IMA’s latest Statement on Management Accounting (SMA) covers a topic of great importance to practitioners looking to step into or enhance their role as a strategic business advisor: financial planning and analysis (FP&A).
The 34-page SMA, titled “Effective Principles of Financial Planning and Analysis,” outlines 12 principles on FP&A and how to prioritize them. It was authored by Kip Krumwiede, Ph.D., CMA, CSCA, CPA, director of research at IMA® (Institute of Management Accountants); and Lawrence Serven, an internationally recognized authority on enterprise performance management (EPM).
The report groups the 12 principles into three categories:
- Fundamental Principles: Building a Firm Foundation
- Accountability Principles: Building a Culture of Accountability
- Advanced Principles: Taking FP&A to the Next Level
“Recent studies have shown that many companies have deficient FP&A functions,” said Krumwiede. “Because it is so inextricably linked to value creation, we wanted to examine what top performers do differently in FP&A.”
In addition to outlining the 12 principles, the report suggests that the “people side” of FP&A is also important. Key skills in this area include understanding the business; building effective working relationships outside of finance and accounting; understanding the specific area or department that is being supported; and strengthening communication and technical skills.
Finally, the SMA describes the best way to “sell” improved FP&A practices to top management, according to a four-step process:
- Decide to measure the benefits of better FP&A
- Define the measures and collect data
- Calculate the net value of improved FP&A
- Refine and evaluate the measurement process
“In general, the best-performing organizations take a more rigorous and integrated approach to FP&A,” said Serven, author of “Value Planning: The New Approach to Building Value Every Day.” “They use FP&A to drive results, not just predict them.”
For more information on IMA’s other thought leadership on this and other topics, please visit Statements on Management Accounting on the IMA website.