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PLANNING &
ANALYSIS
Key Principles of Effective Financial
Planning and Analysis
Fundamental Principles – Building a Firm Foundation
The rst ve principles are designed to provide a rm foundation for FP&A. They encompass
translating strategy into actionable plans, making sure those plans are properly resourced,
consciously linking operational performance and nancial results, quickly identifying variances and
the reasons behind them, and making course adjustments. These principles, if properly executed
and adhered to, should get an organization started down the path of effective FP&A practices.
Principle 1: Develop a strategic long-range plan and identify specic initiatives and
projects/plans to execute it.
Every company or institution has its own way of creating a strategy. A complete discussion
of determining strategic priorities and execution is beyond the scope of this SMA.
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Strategic
planning should be anchored to the organization’s mission, vision, and core values. It typically
begins with a scan of the external environment using a framework such as Porter’s Five Forces,
followed by a SWOT (strengths, weaknesses, opportunities, threats) analysis. A gap analysis is
performed with respect to where an organization wants to go compared to its current position.
Based on these analyses, organizational goals are set and initiatives are put in place. We will
begin at the point where an effective strategy has been developed. If an organization is not at
that point, it should work on that rst.
Fundamental Principles –
Building a Firm Foundation
P1: Develop a strategic long-range plan and
identify specic initiatives and projects/
plans to execute it.
P2: Identify resources needed to implement
projects/plans and put them in the
budget.
P3: Understand how operational plans will
drive nancial results and monitor
progress of those plans.
P4: Quickly identify the business reasons
behind plan-to-actual nancial variances.
P5: Make course adjustments when falling
behind on nancial or operational goals.
Accountability Principles –
Building a Culture of Accountability
P6: Cascade both nancial and nonnancial
operational targets down the organization
to more specic targets.
P7: Hold people accountable for delivering
nancial results and link to nancial
incentives.
P8: Hold people accountable for delivering
operational results and link to nancial
incentives.
Advanced Principles – Taking FP&A
to the Next Level
P9: Identify what drives business success
and develop key performance indicators
(KPIs) for those drivers.
P10: Establish long-term and shorter-term
targets for the KPIs.
P11: Develop initiatives and operational
projects to achieve KPI targets
P12: Monitor results of KPIs and link to
nancial incentives.
Table 1: Summary of the 12 Key Principles of Effective FP&A
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For an excellent reference on strategy planning and competitive analysis, see HBR’s 10 Must Reads on Strategy,
Harvard Business Review Press, Boston, Mass., 2011; a great way to develop these skills is IMA’s CSCA
®
(Certied in
Strategy and Competitive Analysis) Learning Series and certication, available at www.imanet.org/csca-credential.