FPA will undergo massive changes owing to the digital revolution.
Financial Planning & Analysis (FPA) allows businesses to plan and estimate their future budgets and create a perfect blueprint. It enables them to:
a. Increase revenue
b. Boost profits
c. Reduce operational expenses
d. Predict market trends
e. Prepare budget estimates
Technology has made it possible for businesses to do financial planning and analysis conveniently. Business management suites like Enterprise Resource Planning (ERP) software have finance and accounting module that facilitates planning and analysis of financial activities. But numerous companies resist implementing such software systems due to:
a. Overdependence on legacy systems.
b. Lack of funds to purchase ERP software.
c. Don’t have the technical expertise to operate ERP software.
d. Strong resistance from employees on adopting technological systems.
The finance department needs a digital transformation because:
a. The duties and responsibilities of the CFO are drastically transforming.
b. Finance principles across the globe are changing rapidly.
c. Governments are formulating strict laws and levying rigorous penalties on companies that don’t adhere to such regulations.
It was essential to understand why finance needs a digital transformation because all predictions for FPA in some way or the other, related to the digital transformation.
1. FPA will get automated
Many businesses still rely on their employees for managing finance activities like:
a. Accounts receivable
b. Accounts payable
c. Closing balance
d. Cash flow statements
e. Balance sheet
f. Income statement
g. Budget report
Businesses fail to realize that employees can make numerous errors while creating reports. On the contrary, ERP software is specially built to fill specific details instantly without any mistakes. It also helps to reconcile data stored in different repositories. Moreover, employees can focus on strategic tasks that require intelligence and creativity and leave monotonous and repetitive tasks for machines.
2. FPA will use simulation.
Critical analysis of data is beneficial for all kinds of businesses. Data analysis allows businesses to unearth crucial information regarding:
a. Investments to be made in the financial year.
b. Estimating tax savings.
c. Financial resources required for developing new products and improving existing products.
d. Classifying products in different categories such as star, cash cow, question marks, and dog.
These data points help categorize data into small readable chunks that make it easy to glean critical data and make meaningful forecasts and simulations. Otherwise, companies often rely on historical data to do FPA, leading to financial, strategic, and operational failure.
3. FPA will go beyond mere finance.
Gone are the days when information silos restricted the free flow of information from one department to another. Thanks to business management suites, today, everything is interconnected. It’s high time for FPA to go beyond finance and include other departments, including Human Resources, Sales & Marketing, and Supply Chain. This is often referred to as the Extended Planning and Analytics Approach (xP&A) that further develops into Integrated Business Planning (IBP). IBP allows companies to get a 360-degree perspective of their employees and provides hidden insights. It also provides a level of comfort and flexibility that helps make better decisions.
4. FPA will expose risks well before time.
Managing risks is critical for businesses. If risks aren’t managed properly, they can cause severe damage to businesses, such as:
a. Diminished revenues
b. Reduced profits
c. Falling behind in competition
d. Extreme government penalties
e. Damage to life and property
ERP software will introduce advanced solutions that augment early warning systems and allow companies to prepare themselves before issues arise. It will help businesses to protect themselves from uncertainties.
Also Read: Manage Financial Risk with an ERP
Conclusion
Thanks to the significant increase in the implementation of digital technologies, FPA will undergo substantial changes and beyond. Business management suites like ERP, CRM, and HRMS software systems will enhance decision-making ability, provide solutions at the right time, and boost market competitiveness.
At Sage Software Solutions (P) Ltd., we are home to world-class ERP software and CRM software that will solidify your business tech support fundamentals and enable you to build a customer-centric organization. To know more about it, You can also write to us at sales@sagesoftware.co.in
Disclaimer: All the information, views, and opinions expressed in this blog are those of the authors and their respective web sources and in no way reflect the principles, views, or objectives of Sage Software Solutions (P) Ltd.
