Defining FP&A to a Stranger at a Cocktail Party

It seems like Financial Planning and Analysis (FP&A) is the jack-of-all-trades and the master of most others. FP&A answers strategic questions, forecasts for the future, ensures a timely accounting close, prepares board reporting packages, preps the executive team, divests a division, analyzes product line profitability, performs due diligence on an acquisitions and oh yeah does the budget. Understanding what an FP&A professional does on a daily basis is hard enough, let alone explaining it to someone else.

Although the FP&A function has been a key component of the office of the CFO for decades, with the increasingly faster pace of change, its prominence has vastly increased in the past 4-5 years. Even with this greater prominence, and now even a designation, I find the vast majority, outside the world of corporate finance, still don’t understand what FP&A does. Therefore, I decided to do some research to find out how others define the FP&A profession.

Defining FP&A as:

An article from the CPA Insider defines FP&A as: “The provision of economically sound concepts and tools that will enable an organization to formulate an effective business strategy and then translate that strategy into results.”

That sounded OK, so I kept searching and came across an article by Ventana Research that defined FP&A as follows: “People who perform the financial planning and analysis (FP&A) function in the finance organization put together and update the budgets and forecasts.”

That was still OK, so I continued on and found a discussion and definition from Josie K., President of Innovation Enterprise as part of a Linked-In forum where others also contributed at length with their interpretations of FP&A. She defines FP&A as follows: “Accountants record the historical results as accurately as possible, and then FP&A takes this information and analyzes and explains the historical performance (the A in FP&A). Then they forecast future period results using the insights learned from this analysis (the P in FP&A).”

I honestly thought that this last definition was pretty darn good and it is followed-up with 22 comments that provide additional clarity, but that definition is certainly a mouth full and not something that can easily roll of the tongue at a cocktail party. In the course of my research, I found many other definitions of FP&A but none of them really seemed to hit the mark.

One group I was hoping had a definition was the Association of Financial Professionals (AFP), the organization that created and promotes the FP&A Certification, unfortunately, the AFP sets forth a series of standards and definitions but I was unable to locate a clear and easily understandable definition that I felt fully represented what FP&A does. (If someone from the AFP reads this and is able to point to the definition of FP&A on their website, I would greatly appreciate it.)

A Conversation

I have run across many people, both inside and outside the profession, which have had this same confusion. Therefore, the best way I know how to define FP&A is not by a pure definition but a dialogue between an FP&A professional and complete stranger at a cocktail party. Below is this made-up dialogue, between two strangers at a cocktail party where one is a FP&A Professional who works to explain what he/she does for a living.

FP&A Professional: Hello, what brings you to this wonderful cocktail party?

Stranger: I attended XYZ University in the 80s and I always like to support the school when I can. So what keeps you busy when you are not attending events like this?

FP&A Professional: I work in Financial Planning and Analysis at a Fortune 500 company.

Stranger: Oh, so you help people with retirement planning and stuff, you know I have been meaning to focus on finding someone to help me with that, are you any good?

FP&A Professional: You are talking about personal financial planning and I do not do that. The vast majority of a company’s value is derived from its future earnings. I manage a team that develops various financial forecasts that plan how the company will achieve those earnings. In addition, I work as a business partner on various projects to increase revenue, decrease cost and optimize company performance in support of achieving those future earnings as well.

Stranger: Oh, I see you are like one of those Wall Street Financial Analysts who analyze different stocks and predict their earnings. So you have any hot stock tips?

FP&A Professional: No, I do not do that either. With the speed and complexity of business moving faster ever year, I have my hands full supporting my own company’s senior management, like the CEO, CFO, COO and other C-suite management, providing financial transparency and helping them make better decisions about the future.

Stranger: So you are a hatchet man brought in to cut costs, got it. My brother is a controller for a company and he is always complaining about how he has to force people to cut back and fire people because they don’t have enough money. Hard job, I don’t envy you.

FP&A Professional: No, that is not what I do either. Although I manage the budgeting and financial forecasting process for my company, I pick up where accounting leaves off. While a controller is primarily focused on looking at historical performance, I look forward and focus on what may happen in the future, make assumptions and explain variances to the forecast so management can make better decisions. Many times, I recommend that underfunded areas receive more resources because they have higher potential future returns than slower growth or declining areas.

Stranger: Ok ,ok….So what is the difference between what you do and what a CFO does?

FP&A Professional: I could become a CFO someday and I do report to the CFO of my company but a CFO’s role is much broader than what I do. A CFO oversees all the financial functions of a company including FP&A such as accounting, treasury, tax, financial reporting, etc… Although I use all of the information that these other departments produce and more, I am a specialist within the CFO office providing needed insight that he/she does not have the time to focus on exclusively.

Stranger: I see, a corporate finance specialist. So what is the difference between what you do and what a fancy investment bank or management consulting firm would do?

FP&A Professional: Not much, in fact many people who do what I do come from those same professional services businesses, we simply choose to work for one company as opposed to multiple companies.

Stranger: Now that all makes sense, thanks for explaining it.

FP&A Professional: No problem, happy to. So, what do you do for a living?

Although played out in different ways, generally this is the path that I found conversations like this go. Many times, I can circumvent any additional explanation by giving a generic titles such as consultant, or I work in corporate finance or accounting and I would say 90% of people are satisfied with that.

The people that dig deeper tend to be professionals is some capacity (like a lawyer engineer or sales person) and simply did not realize that there was more to finance then just accounting.

I hope you are able to take the definitions I have found above, leverage the cocktail dialogue that I created and develop your own definition based on what you do on a daily basis to come up with a better way to communicate all the value that you, as an FP&A Professional, bring to the table.