FP&A: What’s Risk Got to Do With It?
The practical application of risk-adjusted approaches within the businesses can help integrate strategic planning with risk and finance, driving more value at the business-unit level and preparing the company to be more nimble. Given the level, speed, and global impact of risks currently facing many companies, such an integrated approach should be considered not only a necessity, but also a competitive advantage.
If you asked CFOs to list the major uncertainties they’ve grappled with over the past couple of years, you might get consensus on risks such as the economy, regulation, commodity pricing, and consumer demand. But, you would probably get little agreement on how they’ve factored such risks into their financial forecasts and planning.
Part of the problem is that financial planning and analysis (FP&A) has not changed fundamentally from the way it was done 10 years ago, despite the onslaught of new and more strategic risks. Moreover, there still appears to be very little process integration across risk management, strategic planning, financial forecasting, and budgeting—integration often considered vital to addressing the speed and range of risks many companies face.
In this issue of CFO Insights, we discuss what still needs to be fixed in the FP&A process and introduce an analytical framework—risk-adjusted forecasting—that seeks to tame the uncertainties in that process.