Taking a Look Back on Old-School FP&A and Its Future
Don’t you yearn for financial technology from days of yore? Wasn't it fun to be confined to only three options in Lotus 1-2-3? Isn’t the world just too quiet without the screech of the dot-matrix printers? Wouldn't it be nice to be hampered by those punch cards with all those letters and numbers once more?
No? Perhaps we're not all that fond of ancient technology.
But is your Financial Planning and Analysis (FP&A) function making the best use of the new tech that’s available? Or is it still stuck in the 20th century? In this blog, we’ll review different finance experts’ tech horror stories and their advice on how to upgrade your FP&A.
From Manual Ledger to Finance Automation
So, what kind of archaic tools did Finance experts contend with at the beginning of their careers?
“At the start of my career, this sort of thing was done on stone tablets. When Johannes Gutenberg invented the printing press, that really accelerated the FP&A process,” jokes Jack McCullough, President, CFO Leadership Council.
But, on a more serious note:
“This will scare you: Manual posting of general ledger with fountain pen. Tech was major mini-computer IBM S/36, punch cards and an electric calculator — circa 1982!” says Tom Hood, CPA, CITP, CGMA, EVP Business Growth & Engagement, Association of International Certified Professional Accountants.
The IBM System/36, for those unfamiliar, was a "small" computer system roughly the size of a business fax machine. The base model came with 128 KB of RAM and 30 MB of hard drive space, but it could be upgraded to 7 MB of RAM and 1478 MB of disk space. Isn't that impressive? Even better? Back in the early 1980s, you could purchase this feat of innovation for the low, low price of $200,000.
The IBM System/36 was revolutionary at the time because it digitalized operations and increased efficiency significantly. It could even run software programs up to 64K in size! Now we look back on the IBM System/36 with a sense of shock and wonder. How is it possible that an entry-level desktop computer today has a thousand times the processing capability for a quarter of the cost?
Since that initial leap to computers, corporations have achieved several major improvements such as smaller personal computers, more advanced software, and networked systems. Despite this, many companies' FP&A technology has plateaued at spreadsheets and manual data entry - practices that slow down the process and can even introduce more human error.
It's time to take the next step and modernize FP&A with automated, comprehensive processes that will propel Finance into the 21st century.
From Narrow View to Part of the Bigger Picture
Not only is technology evolving, but so is the role of finance. Traditionally, financial planning was an afterthought after the organization had completed the more important task of strategic planning. According to Jack McCullough:
“I think the biggest change is that 20 years ago, FP&A was often viewed as separate from strategic planning. Yes, financial planning and strategic planning operated in two different silos. Today, you can’t have one without the other (with apologies to Frank Sinatra). But it used to be just accounting types running numbers on spreadsheets, whereas today, the technology is amazing, and the acceptance of financial planning as part of the strategic plan is nearly uniform. Also, back then, FP&A in many companies was a seasonal venture (create the financial plan for the following year in November and December). Today, it is a perpetual process, and largely due to technology, more effective than ever before.”
The modernization of FP&A is fueling Finance's shift from backroom support to key participants in formulating the overall business strategy. The rise of accounting techniques like rolling forecasts, zero-based budgeting, and scenario planning enables Finance to forecast more frequently, accurately, and faster than ever before.
From Spreadsheet Operator to Valued Advisor
There's also the possibility of FP&A professionals' roles being elevated within the company. Janet Schijns, CEO of JS Group, shares a story about finance's evolving role:
“In my first job, in the cosmetic industry, the tools I worked with were largely spreadsheet or database-driven with limited to no intelligence and a set of highly complicated processes to get even the simplest calculation or presentation to come out appropriately. Having a highly experienced financial person by your side at all times was a necessity. Now tools can make data available and analyze it at a click of a button. This allows a wider range of leaders to have not only access but also intelligence around specific data to run the business.”
You might be wondering, "What's wrong with always having a Finance person by your side?" Shouldn't their skills be acknowledged? The answer is a resounding “yes!” However, by modernizing FP&A, Finance will be known for much more than its impressive number-crunching skills.
Finance technology can promote collaboration by allowing more individuals to participate in forecasting and re-forecasting. And with a central repository of information, the entire C-suite can access the information they need when they need it.
Finance will become the go-to source for deeper analysis and business-driving insight, rather than being the go-to source for distributing forecasts and running reports. Why are numbers up? Why are they down? How should we alter our strategy based on changes in the supply chain? With greater access to data, everyone wins.
From Repetitive Tasks to Easy Insights
Data entry and other repetitive tasks have long been a part of Finance. Gabrielle Luoma, Co-Founder, and CEO of MOD Ventures, LLC, described how she felt in the early days of her business:
“Every now and then, my husband and I look back to a time when I just started my business. I had a client that had a file box full of receipts, and she wanted every single one entered into her Quicken. This was for the whole year, and so I had to decipher what the receipts said. Many receipts were so faded we could barely read them. My husband spent hours calling out vendor names and amounts while I typed them into the system. All we wanted to do was just be done.”
Most people don’t like mundane tasks. However currently, most Finance professionals devote around 20% of their time only to strategy and higher-value tasks.
Routine tasks such as rules-based activities, reporting, data consolidation, and reconciliation can be automated by modernizing FP&A. With less repetitive work and more reliable data, Finance can spend more time on activities that deliver more value to the organization.
Graduating to Modern FP&A
Is FP&A at your company forward-looking or stuck in the past? Moving beyond stone tablets is a start, but organizations can also update their financial planning and analysis processes in other ways.
If you're ready to quit manual processes — and that dusty old copy of Lotus 123 — check out our post on how to make your finance team pain free this year.