134: ASK ETHAN: Advancing FP&A Best Practices with the Cloud

The following is an edited abstract from CFO Thought Leader’s “Ask Ethan” podcast featuring Ethan Carlson, CEO, Carlson Management Consulting, and Jack Sweeney, co-host of CFO Thought Leader.

CFOTL: What can companies do to prepare an organization to better leverage what cloud solutions can offer?

ETHAN: You need to look at how quickly a piece of software can deploy. If an application is truly Web-based, when you sign a contract within a day or so you should have access to all that software in a hosted environment. From a usability perspective, if you've got the actual set up, it’s measured in hours, though I would say that most cloud, FP&A CPM deployments that we see, usually span the eight- to 12-week time range. But the measurement is hours, it's not total duration. The idea is if you're going to spend a few hundred hours deploying a major piece of software in an enterprise setting that’s a fraction of what it used to take. That part now can happen really fast.

The trap companies fall into is thinking that because that can happen so fast, they don't have to do all the planning and the preparation they necessarily should have done. I always tell organizations that yes, the deployment will happen more rapidly than any other software process or project you've been a part of. However, the planning, the thought around your organization, all of the principles of project management and sound execution of change management still apply. So you need to make sure you've looked at what you're currently doing.

If the only problem in how you're currently running your models and forecasts is that you need a platform, then yes, you can deploy very quickly. But if you have a need to revamp how you're running your business, that can take some time. So I think that you have to go into it making sure you recognize that all software projects have a process element to them and all the same principles would apply of any deployment.

CFOTL: What does this mean for FP&A, the function at large? Will organizations opt to first deploy certain components of FP&A to the cloud rather than become completely vested in something?

ETHAN: If you think about the context of a traditional software deployment, whether it be an ERP or a CPM, the traditional method would be you'd assemble your core team and you'd do a requirements-setup gathering exercise. It might span a week or a month or whatever it may be, and you'd come up with the system design and you would start to deploy it. And from the point where you set that design, you'd need it to include everything, right? Because you need to make sure your hardware components were in place, you need to make sure that the customizations that you were making to the software would all work in sync with other items downstream. And also, the idea was that once it was deployed, you are sort of stuck with what you have so the planning upfront had to be very firm.

What we're seeing now with these various cloud applications in CPM is that they're very flexible. So we absolutely are seeing an organization now say, "We know we need to something different. We recognize that this is going to be a big project and we're going to take this in steps, and we're going to attack certain areas first, because we know either that they're the pain point or they're quick win, or whatever it may be." They do that first and then move on in subsequent steps, if that's successful, to incorporate other aspects of the business.

We had one client where we deployed all of their operating expense budgeting into a cloud CPM solution first, and they wanted to run that piece first for a year and see the results, get everyone comfortable with the application before they wanted to bring in their sales planning, which was much more complicated, and before they wanted to move their full financials and reporting. They did that in subsequent steps. The idea that you can build that confidence and credibility in your organization with a win is something we see often.

So we see people roll out a functional piece first. We also see it perhaps in the context of a university or a large company, where you might see a departmental solution. Take the example of a university. You might see their residential life department say, “We know we need to do something different.” And with the blessing of the central budget office, they go out and deploy a departmental solution. And everyone will watch the results of that deployment over the coming year, 18 months, two years, whatever it may be. And based on those successes, everyone gets on board.

There is an opportunity with the cloud, with the way the pricing is usually per user, that if you start small and grow big, you're paying proportionately. It does let people put their toe in the water in these big endeavors and then see how it goes. That’s a big deal because I can think of a number of instances where we've worked with people on assessments and maybe in some instances they do settle on wanting to implement an on-premise solution. I can think of a number of instances where they make that investment and then it becomes shelf-ware simply because there were issues in that deployment. So I think that cloud and that testing and that flexibility is a big part of its success.

CFOTL: When a firm moves its FP&A to the cloud, is there still a need for in-house IT professionals or do you see the finance office acting on its own more and more?

ETHAN: There's some misperception on this one, and I think it's a good point to clarify. With moving FP&A applications to the cloud, finance absolutely gains more control over the applications that they choose – the management of those applications and the modeling component of it – all things that they want more control over. This is not to say that the IT profession is no longer needed; that is absolutely not the case. There are role shifts much like moving to the cloud and implementing a good forecasting solution makes the role of finance change from data gatherer to analyzer of the data and providing actionable analysis.

The role of IT shifts from standing up servers to doing more routine work to focusing on things like IT security policies, focusing on integrations of systems, focusing on the strategic aspects of that part of their role in the business. Finance gets more control of the application, but I think IT is still very important. The cloud, I don't think is overall changing or making a role unnecessary. It's just changing what it's going to do for an organization.