Less is more in FP&A
Image by Kelly Sikkema via Unsplash
Less is more.
FP&A leaders tend to forget that at times.
These are 4 FP&A tasks where it matters:
#1 Less variance analysis
Understanding what’s the reason for differences between forecasts and actuals is essential. Without this information, a business doesn’t have a chance to learn from past mistakes or realize new opportunities.
But trying to explain every last line item is a big mistake.
Because most of the time, 20% of the items explain 80% of the variance. Time spent digging into every line item, no matter its proportion, is time that you can’t use to discuss action plans.
#2 Fewer numbers
I get it. When you present last quarter’s financials to the execs, you want to show you did your homework and looked at every relevant metric. Just don’t put all of them on the slide. It distracts from what matters most.
It’s your job to separate signal from noise. Only share metrics that tell the story you want to tell. You can show you consider others by sharing that as a voice-over. That has the added benefit that people pay more attention when you don’t just read what’s on the slide.
#3 Fewer stories
Good FP&A leaders don't just share timely and relevant business information. They tell stories. They show how data points are connected and if action plans align with strategy.
Great FP&A leaders know how to influence leaders. They understand that trying to make ten points likely results in none. So instead, decide which one or two issues rank highest on the urgency / importance matrix and rally the troops around those.
#3 Less Visualization
Visualizing your story with a line graph, waterfall chart, or scatter plot can make a big difference. But less is more here, too. When you are done with your deck, flip through every slide quickly and check if it takes you more than 2 seconds to tell which point each graph attempts to make. If you can’t, it’s not simple enough. And, of course: Don’t make the beginner mistake of keeping all grid lines and data call-outs on the slide. They distract more than they help.
#4 Less Forecasting
Businesses create forecasts to share expectations with investors, quantify strategies, allocate resources, and learn by comparing actual performance to plans.
So you can’t skip forecasting. But in business environments, you will never be able to achieve 100% forecast accuracy, no matter how many hours you put into it.
At P&G, a mentor kept reminding me, “as soon as you lock your forecast, it’s wrong.” So figure out the most efficient method to get to a reasonable accuracy.
For example, ask yourself: Do you need to do a bottom-up forecast for every line item? Do you need to re-forecast every month, or would a quarterly cycle be sufficient? How can you automate part of the process by using simple formulas or Machine learning algorithms?
So, less is more for variance analysis, numbers and visuals on a slide, stories, and forecasting.
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.
3️⃣ Join my live online course FP&A Bootcamp to master FP&A in two weeks.
