CXO software

What is xP&A: The Transformation and Evolution of FP&A

Financial planning and analysis (FP&A) is recognized as an essential tool for driving business success. At a time when agility has taken center stage, though, FP&A is giving way to the new discipline of extended planning and analysis (xP&A). Why? Because in a world where agility is paramount, actionable real-time feedback is essential.

The Origin of xP&A

Gartner coined the term xP&A, and in its 2020 Strategic Roadmap for Cloud Financial Planning and Analysis Solutions, analysts Robert Anderson and John Van Decker noted, “By 2024, 70% of new financial planning and analysis projects will become extended planning and analysis (xP&A) projects, extending their scope beyond the finance domain into other areas of enterprise planning and analysis.”

Plotting your course is an important step in preparing for a long journey, but it is just as important to check your progress along the way. Good navigation ultimately requires periodic course corrections. For example, when NASA scientists launched the New Horizons probe to explore Pluto, they knew it would be impossible to calculate an exact trajectory. Instead, they planned for periodic adjustments to correct the spacecraft’s course.

Fortunately, the flight to Pluto is a long (and fairly predictable) journey, with plenty of opportunities to fine-tune the navigation. In July of 2015, over nine years after its initial launch, New Horizons completed its successful fly-by exploration of Pluto.

A rapidly changing environment doesn’t offer that luxury, though. A Formula One race car driver, for example, needs to make adjustments on a virtually constant basis. The steering wheel of an F1 car may have as many as 35 buttons and switches and can display over 100 different data points. Drivers may shift gears as many as 4,000 times within a single race, without ever taking their hands off the wheel.

Two cars on a racetrack.

Rapid adjustments like that require near-instantaneous feedback. The ability to monitor the situation and respond quickly is a key factor in winning the race.

The same is true in the business world. In 2020, business leaders are learning to appreciate the value of actionable real-time feedback from across the entire enterprise.

When Change Accelerates…

In the normal course of events, business leaders can expect a certain amount of change over the course of time. In most cases, that change is at least somewhat predictable.

In 2020, though, change appeared in the form of a pandemic that dramatically changed the way we live and work. Supply chains were disrupted. Businesses were temporarily closed. Large portions of the workforce stayed home. Priorities changed on a global scale. A slate of new keywords began to compete for the top spot in C-level mindshare: agility, adaptability, and resiliency.

When change is at least somewhat predictable, most businesses can get by with adjustments in just a few key areas. When demand spikes, factories can add a second or third shift. When cash balances are too low, the company can accelerate collections, renegotiate payment terms, or tap into a line of credit.

When massive change occurs across nearly every dimension of the business, however, it underscores the importance of having systems that provide real-time feedback across the organization. When the world is unpredictable, business leaders must think less like a NASA scientist and more like a Formula One driver.

That’s where xP&A comes into play.

Businesses Need a New Way of Thinking and Acting

xP&A enables business leaders to consolidate forecasts and performance metrics from across the entire organization. Information from various departments and business units can be integrated into a holistic view of the business. This, in turn, drives better decisions.

Consider how a large dairy in the northwestern United States responded to the COVID-19 pandemic. Because restaurants and institutions were shut down, demand for bulk-packaged cheese fell precipitously. At the same time, grocery stores saw an increase in consumer purchases. The company had to reconfigure production lines to produce smaller packages and accommodate the sudden shift in demand.

At the same time, labor shortages were making it difficult to meet that demand. By asking their customers to take whole-pallet deliveries rather than case lots, the company was able to decrease time spent loading trucks and reallocate labor to the production line.

Those kinds of changes have profound implications for finance, production, operations, sales, and human resources. Under an FP&A model, finance teams would evaluate the impact of such changes from a predominantly financial perspective.

Athlete leaping over a pole.

With xP&A, business leaders can forecast, monitor, and evaluate things holistically. They can see all facets of the problem and the proposed solution.

Data from xP&A can subsequently feed into the various reports that drive organizational intelligence, including traditional financial statements. When all information from across the organization is consolidated into one place, managers can understand the company’s performance in terms that align with their priorities, – that is, understanding the health of the business as a whole, in addition to its constituent parts.

Characteristics of xP&A

xP&A is about empowering business leaders with real-time feedback and greater agility, but it has broader implications as well:

  • Effective collaboration produces superior results: At its heart, xP&A is about breaking down the silos within an organization and enabling a commonly shared vision of success. While C-suite executives typically approach the business from a holistic point of view, departmental priorities often conflict with one another. xP&A facilitates greater alignment of priorities across those departments, which, in turn, supports effective collaboration.
  • xP&A touches on all (or almost all) of the organization’s software systems: As noted above, xP&A is about breaking down the silos within the business. To achieve an accurate view across all functions within an organization, xP&A systems must have real-time visibility to the information in the various departments. That means having reliable, secure integration to the company’s software systems for marketing, CRM/sales, ERP, and more.
  • Continuous forecasting supports agility: When you have access to real-time information about key factors that drive the business, it becomes possible to make the necessary course corrections earlier, and therefore with greater benefit to the enterprise.
  • An expanded role for finance and accounting teams: xP&A extends the wisdom of financial planning and analysis to all areas of a company, incorporating a financial perspective into a broader range of decisions. That elevates the CFO and the finance organization to a strategic advisory position for the entire enterprise.

With xP&A solutions from insightsoftware, your business can increase organizational agility and achieve rapid benefits to the bottom line, thanks to a unified platform and data structure built on a secure, scalable cloud architecture.

To learn more about how you can become an agile organization, download our ebook: Why Extended Planning and Analysis is a Necessity for Every Organization today