Key Principles of Effective Financial Planning and Analysis

By IMA (Institute of Management Accountants)

Executive Summary

Financial planning and analysis (FP&A) is a decision-making platform that includes reporting and analysis, planning and budgeting, forecasting, and financial modeling, and is a big part of the management accounting body of knowledge. This SMA provides the principles of effective FP&A organized into 12 principles and how to prioritize them, and details what the best-run organizations do differently with FP&A. It also discusses the role of technology, the competencies needed, how to get started, and how to “sell” the need for FP&A improvement to top management. Appendix 1 provides survey evidence supporting the 12 principles.

In general, the best-performing organizations take a more rigorous approach to FP&A:
• They have tightly integrated all the components of FP&A.
• They have merged operational and financial planning.
• They track progress of initiatives designed to improve the operational numbers just as
closely as they monitor financial results.
• They hold people accountable for delivering results, including linking pay with
• They translate strategy into action and make sure initiatives are properly resourced
and accounted for in the budget.
• They are agile enough to make course adjustments when they identify the need.


Few processes within the purview of a CFO have so much potential to create—or destroy—business value than FP&A. How a company allocates its resources will impact its success or its failure. Even if an organization has the right strategy, if the budget does not reflect those priorities and properly fund tangible initiatives, the strategy will likely not succeed. Beyond money, if people are not actually spending their time executing the plan, it simply will not happen. Executing the plan requires that people know what the plan is and their role in executing it. While aspects of FP&A may seem routine, such as budgeting or monthly variance reporting, they are all links in the chain of the value creation process.

Unfortunately, many companies are not achieving the full potential of their FP&A activities. A study by American Productivity & Quality Center (APQC) found that just 40% of finance executives from large organizations rated their FP&A as effective. Two-thirds of the executives said that their finance teams are too busy doing basic financial management duties such as periodic forecasting and actual-vs.-budget analysis. KPMG has published a report suggesting that it is the “financial” in financial planning and analysis that reduces the effectiveness of the FP&A function. Too much focus on forecasting and budgeting within a fiscal year with an emphasis on meeting short-term targets takes time away from the “planning and analysis” that is needed to help the company develop and execute its strategy.

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