By Joseph Neu
The AFP is courting FP&A professionals to ensure its annual conference sustains its ability to gather the largest collection of treasury and finance professionals of the year.
The Association for Financial Professionals likes to cite its data points, starting with that of attendance, because the major appeal of its annual conference is all about the number of people you get the chance to run into in one place. This year’s conference in Las Vegas reportedly delivered record numbers (more than 6,000) and despite the vast number of competing attractions that town has to offer, the exhibition hall saw good traffic and more than one of the concurrent sessions had to be closed due to demand in excess of room capacity.
Expanding to FP&A
Growing its focus on numbers, the AFP is also reaching out to FP&A professionals to expand its scope beyond treasury. FP&A folks are certainly focused on numbers but also helping others to use the numbers to their advantage. To grow its numbers and the FP&A role, the AFP has announced a new FP&A certification to join its CTP accreditation, which itself replaced CCM. Thus, the AFP continues to evolve from its roots as a cash managers’ association and as a competing association to the Financial Executives International (FEI). But the AFP also becomes a sizeable force in support of boosting the standing of the FP&A function.
The AFP’s move fits with the trend of growing cooperation and synergies between treasury and FP&A functions, where many treasurers have come from recent assignments in FP&A or have the FP&A group reporting into them. The synergies also fit the AFP’s cash manager roots, as FP&A is usually indispensable to any cash forecasting process that cash managers use. Indeed, making cash forecasting more accurate and useful to treasury would be a laudable goal of the AFP‘s move to add FP&A to its membership mix.
But it should not end there. The future role of FP&A will tie in as well to treasury leadership in risk management. Being also a part of the finance function, this starts with the financial risk data and analysis. A presentation by Mark Pellerin, a principal with Oliver Wyman, on the common goal of FP&A and risk management, showed how the two roles of FP&A and Risk Management can be integrated (see image below). However, best practice in enterprise risk management suggests that risk-based thinking (across the spectrum of risk types) should be embedded in all business planning.
Herein lies the risk in FP&A and the AFP’s strategy to grow its numbers. Forward thinking ERM practitioners see their goal as embedding enterprise risk thinking into all other line roles, which means that a successful ERM program will be self-dissolving once some proverbial tipping point is reached. There may need to be a certain retained infrastructure to cultivate appropriate risk thinking and provide a governance framework to ensure appropriate risk taking, but this could be as much cross-functional as dominated by a separate class of ERM practitioners. Financial institutions, perhaps unfortunately, have been mandated by regulators to create this separate class of risk practitioners, and the spillover to non-financial corporates may well do the same.
Yet, conceptually, enterprise risk management is something that arguably can and should be performed largely by non-certified ERM professionals.
more entrenched
Fortunately for FP&A professionals, the FP&A function is more well-entrenched than any ERM program. But that does not mean that same logic doesn’t apply. Indeed, at a session on the future role of the FP&A professional, a practitioner commented that most every business leader within an organization has an MBA with a solid finance component, “so they don’t need us to tell them how to do financial planning and analysis or how to apply financial information to their decision making.” That is now a key component of every managerial role.
What’s more, new enterprise technology keeps getting better at extracting financial data and providing it to anyone in a user-friendly and accessible fashion. And this is before the next generation of tools driven by current big-data hype are fully adopted. The role for FP&A in merely assembling and delivering the numbers to management is on the decline. While more organizations may be adding FP&A headcount now, according to data presented by Andrew Thomas, Exec. Director F&A with Kforce Professional Staffing, the trend seems to be to emphasize investment in continuing education and technology over adding staff. To thrive in the future FP&A professionals have to be really good at using the numbers to tell meaningful stories—and ones that contribute to the financial success of their management customers and enterprises they serve. But here again, they are competing with information technology’s analytical tools that get increasingly better at finding and communicating useful intelligence in vast clouds of data.
Enterprise risk managers can be displaced by technology too, of course, but they at least have this growing regulatory mandate to point to risk governance frameworks, where increased headcount is often an easy fix. Are there equivalent regulatory mandates for financial planning and analysis? Perhaps the AFP can seek to create them.
Limits to automation
Automation once threatened the treasury function too. The old joke was that treasury functions would eventually be staffed by a single treasurer and a dog. The dog was there to ensure the treasurer did not touch the machine running treasury. No treasury we’ve seen functions this way. No TMS seems nearly capable enough to run things without human intervention. But compare the treasury functionality of an SAP, for example, with its FP&A functionality. FP&A is much more core to enterprise resource planning (ERP) systems than treasury, sad to say (aren’t capital and liquidity important enterprise resources?). Thus the capabilities of systems competing to automate FP&A are far better than those that might eventually fully-automate treasury. Of course there are limits to how far automation might go, or we can look forward to a future with self-driving cars produced by companies that are also self-driving with a small C-suite of professionals merely along for the ride.
Still, with the automation threat more real, FP&A practitioners have an even greater need to cultivate their value added role in all areas where their activities cannot yet be automated. Three key drivers that overlap with those of treasury are as follows:
- Cash-flow in addition to earnings guidance. A growing number of corporates have taken to providing cash-flow guidance, along with working capital metrics, in addition to earnings as part of their financial reporting. This puts the onus on the finance organization to accurately map cash and track working capital so they can plan for delivering on the guidance given.
- Reconfiguring financial systems and managerial reporting to offer cash and economic exposure information, as well as accounting. Most financial systems, starting with the ERP are biased toward providing an accounting view of finances rather than a cash perspective. As a result cash and exposure planning and forecasting efforts require significant manual intervention and remapping of data to deliver the right information to decision makers. FP&A has a role to play in ensuring systems deliver the right kind of data without this manual effort and allow cash and risk managers to act on better data and more time to analyze it, with better applications to do so, before acting.
- Establishing better metrics to assess data quality and the performance of processes that apply the data. Multiple financial measures are used in analysis of corporate performance as a whole, but the consensus on what really matters to generate future value is still shaky. FP&A professionals can go a long way to improving the value of the enterprises they work for if they can help their lead managers better assess the quality of the inputs that go into their planning and analysis models and then do better to measure the performance of activities undertaken as a result.
Pursuing these with the help of treasurers who see the value of their FP&A colleagues’ role will certainly help raise FPA&A professionals’ profile and give them more significant leadership roles. Unfortunately, there are still likely to be fewer FP&A staffers needed each year, as planning and analysis software improves and the FP&A mindset becomes more pervasive in every manager. While there may be fewer FP&A professionals to attend future conferences, if the AFP is successful, those that do will represent a higher caliber of financial professional.