First Principles of FP&A
Image by Sunder Muthukumaran via Unsplash
Do you know how Elon Musk learned rocket science? It wasn't from a University. FP&A Leaders can follow in his footsteps. Here is how:
Elon mastered how to build rockets to a large degree by quizzing his engineers at Space X. His engineers thought he was challenging them to see if they knew what they were doing. In fact, Elon didn’t know. His goal was to learn from them.
But he knew that asking simple questions wouldn’t get him there. He used a specific technique to get to the root of an issue.
He didn’t stop drilling into an issue until he got to “first principles”.
As a physicist by training, he knows that when you understand the underlying laws, the most fundamental principles of something, you can use that knowledge to “reason up”. And that’s how he managed to understand something as complicated as rocket science thoroughly enough to disrupt the industry.
We can learn from that as FP&A Leaders. We need to ask ourselves: Do we understand our trade’s “first principles”?
Some of them are:
➣ Why do our customers choose us instead of our competitors?
➣ What are the drivers of our business performance?
➣ What is our cost of capital?
➣ What are the fundamental accounting principles the company runs on?
➣ What are the risks that could put us out of business?
If you’d like to learn more about FP&A, I offer help in three ways:
1️⃣ Subscribe to my free newsletter “FP&A Tuesday” here.
2️⃣ Listen to 75 bite-sized mini lessons and get FP&A advice on the go.
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