If you’re a growing SaaS company and ready to trade in your spreadsheets for a more robust system to support your FP&A, you may be wondering if a BI tool will do the job. Or, do you need a purpose-built FP&A software?
SaaS CFOs and their finance teams are increasingly being called upon to provide strategic financial planning and insights to guide key business decisions. They know the opportunity costs of relying on spreadsheets for FP&A, and they’re looking for a better way, one that will free up more of their time to do the kind of strategic analysis needed to drive the business forward.
The options they explore often include a mix of BI tools and purpose-built FP&A softwares. We think the latter is the only appropriate choice, and this is why: finance teams need a solution capable of supporting the full range of financial planning and analysis activities necessary to meet their many mandates. While some BI tools claim to do that, the fact is, they can’t.
That’s a pretty strong statement, we know. In this article, we’ll explain why it’s true.
Two tools built for very different needs
The main reason that BI tools can’t be used for FP&A is that it’s built for a fundamentally different purpose. Let’s start by looking at some of the basic differences between these two systems in terms of their capabilities.
Business intelligence software is a tool for data analysis and reporting. It automates the aggregation of large structured and unstructured data sets from multiple sources, performs various analyses, and presents results to users in dashboards through various types of visualizations.
Given their data modeling capabilities, BI tools can be used with almost any type of data. Some also use machine learning and artificial intelligence to identify patterns and trends in the data that businesses can use to evaluate their performance or gain a competitive advantage.
In contrast, FP&A software is designed specifically for financial decision-making, or more specifically, the planning, forecasting, and budgeting processes companies use to support key strategic and financial decisions that will impact their future financial health.
To accomplish all of these things in one platform, an FP&A tool must, like a BI tool, have the ability to aggregate data from multiple source systems. However, it must also provide a way for the different areas of the business maintaining those source systems to collaborate with each other. FP&A tools also contain the “logic” of the business – an ability to connect the myriad interrelated and complex metrics that FP&A processes require.
FP&A tools begin where BI tools end
BI tools do have some features in common with FP&A software. They let you load data from different sources, allow you to track important trends in your business, and offer great visualizations – all of which a full-featured, purpose-built FP&A tool would also provide.
The key difference lies in the logic (or lack thereof) in a BI system. BI tools cannot “speak the language” of business finance. They cannot understand or model the logic required for planning and forecasting.
In contrast, FP&A tools include the logic necessary to put data into the various contexts, which is needed to support financial decision-making. In this way, FP&A tools begin where BI tools end (and often, can do much of the same work that a BI tool can do).
Here are some examples how the lack of business logic limits the utility of BI tools for FP&A:
- Budgeting – You can use a BI tool to analyze cash-flow, but doing so won’t tell you how you may need to revise your budget to get the results you want in your business. This requires the ability to model different scenarios with different drivers that can impact your budget. BI tools do not provide this flexibility.
- Forecasting – Knowing how to properly allocate your budget today requires estimating the amount or revenue you will achieve in some future period. You can use prescriptive analytics in a BI tool to predict future activity, but the results are based purely on past data. They’re outdated the moment they are generated. Predictive analytics also will not tell you what is driving the results you’re getting.
By incorporating business logic, FP&A tools allow finance teams to conduct complex financial and operational analyses and link them to specific financial objectives. This is key to determining not only how well the business is currently performing but also the specific actions it needs to take to reach future targets. For example, a BI tool can only compare actuals to your KPIs whereas an FP&A tool can tell you how your KPIs will move in future (true forecasting).
BI can find relationships in your data but without the built-in logic of an FP&A system, it has no way to determine if they are meaningful. This is perhaps why so many FP&A teams still rely on spreadsheets. Despite their many drawbacks, spreadsheets at least allow them to translate their thoughts and logic into formulas to produce their forecasts – something that would require significant coding work in a BI system if it’s even possible.
You can’t see the road ahead by looking in the rearview mirror
The figure below illustrates the key differences between BI tools and FP&A software. BI tools are like a rearview mirror into your business. They are fundamentally backward-looking because they rely on current and past data. That’s not a bad thing. After all, understanding the journey that got you to where you are today will help you avoid repeating missteps you may have made along the way. But to drive your business forward, you need to look at the road ahead, and that’s where FP&A tools really shine.
Both types of tools can help you analyze and report on past performance. The chief advantage FP&A tools have over BI tools is that they can help you make critical financial decisions for your business. A purpose-built FP&A tool will allow you to plug in theoretical data (not just current and past data) to see how different approaches might impact your business. This capability is known as scenario modeling, and it can be invaluable to your business.
We all know that our assumptions about what will move the needle in our business can sometimes turn out to be wrong, which can lead to some pretty costly mistakes. You may be able to use a BI tool to figure out what happened, but an FP&A tool will help you avoid the mistake in the first place. By allowing you to test different assumptions, an FP&A tool will help you zero in on those activities that will have the greatest impact for your business before you invest in them.
With scenario modeling, you can map out the best route to reach your targets and quickly course-correct if needed in response to changing market conditions. And you’ll know when those changes are needed because a good FP&A tool will also help you monitor your progress in real time.
To grow your business, you need a purpose-built financial planning and analysis (FP&A) solution that goes beyond what a BI tool can provide, one that not only helps you understand your past but also helps you look ahead. Bonus points if you can find one that’s intuitive to use with results that are easy to understand and communicate to your leadership, your board, and your investors.
BI demands significant technical input
Given the nature of the work they do, finance teams require a lot of technical assistance to make BI tools work for them, whether the platform is self-service or not. They’ll need help from their IT teams to connect all the business applications they work with to aggregate the data they need. To accomplish that, the IT team will have to develop a data model to stitch together the various types of data coming in from these systems in different formats in order to create meaningful metrics. Pretty complex stuff, technically speaking.
In addition to requiring a lot of time and money, this technical dependency has three major downsides for FP&A teams.
You can never fully trust the results you get
For finance teams, BI tools create similar data trust issues as spreadsheets do despite being a more sophisticated software. For example, when multiple people are working with the same spreadsheets, it’s hard to track changes in values or typos in the formulas they use. As a result, the end user can never fully trust the data.
Similarly, BI systems require complex data models to transform the data aggregated from different systems, which essentially makes them a black box for the end user. With no visibility into the data and computations, anytime the finance team finds a questionable result, they can’t tell whether it’s an error in the formula or a genuine cause for concern.
They would have to go to their technical team to find out. However, those crunching the data may not understand the business context enough to recognize that the result is questionable or determine if it’s real or a mistake.
BI tools are often set up by systems integrators on the vendor side who may not have much knowledge of your industry or understand your business model. This usually becomes apparent to finance teams as vendors work with them to understand their business requirements. When this is the case, it breeds mistrust from the beginning with finance teams who become skeptical that the system will produce results they can use and trust.
BI tools don’t allow for collaboration
Finance teams often need to gather inputs from different business units and collaborate with them to fully understand the impacts of various drivers on other business metrics.
By design, BI tools preclude any kind of real collaboration between business areas. They ingest the data, analyze it, and display it in various ways on a dashboard. FP&A tools can do all of these things too, but they also provide in-application features that allow users in different areas to work together to resolve questions about their data, figure out the best way to model a desired outcome, and discuss results.
This is possible because, in addition to built-in collaboration features, with an FP&A tool, the finance teams and those they collaborate with (the end users), are able to work directly with the data in a very fluid way as opposed to simply consuming results from a BI dashboard.
BI tools create tension
Not to put too fine a point on it, but as we’ve said, with BI tools the people who need to collaborate can’t, and this can create a lot of tension in the workplace.
This happens because the people that the finance team needs to work with in different business areas to understand the results they’re looking at can’t give them any answers. How could they when they don’t know how the data was modeled or how the results were generated in the BI system?
With BI tools, everyone, including the finance team and all the key stakeholders in the FP&A process – are forced to go through the technical team to get the reports and other information they need. Imagine how frustrating it would be to have to try to get answers to your business-related questions from your technical team!
The technical team is probably equally frustrated because they’re stuck in the middle. Not only are they being asked to answer questions that are outside their area of expertise but on any given day, they’re struggling to manage multiple, repeated requests for complex information. With a constant influx of requests, they often resort to consolidating as many as they can into a single generic dashboard that fails to provide the information FP&A teams need.
You need financial business intelligence that’s forward-looking
It may be tempting to reach for a BI tool to manage the increasing complexity that comes with a growing SaaS company. While BI tools can probably meet some of your needs, trying to use one as your dedicated FP&A tool will lead to frustration and failure.
Extrapolating the results you get from a BI tool won’t give you real financial intelligence you can trust to tell you what you need to do to achieve your targets, no matter the underlying business conditions.
This kind of intelligence can only be achieved with a platform that’s purpose-built for FP&A to understand your company's business model and capable of providing context for the results you get with it. And you need those results in real time.
Looking backward won’t tell you how to move forward. For that, you need a platform that supports agile, data-driven strategic financial decision-making.
That platform is Drivetrain. If you’re ready to level up your FP&A processes with accurate and actionable insights far beyond anything a BI tool can offer, get in touch.