Variance analysis can be spooky, but with FP&AI it doesn’t have to be.
🗣️ FP&A leaders: your department heads are not necessarily finance professionals.
When you give them a Variance P&L, give them something they can understand. Drumroll please…
🟢 = good
🔴 = bad
And for goodness’ sake do NOT make them feel dumb if they don’t fully understand their variance P&L 😟, or make them to feel like they’ve failed if they have a few negative variances 😭.
In this video, we’ll show you how FP&AI helps normalize variance analysis in your organization with an approach that’s approachable, understandable, and intuitive.
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👋 I’m an FP&A Tech expert at Constellaition
🏢 100+ successful solutions for 40+ customers over 12+ years
💡 Our FP&AI solution is a best-practice budgeting and forecasting application built on the Anaplan platform.
💸 Combine your business data with our Anaplan/FP&A experience for a flexible and future-proof foundation – without reinventing the wheel or breaking the bank.
❓ Interested in learning more? Reach out today!
Timestamp Captions 00:00 – 00:04 Hi there, I’m Zaf Kamar and I’m back with another episode 00:04 – 00:07 of our series How to FP&AI. In today’s video, we’re 00:07 – 00:11 going to talk about variance analysis and how FP&AI is 00:11 – 00:14 built with variance analysis at its heart. Let’s 00:14 – 00:17 acknowledge for a moment variance analysis can be scary to 00:17 – 00:21 department leaders. Not everyone is a numbers guy or gal 00:21 – 00:24 and framed incorrectly how you frame negative variances can 00:24 – 00:28 have adverse impacts to your business performance. 00:28 – 00:31 Variance analysis should be all about continuous 00:31 – 00:34 improvement. What did we plan to achieve? What did we 00:34 – 00:37 actually achieve? Where did we do well? Let’s keep doing 00:37 – 00:40 that. And where could we have done better? Let’s learn 00:40 – 00:43 those lessons and let’s have it all be understandable, 00:43 – 00:45 approachable, and intuitive. 00:45 – 00:47 Let’s get started. 00:47 – 00:51 We’re starting off in our budget home base, A1.1 and the 00:51 – 00:54 first thing we’ll take a look at is this big grid in the 00:54 – 00:57 middle. It’s our business unit P&L statement and we’ll be 00:57 – 01:01 paying special attention to the columns in this grid. In 01:01 – 01:04 FP&AI, we leverage a concept called Alpha, Beta, gamma, 01:04 – 01:05 Delta. 01:05 – 01:08 Alpha is going to represent the scenario that you’re 01:08 – 01:11 currently planning. In this case, probably probably my FY24 01:11 – 01:13 budget. 01:13 – 01:16 What are the three scenarios that are most relevant for me 01:16 – 01:20 to compare that FY24 budget to? That’s probably going to be 01:20 – 01:23 my FY24 target, my FY23 full year actuals and forecasts, 01:23 – 01:27 and my FY23 full year budget. Go ahead and give me those 01:27 – 01:30 variances and variance percentages in better, worse format 01:30 – 01:33 light Green for good. 01:33 – 01:35 Light red for could be better. 01:35 – 01:38 Considering whether it is a revenue or an expense, this is 01:38 – 01:41 going to allow me to visually scan my budget and have a 01:41 – 01:45 more intuitive and understandable experience. Now as I move 01:45 – 01:48 throughout my year, my alpha, beta, gamma, delta are going 01:48 – 01:52 to change depending on the scenarios that I’m planning or 01:52 – 01:55 analyzing. When I’m target setting in my 5 year long reach 01:55 – 01:58 plan, I’m comparing my target or LRP with my current year 01:58 – 02:02 forecast and current year budget. When I’m doing year end 02:02 – 02:05 reforecasting, I’m going to compare my full year actuals. 02:05 – 02:08 That’s really forecast versus full year budget, prior 02:08 – 02:12 forecast and prior prior forecast. When I’m assessing my 02:12 – 02:15 month to month and quarter to quarter performance, I’m 02:15 – 02:18 going to compare year to date, actuals to year to date plan, 02:18 – 02:21 close month actuals to close month forecast to assess 02:21 – 02:25 forecast accuracy, so on and so forth. Now why do we take 02:25 – 02:28 this approach? Variance analysis is the key ingredient and 02:28 – 02:31 the first step in improving your business performance. 02:31 – 02:35 Identify your variances, understand them in context, make a 02:35 – 02:36 plan to get better. 02:36 – 02:39 And give it another go. FP&AI will help your 02:39 – 02:43 organization normalize variance analysis, all while making 02:43 – 02:47 it intuitive, understandable and approachable for even non 02:47 – 02:49 finance users. 02:49 – 02:53 That’s all for today. I’ll see you in the next video.
