We are often asked some form of the following two questions:
“Why do I need a modern financial planning, reporting and analysis (FP&A) solution, if I have a budgeting module in my enterprise resource planning (ERP) solution?”
“How is an FP&A solution different from a business intelligence (BI) solution?”
We think the following image, showing where the general overlap in feature sets between these solutions exist, can help bring the clarity that is often lacking or difficult to understand due to the marketing hype.
Disclaimer: Depending on what ERP solution you investigate, you may find that components of all three distinct functional areas are combined and offered together under a single brand, although in most cases you will note that multiple distinct solutions have been stitched together. Similarly, there can be much overlap between many FP&A and BI solutions when it comes to both architecture and functionality. This article is meant to discuss the concepts in general, as they apply to the majority of technology solutions. Our goal is to help bring clarity and ultimately help you FP&A Happy!
ERP vs FP&A
Most ERPs offer some type of ‘basic planning’ capabilities. In summary, most allow you to create a series of Excel input sheets by module (i.e. General Ledger, Project Accounting, Analytical Accounting, etc..) that then need to be manually updated and imported back into the ERP solution, where they are stored as budgets or forecasts. Some ERPs allow you to do this planning within the interface itself, but few brave souls – if any at all – actually prepare a real budget or forecast in this way.
Here are some limitations with basic planning:
- The result is a set of completely static budgets and forecasts
- Little to no ability to link key operational drivers to the expected financial results and to have insight behind the budgeted numbers for use in budget review or future variance analysis
- Little to no ability to plan revenue, personnel or capital expenditures beyond the General Ledger account level
- Budgeting and forecasting may be performed at an inappropriate level of detail, effectively drawing focus from key business drivers that should receive more relative focus and giving equal weight to administrative expenses
- Difficulty or impossibility to report numbers from different budgeted modules together
- If it is not manually keyed, integrated or imported into an ERP system, your ERP does not know it exists. This poses a problem if a dedicated Customer Relationship Management (CRM) or other point operational system is used in the organization. There is generally no ability to combine this data from disparate systems together in the planning and performance management processes.
- No workflow process or visibility into the completion of the plan across the organization
- No audit trail
- No ability to create what-if or scenarios
All ERPs offer some spectrum of ‘basic reporting’ capabilities. Most come with out-of-the-box operational reports and inquires, user configurable lists exposing detailed information stored in the various modules, as well as, the ability to create basic financial reports.
Here are some limitations with basic reporting:
- Typically, the out-of-the-box reports are useful, but not exactly what the business needs, resulting in the continued data dump to Excel and manual reporting cycle that takes so much time and distracts analysts from higher level analysis and contributions.
- The cost to customize or modify reports can be prohibitive. Most often all the information one needs to run the business effectively is somewhere in the ERP, however, getting it all onto a report in the preferred layout can be challenging to say the least.
- In most cases, a separate module, third-party report writer, BI or FP&A solution is used for enhanced operational and financial reports. In many cases a starter or accelerator pack, based on a pre-set model of KPIs may be available for use with these tools. That is wonderful and can help increase time to value; however, if additional information is needed, there may be a need to customize the data model that the reporting solution is running off. This can also be a costly endeavour. Also, an organization often ends up with multiple point reporting solutions that are used for different purposes. This poses a few problems, one is keeping internal resources up to speed to develop and maintain these reports, the other is helping regular business users navigate to the correct tool for the report vs. the simplicity of using a single solution for reporting.
- Most often there is no summary level ad-hoc reporting solution embedded, rather the user configurable lists need to be summarized in a pivot table or another solution to make sense of the data and to see trends at the right level by time (i.e. day, month, year) and dimension (i.e. General Ledger Account, Product, Customer).
- Performance is often sanctified when reporting is produced live off the ERP solution.
- There is often nowhere to enter variance comments on reports.
BI vs FP&A
There are a lot of similarities between FP&A and BI solutions. The image above shows three main areas of similarity:
- Advanced Reporting – Multi-dimensional reporting from various data sources that is both easy to perform and flexible in terms of formatting.
- Dashboards – Visually monitor key performance indicators (KPIs) and other metrics to measure the health of the business, department and/or project.
- Multiple Data Sources – Bring data from whatever key source systems (i.e. ERP, CRM, HRIS, etc..) is required to enable effective reporting.
BI solutions are definitely the most sexy solutions of the three, presenting data in a myriad of ways that is both beautiful and actionable, including geographical and other advanced visualizations. In the past, BI solutions typically required a data warehouse or data mart(s), but with changes in architecture, this is now not always required. Also, modern BI solutions afford the ability to do real-time analytics, work with big data and social analytics.
As BI and Artificial Intelligence (AI) converge into single solutions, the capabilities of BI solutions are expanded beyond the historical role of collecting and analyzing business data to aid decision-making to offer some type of intelligent alerts or early warnings, predictive data mining capabilities, artificial intelligence to augment human analysis and decision making and what-if or forecasting based on machine learning algorithms.
The key single benefit of an FP&A over a BI solution is that the former is built for planning and reporting while the later is built for reporting only.
“To put it simply, if you need planning, you need an FP&A Solution.”Les Wright, Director & Principal Consultant, FP&A It Forward
FP&A solutions, also commonly referred to as corporate performance management (CPM) or enterprise performance management (EPM), were developed to enable advanced planning, budgeting and forecasting, driver-based planning that links key operational drivers with financial outcomes, advanced financial and management reporting and a collaborative workflow process to facilitate the planning process.
Similar to how BI solutions are expanding to incorporate AI capabilities into a single solution, modern FP&A solutions are also leveraging AI and machine learning algorithms to enable faster, more accurate augmented planning and forecasting processes.
So, what is your next move?
Perhaps you have an existing ERP solution, but you’re facing some of the ‘basic planning’ challenges mentioned above, or perhaps you are also using a BI solution, but are still not able to develop a comprehensive plan or format management and financial statements properly. In either case, we invite you to download a free ebook that explores the move from ‘basic planning’ to ‘advanced planning’ to help you organization plan to win.
Alternatively, we would be happy to hear from you and discuss how we can help you FP&A Happy!