Knowledge Regression In FP&A and Financial Modelling (And How We All Fix It Together)
by Rob Trippe, Andrew Codd and Lance Rubin
We are creating an FP&A dictionary for all. And here is why.
Background
Some FP&A professionals active in the LinkedIn community have become increasingly concerned with the direction public discussions are taking our profession.
It seems FP&A’s accumulated history of language, knowledge, fundamental theories and processes in place (such as budgeting and forecasting) are being misinterpreted, unused, poorly rehashed or worse, used as marketing tools. We believe large bodies of existing terminology and past experiences are being ignored or improperly re-written. And with that, new, often borrowed, buzzwords and acronyms are appearing. This may be misleading us into an abyss of knowledge regression. Real, tangible benefits to our organisations based on historical fundamentals are lost.
The term FP&A itself was first coined back in 1964 by Eugene Moynihan; and now is a great time to gain momentum for a back to basics initiative.
Clearly, outside terminology is attempting to gain adoption in the world of corporate finance where much of it may not belong.
Examples?
“Big data” (most of us never use a data set large enough to be considered as such), “predictive” (FP&A estimates),
“Meta-data” (data about data, who would have thought?),
“Transformational”, “granularity”, etc.
If we are to adopt these expressions, we must do so in a disciplined and accurate manner. FP&A integrity rests upon it. Other disciplines’ own set of newspeak may not be correct and applicable to FP&A.
In fact, across functional areas, common words often have varying definitions and do not align. Case in point; if you were to ask an accountant, a valuation analyst and a judge in court what “fair value” means, you would get three different answers.
We wonder if other functional areas and professions are engaged in an exacerbating arms-race for FP&A “likes” as they attempt to gain influence or maintain relevancy.
Complicating this threat to FP&A’s vernacular integrity is the fact that some of the more popular corporate finance and financial modelling websites either don’t agree on core finance terminology and definitions or just plain get them wrong.
It seems our new world order of Internet democratization where we all get a trophy is eroding the value-base of FP&A.
This has resulted in a reduced rigor within our profession. For example, many posts on LinkedIn fail to provide examples of the post’s thesis and references to outside sources (academic and otherwise) are scant.
Let’s Solve This Together
So in an effort to rebuild our FP&A integrity and foster professional growth we have set out to create an FP&A Dictionary.
We are compiling a list of common and applicable words to the FP&A profession and defining and cataloging these words in an open and unified setting which you will be able to access.
We’ll be crowd sourcing and also leveraging existing knowledge sources (such as academia) which are often forgotten. This endeavor will consist of some rather serious wordsmithing.
Here is an overview:
FP&A Dictionary Mission
To provide informed, educated and enlightened definitions of common and critical financial terms used in the field of “financial planning and analysis”.
FP&A Dictionary Definition Heritage
Definitions can be written and submitted by anyone!
But they must be supported by long-standing use and acceptance within the FP&A field (the “use test”) and also supported to some degree by academic or professional lineage sources.
FP&A Dictionary Definition Acceptance
All definitions submitted require unanimous FP&A Dictionary Panel approval.
The FP&A Dictionary Panel
The FP&A Dictionary Panel shall consist of an international set of members with some gender, geographic, age, and professional FP&A diversity.
We are in the process of formulating the panel members for curating and publishing the dictionary which will be available in the form of an App you can refer to at any time.
The panel will include diversity across industry and academia, sex and geography (as much as possible).
Why Bother???
Because, FP&A Professionals, this is our call to arms.
If anything, this current pandemic has shown us that we are often short on the necessary basic skill sets such as 3-way cash flow modelling and forecasting which, in turn, impacts the usefulness of the tools we have at our disposal (mainly Excel) to successfully navigate uncertainty nimbly. And we believe language is also a core skill set before we get too hung up about the tools and technology.
Please feel free to contribute words to the dictionary effort.
The App will provide a feedback and submission mechanism for definitions.
This is our collective chance to learn and grow as a community and individually, free of outside influence by others with political motive or masked intention to sell software solutions.
For all of us and for future generations, we look forward to a valuable resource to tap.
Whats Next???
In no particular order or deadline here are some of the next steps we aim to take:
1. Finalising the panel members
2. Develop the FP&A Dictionary App
3. Share the initial components of the dictionary and invite feedback
4. Continue to expand and crowd source definitions
Stay safe everyone and looking forward to sharing more knowledge and moving our industry forward.