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.