&A.
During budgeting season, finance leaders work with executives to understand the overall financial goals and constraints, while also collaborating with department heads to ensure they have the resources needed to achieve their objectives. It's a balancing act that requires diplomacy, analytical skills, and a deep understanding of the business.
Performance management
Once the yearly budget is created, finance staff are responsible for monitoring spending throughout the year and making adjustments as needed to stay on track. Usually, this happens in the form of a monthly budget review with department heads—sometimes, FP&A will flag areas where departments overspent their budget, and task them with cutting expenses in the following months and quarters to compensate. Other times, finance staff may prod teams to get more aggressive, such as spending more on marketing.
But performance management within top-performing FP&A groups goes beyond just looking at budget variances. Most teams keep track of a wide range of KPIs throughout the year, and compare actual results to forecasts and targets. This allows them to identify areas where the business is performing well and where improvements are needed.
What impacts and outcomes a dialed-in FP&A team drives
Just about every FP&A group is responsible for the areas outlined above. But that doesn’t mean they’re all created equal—effective data management, precise forecasting, and strategic insights enable top-tier FP&A departments to deliver a whole lot more value than their counterparts.
Deeper insights that support data-driven decision-making
Elite FP&A teams spend as little time as possible crunching numbers. With automation tools and solutions that establish a single source of data truth, they don’t need to spend hours manipulating data—it’s right there when they need it.
That time savings allows these teams to dive deeper into the data, uncovering trends, opportunities, and storylines that they can present to management. Plus, if they get a business question like “How much did the APAC region spend on sales and marketing in Q2?”, they can provide an answer quickly. Better yet, they arm their teams with self-service dashboards.
Precise forecasting and resource planning
Forecasts will always have some room for error, but the less, the better. Top-tier forecasts should be built on real-time data and have the flexibility needed to adapt to changing assumptions.
Leading FP&A teams are constantly refining their forecasts, incorporating feedback from business partners to understand seasonal trends and other factors that can impact the numbers. Ultimately, good forecasting ensures that resources are allocated strategically to grow the top line while controlling the bottom line.
Cross-functional alignment
FP&A teams need to have an understanding of the organization that’s a mile wide and an inch deep—although many go much deeper. They act as a bridge between different departments, aligning financial goals with broader business objectives.
For that reason, good FP&A leaders aren’t tethered to their desks. They maintain a regular dialogue with department heads, keeping their finger on the pulse of the business and ensuring everyone is rowing in the same direction.
Financial agility
The importance of financial agility became painfully clear during the pandemic. Companies that could pivot quickly were the ones that survived, and FP&A teams played a crucial role in this adaptability.
Modern tools allow finance teams to simulate different scenarios to assess risks versus rewards. This is invaluable when disaster strikes, but it also helps finance teams identify emerging opportunities before the competition.
Data cleansing, consolidation, and reconciliation
Historically, insufficient data put a lid on the value FP&A could deliver. But today, the challenge isn’t a lack of data; it's quite the opposite. Finance teams are drowning in data, and the real hurdle lies in harnessing it effectively.
Most junior finance analysts spend a good chunk of their week pulling data from one source, manipulating it in some way, then uploading it to a different source. There’s also the unenviable job of making sure two data sources agree with one another, which can involve painstakingly hunting for variances.
It's a tedious, time-consuming process that's prone to errors and takes valuable time away from more strategic work. But with the right financial data management tools, your team can spend less time wrangling data and more time on the stuff that really drives value.
Unleash the power of your FP&A team with Aleph
Modern FP&A capabilities require modern data management. Without it, data manipulation will be a bottleneck that keeps your team from adding real value through strategic storytelling and advising.
Sure, your ERP keeps track of every transaction, but it’s a system of record, not a source of truth (and there’s a big difference). ERPs are rigid tools that have significant limitations when it comes to isolating and transforming data based on businesses' increasingly complex needs.
The challenge intensifies as finance teams grapple with incorporating data from various sources: HR systems, marketing analytics, sales pipelines, application usage data…the list goes on. This data deluge is dispersed across dozens of tools and platforms, making it a herculean task to gain a comprehensive understanding of the past, model future scenarios, establish targets, and track progress.
The FP&A software market is saturated with solutions attempting to address this escalating issue. However, a delicate balance between rapid time-to-value, user-friendliness, precise accuracy, and flexibility-at-scale has remained elusive. Finance teams, already stretched thin, cannot afford expensive tools that demand months of implementation, and worse, try to replace the tool most finance team know and love—spreadsheets. Such solutions merely replace one bottleneck with another.
Aleph is committed to empowering businesses with a single source of truth that automates intricate financial reporting and planning processes, freeing finance teams from the shackles of manual, inefficient workflows. By eliminating these burdens, we enable finance professionals to reclaim their role as strategic storytellers and catalysts for change.
Schedule a free demo to see our platform in action with your data.
