Why does FP&A take a back seat in your organization? 

August 23, 2022

You may say, “Not us! FP&A is a vitally important function at my organization.”

Suppose you’re asking your finance analysts and accountants to spend a significant amount of their time on disconnected spreadsheets. In that case, this could be a rude awakening - FP&A does take a backseat in your organization.

How could it not?

Even most start-ups with less than ten employees immediately adopt an accounting system like QuickBooks to capture their transactional data and manage their operations. That’s because tracking your payroll, Accounts Receivables, Accounts Payables, bank balance, and cash flow is considered important to your operation. Then we experience organizations with over 1,000 employees still asking their teams to live within a manual spreadsheet environment to produce financial plans, budgets, forecasts, and reports. That’s finance. Over at the accounting department, many of these same companies expect their accountants to close the books and perform account reconciliations and financial consolidation on spreadsheets.

These companies would not dare run their ERP on disconnected spreadsheets, but FP&A ? Sure, why not? It's not that important.

Would a company with 500 employees manage its entire payroll manually from within a spreadsheet? No, they use systems. Imagine the ramifications of managing these core transactions manually within spreadsheets.

We also have a clear understanding of the negative consequences of managing FP&A within a manual spreadsheet process.

An article published earlier this year by CFODive identifies the losses caused by companies who refuse to adopt modern systems to manage their FP&A activities.

Robert Freedman, this article’s author, identifies the common losses from dependence on spreadsheets:

The typical FP&A team loses at least two hours each week for each FP&A staff person on manual processes, the researchers find using data from more than 1,000 DataRails customers. That’s consistent with other research that shows FP&A staff spend more than 75% of their time gathering and managing data, leaving only 25% of their time for the kind of value-added work that leads to things like Amazon Prime.

“This percentage has been more or less the same for the last 10 years,” the report says.

Robert identifies the categories contributing to these losses. The first is the real cost. If you are paying for FTEs (Full Time Employees) and expect around 160 labor hours per month from that investment (give or take), then any % of those hours being wasted on manual activities is a real and immediate loss. If I pay $1000 for ten days of a rental car but am only allowed to use four days, I have just lost $600. I should have been allowed to use the full ten days or should have just paid for the four days instead.

The mention that FP&A staff could be spending as much as 75% of their time on manual and redundant activities that can otherwise be automated by modern software is astounding. This respected study performed by the Association for Financial Professionals says just that: "Over half the survey participants report their scope includes elements of business advisory beyond the traditional forecasting, budgeting and reporting and 75 percent of time is spent gathering data or administering the process. Inadequate systems and tools are the most pressing challenge for their organization's FP&A efforts."

If this is true, then you are paying for 160 hours of monthly productivity from each of your FP&A employees and accept a loss of those 120 hours. This massive waste is simply caused by not providing your staff with the right tools to perform their work more efficiently.

That can only mean that FP&A is not an essential priority in your organization. What else can it possibly mean?

Robert then goes on to provide insight into the opportunity costs companies face by not providing their FP&A team with modern software.

The first opportunity cost is a lack of innovation. He uses a story about how Amazon’s FP&A team conducted models to create the path that led to the ultra-successful Amazon Prime membership:

About 15 years ago, the financial planning and analysis (FP&A) team at Amazon used modeling to determine which would be a more powerful business lever: giving customers 10% off or free shipping on purchases. The winner was free shipping. The finding led to the birth of Amazon Prime, a subscription service with 200 million customers paying $13 a month, making it one of the chief drivers of Amazon’s success.

Robert’s point in bringing this feat achieved by the Amazon FP&A team is to demonstrate the amazing potential and contribution this unit can have to the overall operation. FP&A should not be a back office function where it's expected they can waste their days away on manual processes. World-class organizations like Amazon understand the power of unleashing their talented FP&A team to model the future and come up with new business models. Now, you will never reduce your manual process down to zero. Maybe that’s something we can strive to achieve many years in the future with the advancements of AI and predictive analytics. Today that is simply not possible. What you can do is lower the percentage of time your team is wasting on manual spreadsheet activities and allow them to repurpose that time to high-value analysis. This would allow them to find the next Amazon Prime model for your company. Today, teams overly dependent on spreadsheets can waste 75% of their time on manual processes and the rest on higher-value activities. The goal of adopting a modern FP&A solution is to flip that ratio. You want your team to spend 75% of their time on high-value analysis and 25% on manual tasks.

Robert also mentions other opportunity costs associated with a manual FP&A process, including low morale among your most talented FP&A team members. How easy is it for a competitor who offers their teams better tools to recruit your best talent? 

Last but not least is the impact on the business leaders who depend on the FP&A team’s output to make critical and timely business decisions. Processes dependent on manual spreadsheets are slower and can contain an awful amount of human error. The data your business leaders require are arriving late, and often when they arrive, they’re not correct.

As a Finance Leader within your organization, you now agree that FP&A has been taking a backseat for far too long, and you have decided this needs to stop today. The next step is to not fall victim to the typical FP&A software marketing trap. Far too many companies have reached this sensible conclusion that their spreadsheet-based process is completely inefficient, and they need to adopt a modern software platform. Many software vendors of FP&A software (financial planning software) will use this pain point to attack spreadsheets directly and convince you to move everything into their system instead. If spreadsheets are the problem, moving into a corporate software solution is the easy answer, correct?

Not that fast. It’s a trap.

You could go from bad to worse if you’re not careful to sidestep this marketing landmine.

Many FP&A software vendors will devote their marketing dollars to encouraging you to ditch spreadsheets altogether and adopt their solution.

How often have you seen this marketing message?

Taking this easy way out of spreadsheets can lead to a dangerous and predictable set of new and even greater challenges.

What? You’re telling me my spreadsheet process is broken and if I adopt corporate software, I’m signing up for even more pain?

That’s exactly what we are saying. Again, be aware of the marketing traps set by traditional FP&A software vendors eager to take advantage of your spreadsheet challenges.

The devil is in the details, as they say.

What you need to also keep in mind is that your FP&A team are humans, not robots. They have free will, and they will use it daily against your goals if you bring in the wrong FP&A software. If you have decided to prioritize the needs of your FP&A team, then you need to PRIORITIZE their needs. This means focusing on the USER EXPERIENCE of the new system you bring in.

Finance and accounting teams love the familiarity of spreadsheets. We know this. You know this.

That makes zero sense, you’re now saying. This goes against the entire point of this article that spreadsheets are the problem.

Spreadsheets are not the problem per se. The problem, or rather the goal, is to reduce the amount of time your team is spending on manual activities. What if you can keep users within the spreadsheet interface they are already trained to use and feel comfortable with and just remove all the manual processes?

Is that even possible?

Spreadsheets are an amazing tool that offers optimal user experiences for FP&A teams. The problem is that you are using spreadsheets for the wrong purposes. That’s what’s causing all this pain and wasted time. A motorcycle can be a great tool to weave through traffic in busy cities and get to your destination quicker. If you instead want to move your house using only your motorcycle, the results could be disastrous and highly inefficient. Spreadsheets have lasted this long and have billions of users today for a reason. They cannot be entirely broken. If a vendor tells you to move off a spreadsheet entirely, you know that’s not credible. What you need to do instead is use the spreadsheet for what it's great for and replace only what's broken. Stop using spreadsheets as your entire FP&A system, including as your main data store. Instead, move things that are inefficient within a spreadsheet and keep it just as a user interface. Do that, and you will quickly upgrade your FP&A team from laggards to leaders within your organization.

Next-generation FP&A Software solutions like Finlogic.io aim to accomplish exactly that. What defines a next-generation FP&A platform is the dual focus on corporate system features such as centralized data, data control, performance, and many others with the user experience of a real spreadsheet. While the traditional software vendors of previous generations want to replace your spreadsheets with their own software, FinLogic.io wants to combine the spreadsheet with a corporate system to give your company and your individual users the best of both worlds. The company gets their controlled corporate system, and individual users get the spreadsheet interface they are so familiar with.

Why is traditional software a trap? I can just install it and force my users to use it.

No, you cannot. That’s the problem. Countless reports and studies over the years have concluded that companies that have adopted traditional planning software (the ones that fully replace spreadsheets with their own proprietary grids) experience a near-full return to a siloed spreadsheet environment. This is such a predictable user habit that you can count on it happening to your organization if you make a decision to adopt a traditional corporate planning software.

Let’s explore why this happens.

Unlike the users of other types of software, finance and accounting users require a grid. A grid is basically a spreadsheet where you have your rows, columns, and cells. Sales and marketing people can live happily within the modern software navigations of cloud software like LinkedIn for Salesforce. They don’t need a grid. They can just navigate page after page and click on large buttons and get their jobs done.

FP&A teams, on the other hand, require a grid. Their work cannot be performed without one. Now think about it, you make a decision to bring in software that promises to replace your spreadsheets. What are they replacing the spreadsheet grids which users view and input data with? Their own proprietary and vastly inferior grids, that’s the answer. So you now have replaced the most popular and familiar grids in the Universe (Excel and/or Google Sheets) with a proprietary grid the traditional software vendor developed for their own software. Your users probably have never been exposed to that grid before, and they will soon daydream about being back in the real spreadsheets they have grown accustomed to. Never mind all the wasted dollars in training your users to go from a real spreadsheet environment to using an inferior and proprietary grid instead.

Then a light bulb will go off. They will realize that they still have access to the real spreadsheets they love. The Excel or Google Sheets icon is right there on their devices. They just have to click on it, and they’re back to their comfort zone. Study after study has confirmed this is exactly what happens nearly every time. As a CFO, there is nothing you can do about it. Yes, it's very frustrating. As each user returns to a local spreadsheet, you see the ROI of your software investment deteriorate right before your eyes. The entire driver to bringing in an expensive new planning software was to get rid of all the manual spreadsheet processes.

As a result, your team will now download the data from your brand new planning software to local spreadsheet models they just created on the fly. They will return to performing most of their analysis manually on spreadsheets, and as this momentum grows, they will even begin collaborating with other teammates on spreadsheets. The only difference is that since you require to see all final results in your system, they will waste even more time uploading their consolidated analysis back into your system. This is why traditional FP&A software simply does not work in real life. You end up managing two disconnected planning environments between the corporate software and the return of manual spreadsheets as a ghost system.

The only alternative is to adopt next-generation FP&A software that fully embraces real spreadsheets. FinLogic.io is a great option, but there are others too. Finlogic.io did not develop its own proprietary grid. Instead, it is fully integrated with Google Sheets. This new category will not fight against spreadsheets. Rather, next-gen FP&A software platforms keep real spreadsheets as the user interface and connect it to a central database (platform). Schedule a demonstration to see it for yourself.