We’ll continue our examination of the 9 upcoming trends that are transforming FP&A . In today’s article with an emphasis on “Greater focus on scenario planning and risk management”
Just in case you missed the earlier articles in this series, here are the links.
9 upcoming trends that are transforming FP&A
Agile FP&A : Trend #1 Transforming FP&A
Real-time Data : Trend #2 Transforming FP&A
Increased Use Of Data Analytics And BI Tools: Trend #3 Transforming FP&A
Integration of ESG in Planning: #4 Trend transforming FP&A
Any organization’s financial planning and analysis (FP&A) department is essential. Its main responsibility is to support decision-making and provide financial insights to enable the organization in achieving its strategic goals.
To do this effectively, FP&A must ensure that it has a strong focus on scenario planning and risk management.
Scenario planning is a process that involves identifying and analyzing potential future outcomes for the organization. It allows FP&A to consider different scenarios and understand how they might impact the company’s financial performance. This can be especially useful in times of uncertainty, when traditional forecasting methods may not be as reliable. By regularly conducting scenario planning, FP&A can help the organization be better prepared for a range of potential outcomes.
To ensure greater focus on scenario planning, FP&A can follow these best practices:
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Involve key stakeholders: Scenario planning should involve input from kestakeholders across the organization. This includes executives, department heads, and front-line employees. By getting input from a diverse group of people, FP&A can gain a more comprehensive understanding of the potential impacts of different scenarios.
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Use Data to your Advantage: FP&A should gather data from a variety of sources to inform scenario planning. This can include financial data, non-financial drivers, industry trends, customer feedback, and market research. The better quality data that is available, the more accurate the scenarios will be.
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Regularly update scenarios: Scenario planning should be an ongoing process. As new information becomes available, FP&A should update and refine the scenarios to ensure that they remain relevant and accurate.
In addition to scenario planning, FP&A should also have a strong focus on risk management. Risk management is the process of identifying, assessing, and mitigating risks that could impact the organization. By proactively managing risks, FP&A can help the organization achieve its strategic goals while minimizing potential disruptions or negative impacts.
To ensure greater focus on risk management, FP&A can follow these best practices:
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Identify risks: The first step in risk management is to identify potential risks that could impact the organization. This should involve input from key stakeholders across the organization.
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Assess risks: Once potential risks have been identified, FP&A should assess the likelihood and potential impact of each risk. This will help prioritize which risks need to be addressed first.
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Mitigate risks: FP&A should collaborate with other departments to identify and implement solutions to manage risks when they have been identified and assessed. This could include implementing new policies or procedures, implementing new controls, or transferring the risk through insurance or other means.
FP&A may offer the business helpful insights and support by concentrating on scenario planning and risk management. And help the organization in navigating uncertainty and achieving its strategic goals.