Definition

financial planning and analysis (FP&A)

Contributor(s): David Essex and Emma Snider
This definition is part of our Essential Guide: A guide to using Excel as financial accounting software

Financial planning and analysis (FP&A) is the budgeting, forecasting and analytical processes that support an organization's financial health and business strategy. The FP&A discipline combines in-depth analysis of both operational and financial data to help align business processes and strategies with financial goals, and to evaluate progress toward those goals. It relies heavily on statistical analysis to measure and plan business operations and forecast their financial impact, taking into account internal variables but also broader demographic and economic trends, as well as subjective, qualitative evaluation. 

FP&A professionals often have the term FP&A in their titles or job descriptions and play an important supporting role for senior executives. They usually report to the chief financial officer (CFO).

FP&A vs. accounting

FP&A goes beyond the record-keeping and financial reporting of accounting and instead involves analyzing the financial statements produced by the accounting process, along with other financial and operational data.

For example, an FP&A analyst is likely to monitor, analyze and help manage working capital -- the funds needed to meet short-term obligations. The analyst calculates the working capital by subtracting current liabilities from current assets, which are both figures found in the balance sheet, a standard financial statement in accounting. The analyst might alert colleagues to a dangerous downward trend in working capital and recommend ways to improve it, such as speeding up collection of accounts receivable or reducing inventory.

Likewise, the FP&A department has important responsibilities in tracking and analyzing cash flow, a measure of how much money is coming in and going out within a certain period of time, as recorded in accounts held in the general ledger, another standard tool in accounting. FP&A involves analyzing cash flow data to spot positive and negative trends that affect overall financial health and recommending strategies for improvement, such as borrowing to meet short-term needs.  

FP&A analyst responsibilities

Besides monitoring working capital and cash flow, FP&A professionals monitor other popular gauges of financial health, such as the debt-to-equity ratio. They also analyze the financial impact of certain operations, such as the profitability of individual product lines and the efficiency of departments.

The role of FP&A in an organization is sometimes summarized as budgeting, planning and forecasting (BP&F), a three step process for setting short- and long-term goals, sometimes with the use of specialized software. FP&A is also the group most often responsible for using financial modeling software to create and analyze the models and simulations used in forecasting. Corporate performance management software and ERP software are other common platforms FP&A employs.

In mid-2018, the job site Indeed.com reported that the average financial analyst salary was $64,260 while the average FP&A manager made $109,087. People who have reach director-level FP&A positions can earn several times those amounts.

This was last updated in August 2018

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