FP&A – A Comprehensive Guide to Financial Planning and Analysis

As per Gartner only 13% of organizations identify performance issues before they hit financials. And 81% of organizations take too long to remediate performance issues. This happens because most organizations attempt to operate their financial decision making without proper systems and tools. Financial Planning & Analysis (FP&A) software is the software platform which enables enterprises to model, visualize, analyze, and predict their business and financial plans.

In this blog we will detail the Financial Planning & Analysis (FP&A) process and how organizations can benefit by deploying FP&A systems.

Understanding Financial Planning and Analysis & FPA Process

Financial planning for an organization starts with its business plan. Visualize it as a sum of planned investments and expected returns for a given period. Investments mean the cost the company will incur for people, machinery, operations, etc. And returns in the form of income, revenue and profits. The period is normally a year broken into quarters and months, usually called the annual operating plan or AOP. The period could also be 3 or 5 years when the organization is conducting this for the long term (called long range planning or LRP).

Step-1 in the process is budgeting i.e. detailing the amounts available for each of the functions to carry out their responsibilities and deliver the business results. E.g. the sales department will be provided a budget of X Mn rupees which they can use to onboard new sales team members, invest for marketing, or deploy a CRM software. Similarly the production department will be given a budget which they can use for their operations, across people, processes and technology. HR, IT, Finance each will be provided their respective budgets. These are normally further divided by territories (State, city) or segments (B2B, B2C, etc.).

The other side of the AOP will detail the expected revenues – by products, territories, segments etc. This becomes the organizational goal or target to be achieved in the given period. Obviously the two – investments (also called expenditure) and returns (revenue) are aligned such that they generate the expected profits. This budget thus lays down the numbers that the organization will spend during the given period in order to achieve the business results.

Once the budget is set the next step is to track the progress. This includes capturing the actual earning and expenses. The YTD actual performance data (sales, expenses, headcount, etc.) is captured from the core transaction systems (ERP, CRM, etc.). The objective is to capture the differences (also called variances) and compare it with the AOP plan. This gives the management a good view of how the business is trending for the year and what is the direction it is headed towards.

The next step is Forecasting. This process is also called the Rolling forecast i.e. forecasting the performance for the remainder of the year such that the organization stays on course to meet or exceed the AOP.

The rolling forecast is usually done for a period of 1+3 months i.e. the immediate next month and the following 3 months. The sales organization is expected to share their estimate of what will be the revenue performance in the coming period. Is it expected to be in line with the AOP plan or any different. Similarly on the expense side the expected spend is detailed and compared to the plan. If the sales numbers are expected to be lower, then the analysis will revolve around the key reasons of the shortfall and what interventions need to be brought in to go back to the plan-levels. The cost of these interventions will then flow back into the expense plan and the annual margin and profit target will be altered to reflect the new plan. This process is carried out at the lowest grain (product, customer, SKU) and across dimensions (territory, segment, sales person) to identify which areas of the business are lagging and where are the tailwinds.

The final step of the process is this monthly analysis pack which is reviewed by the management to understand the trends, suggest remedies, and approve the interventions to bring the rolling forecast in alignment with the AOP.

Benefits and Importance of Effective FP&A

The accuracy, frequency, and detail-level of the rolling forecast is the key to analyzing the performance and identifying the challenges or the growth areas within the business. The accuracy is compromised when the source data is unreliable. This usually happens when the organization is not following proper systems and processes. And instead relying on people and point solutions to source, collate, analyze and predict the business results and forecasts. Frequency of the process is also happened due to lack of enabling systems. This actually forces the organization to run the process at lesser frequency compared to the velocity of the business. E.g. many organizations still do quarterly forecasting even though the market dynamics are moving at a faster pace. If they had a system this could be done much faster as the input-output process would have been automated and reliable. Similarly, when attempting to do the analysis using legacy methods (viz. spreadsheets) analysts tend to forego details leading to poor decisions. Having FP&A systems enable superior decision making as they bring-in accuracy, reliability, and speed in the process so that analysts can spend more time taking business impacting decisions.

In addition, FP&A tools augment decision making through their functionalities of visibility and collaboration. Business leaders and management get a real-time, honest view of the business. Everyone if referring to the same version of truth. They can analyze the data by different cuts/ parameters to determine the exact nature/occurrence of the business issue and by connecting it to other areas identify remedial solution. The analysis can be instantly shared to the respective teams for further analysis and action. This can be tracked for updated and closure in the next review/cycle. As per Gartner, high-quality financial planning and analysis (FP&A) can improve decision outcomes by up to 1% of sales. Where as per Forrester, FP&A can result in inventory value balance reduction of 10% to 20%, and SG&A cost ratio improvements of 0.5% to 1.5% through better visibility into real-time forecast and budget data.


Roles & responsibilities of FP&A analysts

We can broadly classify the FP&A roles into analyst and a manager. The analyst is someone with a Finance background, sound understanding of business financials, and in absence of a tool, spreadsheet expert. His role is to develop the analysis required for decision-making by integrating data points, managing templates, co-ordinating with other stakeholders.

The manager’s role is to guide the analyst in the right direction in order to identify revenue, and cost saving opportunities. He also works with the business stakeholders in communicating and sharing the business trends and insights and identifying new strategies and tactics to meet the financial objectives.

Most FP&A teams are aligned by the business units or territories they are supporting e.g. men’s category, India West, Mid-market, etc.

Today most of the analysts spend 50-75% of their time in non-productive tasks such as data gathering/updating, version management, follow-up with other teams, updating macros, developing chart & dashboards, etc. Majority of these tasks can be easily automated allowing the analysts to focus on analysis and fact-finding.

Key features & What to look for in FP&A Software

While FP&A solutions come in different shape and form some of its key capabilities include:

  1. Spreadsheet like user interface – Spreadsheets is the default tool organizations use for developing their financial plan. It has some very intuitive and useful features which aid business planning. Thus, from an end user perspective FP&A systems having spreadsheet like interface helps in faster adoptions, ease of use, and short learning curve.
  2. Multi-dimensional scenario modelling – While spreadsheets have some useful features one of their fundamental drawback is the inability to do multi-dimensional analysis i.e. you can have sales on X-axis and year on Y-axis, but if you want to see a third axis-Z e.g. Product, one can’t do it on the same sheet. Users then end up developing multiple sheets for each of the third dimension. This not only takes more time and effort but it’s also non-intuitive for analysis. Most FP&A solutions have muti-dimension engine at the heart of their capability which enables organizations to model and analyze financial data across multiple dimensions.
  3. Business logic implementation through non-code mathematical expressions – Most users fear adopting new systems because it involves new learning which is technical in nature. They are not trained for this neither is it their core competency. Thus leading FP&A solutions make it easy for non-technical users to define the business rules and assumptions through non-technical English-like programming syntax. This shortens the learning curve and more important quickly gets the users on board.
  4. Ability to define business assumptions and drivers – All financial plans are based on certain assumptions which apply to the overall business plan. Similarly there are important drivers which enable the expected performance. The plan will continue to evolve, and the FP&A team will need the ability to define and change the core assumptions and drivers on an ongoing basis to be able to align the plan with the new scenarios e.g. economic headwinds, RM costs, etc. Thus the FP&A solution must have an easy to use functionality which lets the FP&A analysts capture the assumptions and drivers.
  5. Data processing capability – “Oh .. my spreadsheet has hanged!”. How often have we heard this. And especially when there is a stringent deadline to meet. Leading to re-work, information loss, and long nights at work. To overcome the data volume and processing challenge FP&A solutions have a data processing capability which ensure that even if someone is analyzing historical data, across three dimensions, involving millions of cells, multiple versions, the systems works and provides the analysis in a matter of seconds. Thus users do not have to worry about data processing speed and output.
  6. Self-service reporting – What’s the point of having all the data if users can’t analyze them for making business decisions. While FP&A systems bring together all finance data at one place they also provide built-in reporting, analysis, and dashboarding tools for users. So that the users – do not need to go ask for data every time, can do the analysis independently, and analyse the data in the shape and form they need, and when they need it. The right FP&A solution will enable the business teams to execute all of their business analysis and decision making by bringing together the necessary data and tools, without any dependency or reliance on other teams/functions.


With a FP&A solution one can expect the following outcomes – faster planning, reduced errors, significantly reduced efforts in data collation, clear visibility of the plan and the status to all stakeholders, and collaborative decision making across the organization.

Given the velocity of the business environment today, the speed in decision making is paramount. With FP&A solutions you can expect to get all the required data and analysis to make tactical and strategic decision at your finger tips. This dovetails into a core competitive differentiator in the market place.

Deflytics has more than 10 years’ experience in the domain of F&A and has implemented more than 55 projects across industries. The two FP&A solutions we partner are Anaplan and Workday Adaptive Planning. Once is the pioneer of the connected planning (xPA) paradigm where as the other was built grounds-up for the CFO office. Both together have more than 8000 customers globally including many Fortune 500 customers.  


How can FP&A help my business make better financial decisions?

FP&A solutions allow you to model, analyze, and predict your financial plan in the minutest grain across (customer, SKU, project, etc) across various parameters (product, territory, segment, etc.). By including actuals and forecast information and leveraging the self-service analysis functionality the FP&A tools organizations can proactively track business performance such as variances, cash-flow, and P&L and take important strategic decisions (reduce margins, expand to new markets, introduce new products, etc.)

How can FP&A support strategic planning and goal setting?

FP&A solutions are fundamentally equipped to model your financial plans. Thus, allowing you to develop goals and targets for every business unit in the organization. The multi-dimensional “what-if” scenario modelling capability of FP&A solutions enable organization to predict future scenario before actually taking the decision e.g. what if we reduce the margin on product-B by 2%? What will be the cost and benefit of expanding to a foreign territory? If we set-up a new plant by investing Rs 100 Cr, when will we start seeing the returns?

What kind of insights can I expect to gain from implementing FP&A systems?

Through a FP&A solution, an organization will be able to proactively manage the health of its business. Some of the key analysis include real-time P&L at SKU, account, project level, Variance analysis, Revenue forecasting, and “what-if” scenario modelling.

How do you tailor FP&A solutions to meet the specific needs of each client?

By studying the current processes and templates and understanding the future-state requirements, we design the FP&A solution to meet individual client requirements. Deflytics has implemented more than 55 FP&A projects and we pull in that rich experience to establish best practices and analytical frameworks which help customers improve the process efficiency and analytics insights for strategic and tactical decision making.

How do you measure the success and effectiveness of your FP&A consulting services?

Our consulting services along with the FP&A solutions we implement have helped organizations – reduce their monthly close process by 10-20%, improve the speed of the FP&A cycle by 20-25%, reduce forecasting errors by 30-40%, reduce the time for financial analysis by 40-50%, and deliver productivity improvements for the FP&A analyst team by 50-70%.

Demand Planning : Your Guide to Demand Planning & Process

Whether you are manufacturing electronics or garments, or whether you are providing financial services or catering services. The starting point for all business is market demand – how many people will buy my products/service in the coming period?

Demand planning is the science of determining how much goods should an organization manufacture given the market demand, available inventory, and the production capacity such that no buyer goes unsold and they are left with minimum or nil inventory on hand. Fluctuating demand, supplier bandwidth, and production constraints- the three core factors that determine how much will be delivered to the customer by when. Demand planning is a system which brings together these 3 elements in a collaborative and transparent manner, overlays it by advancements in predictive modelling to improve their demand accuracy on an ongoing basis.

What Is Demand Planning & Its Importance?

If one does not do demand planning, there are two consequences – either they manufacture less and lose potential business or they manufacture more and are left with excess inventory. Both are not the outcomes any organization would want. While it’s not possible to be 100% accurate, the goal of demand planning is to come as close as possible to the market condition based on customer demand, market dynamics, historical data, stock in hand, and manufacturing constraints. So while the sales teams will be close to the customer and provide their view of how much they expect their customers to buy, Demand Planning role takes a deeper view of the expected demand and adjusts it for the factors mentioned above and develop the final plan. This final plan becomes the basis for supply-chain and production plan.

Demand planning sits in between sales and supply planning and plays a key role in ensuring organization is balancing its objectives between meeting demand and minimizing inventory.

Benefits of implementing demand planning in your business

Demand planning is probably the most challenging business objective to meet. But when done right it provides the best leverage an organization can have. The direct benefits include – Revenues or no business loss, and lower inventory holding costs. You are producing exactly what the market wants, nothing less .. nothing more. Indirect benefits include – customer satisfaction and repeat business. Because you are able to provide the customers what they want, and when they want it they will be satisfied and happy. This will lead to more repeat business which is generally serviced at a lower operational cost. Plus new business with other customers. Downstream impact – improved cash flow, reduced working capital requirement, and better utilization of plant capacity.

Conversely, if you are running your planning on spread sheets today, chances are that the demand planning team is wasting 60-75% of their time in activities such as data collation, version synchronization, macro manipulation, scenario creation, and cross-functional follow-ups. Impact – lengthy cycles, plan errors, static plans and most importantly stale analysis. Not to mention long working hours. Demand planning systems take away these mundane tasks and enable accelerated planning cycles, instantaneous P&Ls, reduced forecast errors, real-time visibility, and multi-dimensional analysis. And more.

Components, Steps, Common Challenges in demand planning

To accurately predict the demand for the forthcoming period – this is the objective of the demand planning team. And a complex one. To begin with, there are at least 4-5 different functions involved in this process – sales, demand plannings, supply planning, production, and delivery. Imagine if sales teams promise deliveries without knowing the stock and order status. Or the demand team creating the plan without knowledge of upcoming orders. Or the manufacturing team producing based on their available capacity alone. All the above scenarios will lead to unintended consequences – non-availability of goods for sale or over production of stocks not in demand.

Thus the planning process entails all the relevant teams collaborating to come up with a consensus plan. The process starts with the sales teams providing their sales forecasts for their territory/ customer. However they may not be able to give it at the grain and accuracy that is required. Plus they may not have knowledge about other factors which matter e.g. historical trend, seasonality, current inventory, and production schedule. E.g. salesperson A has the habit on over-estimating, territory-B is always shows slower offtake in Q2, or RM101 has a lead time of 6 weeks which will impact 8 SKUs. The demand planning team will look at these and many such variables in detail to come up with their demand plan.

A key component is the ability to develop multiple “what-if” scenarios in order to arrive at the final plan e.g. what if we increase the demand for SKU-145 by 1.5%, how will it impact other SKUs. Or what if we reduce the available capacity by 5%, how will it impact the quantities for other customers. Demand planning systems make this super easy for demand planners to visualize multiple scenarios and their impact on other parameters in order to arrive at the best decision.

The key challenges in this process are lack of visibility and collaboration across different stake holders, unavailability of timely historical data, and the time wasted by the demand planning team in collating the required data for analysis. Many a time the plan takes weeks to be frozen across teams, leading to poorer planning and forecast plans.

Apart from predicting the demand at the SKU level, the demand planning team is also the custodian of 3 other KPIs viz. SMS (slow moving stock), DND (detention and demurrage), and last CDI (customer delivery index). They need to balance the demand plan with these 3 objectives i.e. minimize SMS, DND and maximize CDI.

Tools and Software for Demand Planning

Understandably, spreadsheets are the first tools anyone uses for demand planning. While they support the early days, spreadsheets are not designed to handle the complexity, scale, collaboration and analytical capabilities required by the demand planning teams.
Demand planning needs to be executed in sync with the other related planning processes e.g. sales forecast, supply-chain plan, and production plan. Thus the planning solution should be able to support multiple use cases for the organization to be able to have all of their plans connected to one another.

Because Demand planning is essentially a prediction function the system should provide various forecasting models such as linear regression, additive decomposition, triple exponential smoothing, etc. It should have the ability to suggest the best fit model and provide sales forecast prediction. The system should have the ability to do forecast at aggregation level and then disaggregating at SKU level.

Apart from this the common expected capabilities include features such as spread sheet interface, multi-dimensional engine, analytics & dashboarding, and collaboration.

Best practices for demand planning

While the demand planning objectives remain consistent across organizations, they vary based on whether you are in B2B or B2C, whether you are in a MTO or MTS business. Some of the best practices include:

  • A defined and accepted process – Well understood roles and responsibilities, a shared consensus about the role and importance of the demand planning process, having a clear monthly schedule for all the teams to provide their respective rolling forecast numbers, a consistent template which all the stake holders can adhere to,
  • SKU/ account level planning – As they say the devil is in the detail. It’s always possible to get summary data from the detailed data but not the other way round. So wherever possible do the demand planning at a SKU/account level. At least of major products/customers. This will enable to organization to decipher the trends better and reason the factors attributing to the demand.
  • 3 demand plans – While this may seem a lot of effort a practice of developing multiple scenarios is easily enabled by a planning tool. One could be your best-case plan, second one as the more realistic case, and the third one as the worst-case plan. All together culminating into an overall agreed consensus plan.
  • Cross-functional collaboration – This is key to a successful plan. Every department will have its priorities and constrains – the sales team wants to sale more, the production teams wants to utilize its capacity to the fullest and the finance team wants to ensure that the organization is not missing its financial KPIs. When you offer visibility into the assumptions and drivers to everyone concerned there is a likely output which is in the best interest of the organization., and lastly bring together all the stakeholder and jointly develop the final consensus plan.

What is your monthly demand forecast accuracy? If you are able to answer this question and monitor it month-on-month you will be able to find newer ways of improving it. Every single percentage point improvement can mean a revenue impact of millions. A Demand planning solution will ensure that you are capturing more market share and optimizing your costs and inventory.


What is demand planning, and why is it important?

Imagine a customer walks into your store but you do not have what he wants OR you have lots of quantities of another product which no one is asking for. Demand planning helps you solve this problem and that’s why its so crucial to any business.

What are some of the components of demand planning?

Sales forecast, current inventory, production capacity, seasonality, and historical trends are some of the components that go into making the demand plan.

What are the key steps involved in demand planning?

Capturing the sales forecast, normalizing it using past data and predictive techniques, comparing with trends/seasonality, and considering inventory and production capacity are the key steps involved in demand planning.

How does demand planning differ from sales forecasting?

Sales forecasting is done by the sales team listing the orders they expect from their customers in the coming months. The demand planning team will use the sales forecast as a starting point for their process and develop the final demand plan taking into account other factors such as trends, seasonality, inventory, capacity, etc.

What are some demand forecasting techniques that businesses can use?

Liner regression, triple exponential smoothing, additive decomposition, and winter’s multiplicative are some of the statistical techniques used for forecasting.

What are some challenges that businesses may face in demand planning?

Not having proper sales forecasts, inability to analyze past data, inability to bring together all the data required for planning purposes, providing trustworthy visibility to relevant stake holders are some of the challenges in the demand planning process.

What role do technology and software tools play in demand planning?

Doing demand planning without software tools is akin to traveling to a destination without using navigation maps – you will get to your destination but it will cost you more time and money.