Should your company be considering xP&A?
27 July, 2021
Philip Jong, Managing Principal Consultant
at Decision Inc. UK
If you have anything to do with financial planning and analysis, you’ll probably have heard of the term ‘extended planning and analysis, or its common abbreviation: ‘xP&A’.
Last year, Gartner saw a huge rise in interest in this topic. In 2020, more than half of their FP&A inquiries asked about xP&A. As the velocity of digital business increases, Gartner expects the xP&A approach to gain momentum. They predict that through 2024:
- 30% of financial planning and analysis (FP&A) implementations will be extended to support operational finance processes
- 50% will require a substantial extended planning and analysis (xP&A) roadmap from the vendor
- 50% of financial application leaders will incorporate a composable financial management system (FMS) approach into their solution selection process.
- 80% of xP&A attempts to improve supply chain planning will fail due to the unsuitability of available solutions.
What exactly is xP&A?
Gartner defines xP&A as:
‘…an enterprise planning strategy that combines and extends financial and operational planning by using the same composite vendor platform and architecture.’
xP&A, developed out of financial planning and analysis as a way of extending financial planning to align with operational planning. The ‘x’ in xP&A stands for ‘x’-tended planning capabilities. Thus, it incorporates other areas of the business into the financial planning process, as this diagram below illustrates.
Before and After xP&A
In many ways, xP&A is a response to the desire of many organisations that are looking to take advantage of the new digital business models in the market. It came about because of the current economic uncertainties and the difficulty for businesses to navigate through them. Either way, it is a growing trend that each company needs to explore as to whether it is right for them.
The Benefits of xP&A
xP&A has numerous benefits for your business. It allows for improved performance, greater collaboration (especially between finance and operations), better workflow management, improved analytics, and more robust governance.
In terms of data usage, xP&A creates a single, secure, source and repository of the planning application and decision data. This allows for greater collaboration between teams, faster alignment between planners (financial and operational), and deeper and more meaningful insights. Therefore, multiple business areas can carry out continuous, dynamic planning.
In addition, product and service organisations will be able to use product offerings to develop more comprehensive business plans.
The Cons of xP&A
But it won’t be a fit for every organisation. Your business will have to assess the greater level of organisational risk that it adds and whether you are in a mature enough position to adopt this. Adopting xP&A means that your goals will be broader, and they will no longer be limited to financial outcomes. There is also some cultural change management required to adopt it as well and if this is not factored into the decision-making process the adoption may not be successful.
While xP&A is the technology to consider at the moment, there are ways that businesses have solved the need for greater insights that haven’t been achieved through it. Businesses that don’t adopt xP&A tend to choose localised Best-of-Breed platforms. These can be very effective for the business units employing them but because all the data is not on one platform it can lead to siloed information that’s difficult to integrate across the business. Gartner also expects that many ERP vendors will provide many of the features of xP&A as an extension of their ERP platform. Also, business process consultancies are increasing their abilities to support xP&A initiatives in their client organisations.
Things to consider with xP&A
Gartner advises that buy-in across the business is critical to a successful xP&A project:
“For xP&A to succeed it must first be considered, rationalised, and evaluated against existing strategies. While the office of finance is uniquely positioned to coordinate the shift from FP&A to xP&A in its drive to improve business insight and decision-making through the lens of financial and operational performance, it must resist the urge to dictate enterprise strategy. Buy-in and participation will be required from all operational planning participants. The support of the CIO will also be needed to support the CFO and other C-level executives (CSCO, CHRO, etc.) as they seek to consolidate planning tools.”
If you are thinking about xP&A, Gartner recommends that you carry out the following five steps:
1. Evaluate your organisation – evaluate your maturity (including any gaps in business and technology skills), the growth trajectory, your business’s complexity, and your technological capabilities to see if this is a fit with an xP&A strategy
2. Review what’s currently supporting business planning – review the people, processes, and systems currently supporting your business planning to identify your strengths and weaknesses
3. Identifying your critical connections – prioritising the implementation of critical “touchpoints” between operational and financial planning processes where financial line of sight, shared data, increased collaboration, and alignment with enterprise KPIs could reduce planning cycles and improve plans’ accuracy
4. Assess the decisions that need to be made – Included in this are the planning processes and capabilities required to support them
5. Build a business case – by creating a vision and business plan for an xP&A implementation you can create buy-in from various stakeholders. This should be based on integrating and consolidating planning on a more centralised and consistent platform.
The growth of xP&A represents a great opportunity for many businesses. If you want to see if it would be a fit for your business, we’d love to connect and explore the topic with you.
Find out more about our xP&A capabilities:
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