The FP&A Transformation Roadmap

Dr. Liran Edelist

President at Jedox Inc.

Learning Objectives

Get a practical roadmap to FP&A Digital Transformation in this presentation by Dr. Liran Edelist, President of Jedox, Inc. While the meaning of digital transformation has evolved in recent years, it is still perplexing to many organizations, and few have formally implemented changes to adapt to the changes digital transformation has brought. Learn how to begin your finance transformation wherever you're at right now and the key challenges you’ll face along the way. Embark on the journey that is more within reach than most organizations realize.

Key Takeaways:

  • Get a simple, straightforward overview of Digital Transformation for FP&A

  • Learn the key challenges you'll face in your FP&A Transformation journey

  • Discover the advantages at different digital maturity levels


Hi, and thank you for joining me to the next presentation, the FP&A Transformation Roadmap. My name is Dr. Liran Edelist. I’m the president of Jedox Inc, a leading global provider of cloud-based Enterprise Performance Management Solutions. Based in Boston, we help organizations advise their FP&A Digital Transformation journey.

We started developing this presentation about a year ago, where we met with a group of CFOs in New York City. We asked those CFOs at any event that we had, “What is the digital transformation for you and what is FP&A Digital Transformation is about?” Those are the results of the survey that we conducted. None of the CFOs at that event was actually saying that it’s just a fancy buzzword. It means that the CFOs that we hosted in that event kind of understood that digital transformation is something meaningful for the organization. With that being said, our understanding and my understanding of digital transformation is not about the buzzword. It’s really about the capabilities of technologies that are within reach, and the ability to use them in order to enhance business processes by utilizing the latest and existing technology.

When we’re talking about digital transformation, we’re talking about proven technologies that are in our reach, and usually, technologies that do not require the organization to have a significant budget or a significant change on his core system. Digital transformation is not necessarily about best practice. It’s not necessarily about the fast of work, but it’s really about the effectiveness and efficiency of working with the achievable technologies and with better processes.

Let’s have a look how do we do that, and what is the journey that organizations are having in order to get into digital transformation. Our presentation is talking about the FP&A, and what is digital transformation for FP&A experts. FP&A experts know that their job of planning and analysis within their organization is taught with actual data—actual data that leads for an updated forecast and usually at the end of the year, or the financial period to run through the budget.

We have here like that repeatable cycle of budget planning, analysis of factual data, and then forecast. Let’s have a look at the analysis of factual data. Usually, in our report, we try to keep actual is a solid based on IBCS visualization startup. We will talk about that another time. Actual data at most of FP&A departments starts with the finance data. FP&A usually reports about financial performance of the organization, and in order to do so, they have to connect to that finance data source—that could be the European organization and similar sources. Most of the FP&A departments I know start their digital transformation journey with Excel files, so they just take those excels files, they build, they grab the data outside from that finance silo, and have the basic reporting for the organization. Once the financial data gets into executives and budget owner in their organization, you would like to analyze the reasons why performance have been better or less than expectations. In order to answer those questions, what we need to do is to incorporate with the financial data, non financial data.

FP&A professional that seeks that data will find that data resides in many other system of the organization, and you find that in the HR system, payroll system, CRM, marketing, and so on. That’s literally where the digital transformation takes in place, because if you don’t have the digital tools for that, you’ll find that it’s very difficult to incorporate financial data and non financial data together. When we talk about enhancement of processes, and we focus on the analysis processes that are being done by FP&A professional, what we try to do and to encourage is to incorporate the financial data with the non-financial data, and try to break those silos into organization. That will help the FP&A professional, the FPA departments to become a valued and strategic advisor to the management team and to the business partners in the organization.

The digital transformation journey itself is not only about the incorporation of a financial data and non-financial data together. Usually when we try to explain how we take that process and technology together, we identified four stages of digital transformation. The first stage is foundation. This is the basic starting point of most FP&A departments that the work was filed, working offline, exporting data from a system, and trying to analyze them. The second level is when you get an ability to automate that extract from the financial silo, and you are being able to connect between the financial data annual report in a more easy way and automated, auditable way.

Next piece would be adding into that financial data, the non-financial data—information about customers churn, discounts, quantities, units, and so on—but that’s not the end of the journey. Once you incorporate the data together, you’re going to want the people and the budget orders in the organization to keep looking at the hundreds of reports and those standards tables, and just find what went well and what didn’t. In that sense, what we tried to do with the last stage of digitalization, is to make all the reports smarter with the organization. We try to make sure that our systems and the data and the digital transformation provide not just the data and the information, but the real insights, the KPIs, the alerts that gives the managers and their organization the focus where to act. That being said, when we are looking on digital transformation from action and analysis data perspective, we have those four stages and the business value is different for each and every of those steps.

The ability to create the reports—the standard reporting—is where usually organizations are when they have the foundation. Once you want to drill down into understand what was happening, not just what is the final number, but what is really behind that number, you need to get into automation. If you want to understand why, if you missed recess time, was it because you provided more discounts or because you lost customers or just less quantities that have been sold? Then, you need to incorporate the non-financial data with the financial data. Last but not least, in order to understand how to improve what is the added value for the organization, we need to get into the last piece of digitalization.

With that being said, in understanding those four stages of analysis, I would like to speak now about the planning—the budget planning—and what are the stages of digital transformation when we’re doing our budget planning. Let’s start with the real story. The budget process is starting, and people at the organization don’t like it, they always have not again. What we want to try to discuss now is how can we simplify the process. How can we go through a digital transformation that helps organization to incorporate the margin and advance budgeting process?

We look at the two challenges at the budget process. The first one is the business complexity. Organizations are not simple. Once you do a budget process, you need to make sure that you are answering all the different complexities of your business. The second challenge is the collaboration between human—that is not always simple. Definitely not when people are working remotely, but even if people are walking in the same room or different sides of the globe, collaboration is a challenge. Last but not least is the data and tools.

Digital transformation should not be looking only at the data and tools. If you will just replace your budgeting tool, it will not resolve the complexity of the business or the collaboration. We need to look at a holistic approach. How can we do a digital transformation to simplify business complexity to help with collaboration, and provide the appropriate tools for the planners and for the managers in the organization? To understand the business complexity, let’s take the example of sales growth. Most of the organization I was working with always used to plan their budget for sales growth. They set the target, it could be additional 10%, 100 million dollars, it doesn’t really matter. Once they have this target, they should identify how are they going to achieve the target. That means that they can achieve the target by increased price, by adding more customers, by reducing churn, by selling more, limiting discounts. There are different options and once they identify those, they have to make sure that there is enough capacity for the sales organization to be able to meet those sales growth.

Assuming they got an agreement, and they understand what they are going to do, and how are they going to achieve the sales growth. The second question, especially of the CFO, would be, what’s in it for us? Then, we need to understand what is the seasonality? Has a huge impact of the quota management, and recognized revenue and cash flow. Then, what is our margin? How big or small is going to be the increasing cost? Last but not least, of course, how sales incentives are coming together to make sure that we meet that sales growth? Once we know the profitability, we understand the base margin behind the activity, we need to make sure that the organization supports that. We need to make sure that OPEX expenses are in line with the plan. We may need to make some investments, and of course, we need to have enough cash to allowing us to growth.

Whenever we are looking at budget systems, the business complexity is literally what’s in front of you. If we are keep planning in silos, we will never be able to overcome that complexity. When we speak about digital transformation, we want to make sure that our planning process is all incorporated. If we increase our targets, we understand what it means from a margin standpoint, what it means from the OPEX, and the required investment, and so on. Being able to take the business complexity, that is kind of mimic in front of you, and put it in one place with a clear correlations between the different aspects—that’s the way we want to achieve in the simplification of business complexity of planning.

The next piece that we identify as challenge is the collaboration between people in the organization. What we see in many organizations is that managers, budget owners, organization spending bunch of time to make their budget planning. They go through Excel, they grabbing data, they meet with their teams, and they get their budget, whether that’s the revenue or those are expense number and resources planning. They submit it to the headquarter or to the management or the FP&A departments, it gets into the executive organization, and it gets rejected. After they spend a lot of time, the budget have been rejected, it’s kind of a bummer for them. They don’t like it. It becomes an hectic sort of process of back and forth, and a lot of negotiation that usually not make people to like this process.

What we suggest is to incorporate the top down strategic approach and the bottom up plan. Literally, what we try to say the bottom up planning is whether that’s original planning, cost center planning, profit center planning, different verticals of the organization, that planning needs to start with the strategic top down goals of the management. We don’t like that users are starting from scratch and give them one idea about budgets and then getting rejection from the management. What we see as a resolution for that collaboration is to make sure that there is alignment between the strategic top down goals in the organization and the bottom up planning. We can achieve that by technology, by processes that allow us to take the strategic and top down targets, and allocate them using different scenarios, assumptions, and driver to the bottom up, and then the planners, the budget owners, literally starting their planning with something.

That brings me to the next challenge that we want to resolve to the tools, and the tools needs to make sure that they are supporting that tools have to make sure that a budget planning is not starting from scratch. Budget planning is starting with data that is meaningful for the owners, not a blank spreadsheet, not a template, but the data that is coming from this strategic approach. The budget owner can tweak it can change it, but they know the budget frame, they know the numbers. It also mean that some of the data we expect that the tool will be creating for the users expenses that are fixed and known like depreciation and so on. Everything needs to be set up to make sure bottom up approach and top down are aligned together.

If you’re going back to our four stages, foundation, automation, transformation, and digitalization, what does it mean from the budget standpoint, the foundation is usually our budget planning with spreadsheets. The automation is the bucket map, the ability to use it to and maybe not spreadsheet, to collect in aggregate the data, but that’s literally only a simple aggregation. Then, when we talk about transformation, that’s the alignment between the top down and bottom up. The usage of driver is also related to what we spoke about when we talk about analysis of factual, it’s the financial and non financial data. The non-financial data becomes our driver as part of that transformation approach that you want to plan by drivers and not [inaudible].

Last but not least is the digitalization. It’s really the ability to look on everything in one scope, the ability to change driver and to see the effect on the bottom line with our report, so the ability to get into simulation. Then, you see the same consistency. If we just do simple budget planning, we can do and get some reports. If we’re doing like an automatic collection and aggregated view of the budget, we will be able to answer some of the what like what is the budget, what’s the improved budget frame, and so on. The Y is really the ability to look on the relationship between drivers besides and not just putting the dollar value, but putting the real drivers and activities around those drivers as the goal of the budget. Last but not least, with simulation, we can understand how it’s going to change with different funding, different results, and so on.

We spoke about actual analysis. We spoke about the budget planning in terms of digital transformation. Now, we’re already forecast. We already made our budget plan. We started to collect the actual, and now we need to report to the organization what’s our forecast. How is that going to change? Is it going to be the same as planned, maybe more, maybe less.

Before we get into the forecast processing that scenario of digital transformation, I like to ask, forecasting—is it’s like easier than budgeting or not? Since it’s an online, I cannot really get your answers. I will tell you that many organization thinks that forecast is like a simple exercise. Just let’s look at the budget that you can actually tweak a little bit those numbers. In my opinion, it’s not really true. In my opinion, a good forecast process is not necessarily simple, and actually could be much more meaningful to the organization.

The forecast is really allowing us to make an action and to make corrective actions to the organization to make sure that we are meeting the strategic goal and the budget. While budget is really the plan, forecast is actually the execution. With forecast, we can see what was happening, we can re-plan, and readjust the resources of the organization to make sure we get into continuous improvement. The way to look at that is that within focus, we can make decisions that can allow the organization to change behavior, can allow the organization to change priorities based on the budget—it’s usually being done much before fiscal year or fiscal period starts. The budget forecasts should be more accurate from one stage to the other.

We have two challenges that we want to achieve or to overcome with a proper digital transformation. The first one is really to allow the focus to be meaningful and to get into the right decisions of the organization. The second one, we do want to make sure that the focus becomes better from one period to the other.

Digital transformation for forecasting means, how can we make a more meaningful forecast? How can we make sure that the forecast is more accurate? The bunch of answers for that I will focus into. The first one is the concept of rolling 12 months budget. It became much more significant recently with COVID. Like, can you really make a 12 months or even a year end a forecast at the moment? The ability to create a rolling forecast—whether that’s a rolling forecast for 30 months, whether that’s a rolling forecast for 6 months, or for 3 months—the ability to always look on rolling a forecast is meaningful. With businesses that are having seasonality—and most businesses having seasonality—it’s important to look on 12 months budget because you want to say, “Hey, we’re now at the middle of the summer. We got some insights that we want to make sure we put on our plans for the next summer. We just passed the holiday season and we want to make sure that our inventory for the next holiday season may be more optimized.” Doing crawling 12 months budget is more easy because then you’re not really forgetting what was happening, you can actually put your insights through the next year budget especially for seasonal business. One of the key requirements of a good forecast process is not to be fixed to fiscal year, but it’s really to be able to do either short term forecast as we do now, usually with the COVID or rolling 12 months.

The second topic relates to the challenge of accuracy of forecasts is literally the AI. We identified four areas where AI could be very meaningful for planners. The first one is literally just forecast. AI algorithms can look at the data and can give us a predicted trend. The idea behind the AI forecast, in my opinion, in most cases, is not really replacing the manual process or the human sort of planning. It’s really a very good benchmark for your planning. It’s a very good starting point. Sometimes, instead of just collecting the data, look at the data, try to give it a shot, so now, it gives us another benchmark—another way of forecasts that we can compare ourselves. We’ve seen many organization getting better results from an automated forecast than from a manual one. The combination of the human mind, the business experience, that the planner has, with the sort of experiences we can get from the AI, will create a better focus.

Another key area where we can really use AI to make sure that our data is correct and better. AI can help us to understand the drivers and correlations with our data. What is the real impact for customer churn, some example. The ability to create correlations between different data sets may be correlation between product, like cannibalism of product, and so on. The ability to point and data cleansing. We loaded all data, but suddenly one must have not been loaded. Usually, we need to check for that. Sometimes, today AI algorithm will point to that. Last but not least, maybe it’ll be less popular for started FP&A work is segmentation and scoring. We can also do segmentation that can help us to get a better understanding of different buyers with your organization. Different customer groups may be scoring and allowing us to go with specific promotions, updates, and just even transit to want to plan for that.

AI, by nature, part of digital transformation, huge impact. There are many good AI tools that can be implemented very quickly. Part of a digital transformation being utilizing achievable technologies is really using AI without necessarily being a data scientific. Back to our mark like stages, foundation, for most of organization, focus will be just update on the budget numbers. When we do the automation, we create what’s usually called the blended version actual budget and the updates to the budget. The real transformation is when we say, “Okay, we want to make sure that our budget is smarter. We want to add components, like backlog, pipelines, short and long term debits, and a lot of information, which is not necessarily the standard financial data, we put all of those together in order to get a better forecast. We cannot say that we have a pipeline of 100 million dollar and our revenue will be 500 million dollar—that doesn’t happen. When we look at the pipeline, when we look at our backlogs, we know better about our forecast and our ability to serve and to meet sales goals.

Last but not least, if we have that information, if we have those different data, instead of silos in one place, we can run AI that utilizing that data and can help us to be like the base or the benchmark for our plan. Again, four stages foundation, automation, transformation, and digital transformation, and the business value. You already know it’s like the reports is the base, what was happening, why it was happening, that’s the additional information and how can we make it better. That would be the really digital transformation and volume.

This is kind of a summary slide. I have another slide of our takeaways. This summary slide is showing that actual planning and forecast roadmap business value. On the left hand side, you can see the foundation, automation, transformation, and digitalization stages. You can see that once you start this journey, the automation—it’s really like a tactical FP&A. Once you get into the next level of transformation, this is more strategic. You think about motions about activities, what we need to do, what are the activities for the organization. Then, the dynamic FP&A is those FP&A departments that can really say, “We have structures that allow us to simulate in the future and can really advise organization how to act better.” Tactical, strategic, and dynamic FP&A. Sometimes, we call now xP&A, because it’s cross organization. It’s not only financial, it could be any planning good to organization.

We call this presentation a roadmap. It means that not all the organization needs to achieve everything in one day. Organization needs to set themselves the core where they want to be in stage one of the digital transformation journey. They can say, “I want to invest more in my budget planning and actual capabilities, but I can start with a very simple forecast,” or I can say, “Maybe I do want to create the quick wins utilizing AI on my forecast to get the better forecast, and I can keep my budget planning and actually the moderate level of maturity.” Those abilities—that ability to look at actual capabilities or maturity planning and forecast all together—that’s part of the roadmap that the organizations need to put in front of themselves. By nature, keeping that is a consistent process will allow organization to get into the full digital transformation journey.

What are takeaways? What are the key takeaways for that? First and most important one, digital transformation is not a project. It’s like a continuous improvement. I like to advise organization that it also needs to be self-improvement. It’s not just about, let’s take a consulting company, let’s buy technology, and they will do it for us now. It’s like self-improvement that needs to come with the great collaboration and motion and push from the organization itself.

The second area of digital transformation for FP&A is really about data entry. I spoke a lot about financial and non-financial data together. The idea is that we don’t want people just to crunch and put data in their budgeting system or planning. We want to make sure that the system is smart enough to give them the baseline of their budget, allow them just to update not to rebuild the old numbers from scratch. It’s even recommended not to allow users to plan the dollar value but literally, the business drivers.

Then, we want to move organization from standard reports to insights to alerts to smart system and insights that allow people to focus on what went wrong. We want to move away from the different silos, planning silos, or data silos into one centralized place where we can say, Okay, the same as we have here. [Unintelligible] will consolidate all of our resources. We want to make sure that all of our different planning tools and models are centralized together, have the same governance, and maybe even inter-correlated between [inaudible].

Thank you very much. That was my presentation of the FP&A Digital Transformation. I hope you enjoyed that. You can contact me via LinkedIn. I’m happy to discuss more about this topic. Thank you very much.

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