The Importance of Goal Setting for FP&A
3 min Read
Setting goals is integral to running any successful business and can provide clarity and motivation for you and your team. Specific growth targets must be present in every business plan and are essential to successful business operations. Financial Planning & Analysis (FP&A) is a crucial process where analysts use data-driven forecasts, budgeting, and financial planning to help companies make informed decisions. FP&A has become a strategic force that drives all departments within an organization to succeed and helps to set a unified vision for the future.
By setting clearly defined and achievable goals, finance teams can create strategic alignment among departments, resulting in better decision-making and improved efficiency for a successful, sustainable organization. Strategic organizational alignment can provide leaders with greater clarity on the duties of their personnel and empower them to make decisions with more confidence. Employees have more robust autonomy and efficient task allocation, and products and services are delivered optimally with high quality and a competitive edge in the market.
Setting goals (and sharing them with stakeholders) ups the ante for business leaders regarding accountability, helping teams remain more committed and motivated to follow them through. However, many companies often disregard this vital exercise. In one study of 300 business owners, more than 80% said they don’t keep track of their business goals. Consider these eye-opening statistics:
1. 14% of people have a goal plan in mind, but they are unwritten goals
2. 84% of the US population do not have goals
3. Only 3% of people have goals written down
Source: Huffington Post
Key thought leaders in goal-setting agree: written goals are more valuable than mental lists, and people who have written goals are 50% more likely to accomplish them.
SMART goal-setting (Specific, Measurable, Achievable, Relevant, Time-bound) is an ideal technique for anyone wanting to set ambitious objectives or enhance their capabilities in the workplace. Financial analysts can use the SMART framework to break down large tasks into smaller steps and effectively achieve their short-term and long-term.
We have sorted through some of the latest trends and the best tactics used by our peers to identify practical goals for the year ahead that apply to any vertical.
Goal #1: Increase Flexibility in the Financial Planning Process
When companies increase financial flexibility, they’re more likely to thrive and achieve long-term success. Flexibility empowers businesses to access new funds quickly when faced with a sudden opportunity or need and to respond promptly to unexpected situations. In certain industries, a company’s level of flexibility can mean the difference between capturing market share and becoming obsolete. A company needing more flexibility will often pursue present opportunities at the expense of future growth and sustainability.
How do you make your business more financially flexible? The first step is to build enough cash reserves to support your business through a downturn. Use profits wisely by reinvesting them into the company and diversifying your revenue streams. Additionally, you can ensure business agility with a forward-looking financial model that will provide insights into your long-term financial standing and position you to act upon any new opportunities. Micro and macro-scenario analyses will give you more profound and dependable insights. Lastly, prioritize projects and expenses appropriately so that you can always keep your company’s long-term strategic goals at the top of your mind when making any significant decision.
Examples of specific goals you can set:
- Look for innovative ways to optimize pricing, increase sales volume, and eliminate unnecessary expenses.
- Communicate regularly with business leaders to strategize how to increase revenues, make smart investments, and improve overall business processes.
- Encourage other departments, like sales and operations, to seek potential investment opportunities.
- Improve your team’s skills through training, career development, and mentoring.
- Stay current on financial news and designate time to research new financial information that will directly affect your business.
Goal #2: Increase Confidence in Financial Forecasts
Despite any uncertainty about the future, a method called ‘sensitivity analysis’ can boost confidence in your financial projections. Financial modelers should seek to understand the sources and accuracy of their data, the basis and quality of their assumptions, and how changing them impacts the bottom line. In other words, it is essential to “sensitize" the variables used in forecasting to determine how much they influence the identified outputs by running sensitivity analyses.
A sensitivity analysis, sometimes called a what-if analysis, is an analytical technique used in financial modeling to analyze how differences can influence the uncertainty of a model in the values of the input parameters. This method helps evaluate how changes in independent variables can affect specific dependent variables under certain assumptions. Choose inputs with the most significant variability or impact to determine the most influential ones. By analyzing variables in depth and testing financial models across various possibilities using sensitivity analysis, your forecasts become more reliable and credible, allowing you to feel more confident and prepared for uncertainty.
Examples of specific goals you can set:
- Update your financial models regularly and consistently to incorporate the latest data and assumptions.
- Set aside a specific amount of time regularly to sensitize the variables you use in forecasting.
- Update your financial modeling software platform to automate time-consuming tasks like building financial models.
- Turn “data" into information. I.e., focus on data that tells a story and provides the most accurate picture of your financial situation.
Goal #3: Review Your Strategy and Budget at Regular Intervals
It’s essential to review and adjust your strategy, as well as budget allocations, regularly. One way to do this is by setting up formal structures to collect, share and discuss relevant data with your team and identify any issues early on. Meet with stakeholders monthly to see what is working and what would benefit from more troubleshooting and discussion. Challenge existing assumptions and monitor market trends for sudden changes like macroeconomic developments. If something comes up, adapt your meeting schedule to a more frequent cadence to modify your strategy.
Dynamic planning is critical to making the necessary short-term changes based on incoming data, helping you allocate funds to growth areas and reduce investment elsewhere. Ideally, this approach should sync with any strategic modifications mentioned above. You can also set up triggers and catalysts to make flexible, automatic decisions for strategic adjustments.
Examples of specific goals you can set:
- Update your financial forecasting technology from spreadsheets to automate your forecasting process, making it more feasible to have frequent evaluations without piling on more work for your team.
- Stick to a consistent set of outputs that leadership can get familiar with, making it easier to explain changes to the plan.
- Aim to have your monthly reports done one week early to allow time for review and troubleshooting
Go Easy on Yourself
Finally, it is essential to note that you may not consistently achieve your goals, which is OK. When you don’t meet a milestone, it’s easy to be consumed by disappointment and frustration, but the best approach is to take some time and assess the situation instead. Think about what has changed since you set that goal: have objectives shifted? Is the team different? Has there been a significant change in the organization, or are things more subtle? It may help to remind yourself that factors beyond your control may play a part.
Setting goals that aren’t met is not an exercise in futility; rather, these experiences can often be very insightful and help you to restructure your approach for the next time. Without setting goals and writing them down, it is very difficult to measure whether you are improving over time. If you don’t realize a goal, grant yourself some leeway. It could imply that your targets were ambitious, which is always good. Your objectives should motivate you to push your boundaries. If you are constantly achieving every goal you set, you may need to challenge yourself harder.
See what Synario can do for you
When it comes to managing the financial future of your business, you do not want to leave things up to chance or outdated methods of data management and projection. You need solutions your business can rely on, and financial planning and projection features that can guide you towards greater success in the long-term, rather than leave you struggling to plan more than a year or two in advance.
We started Synario because we were tired of struggling with spreadsheets and their shortcomings. We needed a solution that was dynamic, adaptable, and promoted cross-team collaboration. To answer this need, we created Synario: the agile modeling platform that organizations from all corners rely on to forecast and visualize their financial futures.
Are you ready to see for yourself what Synario can do for you?