More than four out of five finance executives are planning to upgrade their automated financial planning and analysis (FP&A) processes in 2022, partly in response to challenges faced during the pandemic, a survey of 200 finance leaders by corporate performance management (CPM) software company Prophix shows. The survey was done in collaboration with CFO Dive.
Almost 15% of finance leaders using legacy tools like Excel spreadsheets found it hard to react to changes during the pandemic, the survey found, and 10% of those with legacy tools said they plan to invest in automated software to make collaboration among finance team members and continuous planning easier.
“Being able to do continuous planning without a CPM tool would be difficult,” Prophix CFO Ryan Van Hatten said in an interview. “You’d constantly have Excel models open, emails flying all over the place, errors happening, people trying to collaborate on spreadsheets.”
Managing through uncertainty
The pandemic highlighted the importance of continuous planning because finance chiefs needed to have plans in place no matter how uncertain the business environment would be from one week to the next.
Van Hatten said planning was made easier for his team because, as employees of a CPM software company, they could use their own tool in the process.
“Without exaggerating, we were basically doing weekly plans,” he said. “Every week we were saying, ‘What happens if the U.S. economy goes downhill and people stop buying? What happens if our churn starts to increase? What if we start losing employees? What if we have to shut down one of our servers?’ We were planning at detailed levels.”
Having the plans in place enabled the company to act quickly as it learned its growth in new customers was slowing.
“We weren’t impacted too much on the churn front,” he said. “People realized CPM software is important and didn’t want to lose it. Where we were impacted was around our new sales. Our growth continued, but the pace started to slow. We weren’t sure how long that was going to last.”
The biggest dip came in the second and third quarters of 2020, just as the gravity of the pandemic was becoming clearer and the move to remote work was starting to harden.
“We had to have plans in place that said, ‘Okay, if our sales are going to drop by x%, what is that going to mean in terms of our profitability and cash flow? What are we going to tell our board, or our investors?’” he said. “Luckily, we had plans in place that said, if cash flow drops by x, here’s what we have to do on the hiring front — slow it down — and stop spending on marketing. Literally, we went through each expense-line item, one by one. Travel to trade shows and conventions was going to drop off, so maybe use some of that money over here, for things like Google analytics and doing that type of planning.”
Two years into the pandemic, finance leaders are adding other big issues into their planning, including the impacts of inflation, the war in Ukraine, supply chain constraints and heightened cybersecurity threats.
Against this volatility, finance leaders say their organizations are increasing their technology spending this year, with more than 80% saying they’re increasing their budgets for 2022, with between 10% and 40% of that going to technology, mostly CPM software, business intelligence tools and AI and machine learning capability – in short, mainly to increase their financial FP&A capabilities.
Although the prospect of migrating an organization's on-premise financial and operational data over to a new, cloud-based tool sounds like it would be time-consuming, in practice it can happen fairly quickly, Van Hatten said.
The first step is to look closely at the data you’re managing and decide what should, and what shouldn’t, be migrated over, and do an evaluation of your processes for managing the data. Once you make decisions about those aspects of your process, Van Hatten said, there’s no reason why the finance team can’t move fairly quickly with the actual migration.
“It can be done in a scale of weeks, not months or years,” he said.