FP&A and Business Finance Perspective

The Deloitte 2024 CFO Survey highlighted the critical role of capital allocation from a CFO’s perspective, emphasizing its importance in enabling CFOs to serve as strategic sparring partners. Again, in the 2025 CFO Survey is was highlighted as a key theme. As a result, we explored how FP&A and Business Finance can enhance capital allocation capabilities, focusing on key practical learnings from both a process and people perspective. Our belief is that capital allocation can and should be seamlessly integrated into existing performance management processes by applying a few simple—yet challenging—principles. The key to making this work in practice lies in establishing a strong collaboration engine between FP&A and Finance Business Partners, ensuring alignment with both the business and strategy teams.

– these are the key conclusions formulated by 15 FP&A and Business Finance professionals across the Danish C25 and large-cap companies.

Defining Capital Allocation & its Strategic Relevance

Capital allocation is a critical strategic process that uses financial business cases to guide investment choices, ensuring alignment with ongoing financial planning and overall business strategy.

This article uses the term capital allocation as the underlying engine for prioritizing capital toward projects and initiatives beyond simply maintaining business operations. In larger cases, it may involve M&A activities, but it also encompasses financial business cases that support key initiatives and investments. These can include developing new solutions, products, and operational improvements across businesses.

As a result, capital allocation becomes the strategic engine that utilizes financial business cases to direct capital toward investments. Within FP&A and Business Finance, this approach plays a crucial role in integrating investment decisions into financial planning and enterprise performance management processes.

Why Effective Capital Allocation Matters

Effective capital allocation is crucial for several reasons:

Maximizing Returns: Ensures resources are directed toward high-return projects, maximizing shareholder value.
Strategic Growth: Drives long-term growth by supporting strategic initiatives such as market expansion, product development, and acquisitions. Alternatively enhancing operational efficiency through targeted investments in technology and infrastructure and/or strengthens competitive advantage through innovation and improved customer service.
Risk Management: Helps manage and mitigate risks through diversified investment choices.
Stakeholder Confidence: Builds trust among investors, employees, and other stakeholders through disciplined financial decision-making.

In summary, capital allocation is a key aspect of financial management that impacts a company's profitability, growth, risk profile, and overall success. And therefore, should also be considered core in the enterprise performance management engine.

Challenges in Capital Allocation

Despite its importance in decision-making, capital allocation often remains a fragmented process rather than being fully integrated into financial performance management. It is frequently treated as an ad hoc exercise on a case-by-case basis. This makes it valuable to examine common best practices that can improve its effectiveness.

Therefore, capital allocation is also critically important within FP&A and Business Finance, shaping their collaboration with business counterparts. By ensuring a structured and strategic approach, businesses can optimize capital investments and drive sustainable growth.

Making Capital Allocation an Integral Part of Performance Management

By adhering to five key principles, you can integrate capital allocation into your annual budgeting (target-setting) dialogues as well as your rolling forecast processes.

In short, the common traits for embedding capital planning into performance management include the following five core principles:

1. Be clear on the purpose: Define the distinct role of financial planning processes (Forecast, Target-Setting/ Budgeting and LTFP) and clarify how capital allocation and business cases fit into them. This helps differentiate financial effects from one another.
2. Establish a standardized business case template with clear reconciliation to financial management structures: This is critical! To integrate data into forecasts, you must create a model that aligns with the financial planning framework & dimensions. Additionally, it is essential to distinguish between Cash-flow, P&L, and Balance Sheet impacts from the template to financial management structures.
3. Leverage your existing EPM-tool to build a separate business case model to enable a first level of ‘integration’: Expanding on point 2, this is the only viable way to embed capital allocation into your EPM tool. It ensures one source of truth for financial planning and investment decisions.
4. Govern key drivers, KPIs, and financial metrics: Business cases often rely on specific assumptions and can be highly complex. FP&A can simplify this by ensuring governance on and standardizing key drivers and KPIs. For example, defining the financial impact of reducing one full-time white-collar employee (FTE) helps maintain consistency across cases.
5. Accept imperfections, keep it simple, and integrate as a reoccurring part of performance dialogues: As the number of business cases increases, the risk of double-counting effects will naturally arise. That is acceptable as long as the purpose remains clear (principle 1) and it becomes a reoccurring process leading to executive insights and decision making.

Practical Applications in Performance Dialogues

With these five principles in place, there are two keyways to integrate capital allocation and business cases into ongoing performance dialogues. (Note: This approach also relies on enterprise governance for capital allocation to strategic initiatives, which is beyond the scope of this discussion but must be closely aligned.)

We see two primary stages where capital allocation plays a significant role…

Maturity step 1: Embedding Capital Allocation into Annual Target-Setting, by making it an integral part of the long-term financial planning

Embedding business case effects as part of the annual target-setting (budgeting) requires ensuring that business cases are sufficiently granular to align with business accountability structures. The expected run-rate from forecasts should be combined with anticipated initiative impacts from capital allocation:

In practice, the impact of business cases—layered on top of the existing run-rate—may lead to double or even triple counting of effects. This is where Principle 5 becomes critical. Capital allocation is not an exact science, but it will eventually affect the dialogue in a direction that fosters accountability for business case outcomes and ensure we target-set including the effect of strategic commitments. This makes it an integral part of yearly targets thus also provoking to improve the trustworthiness of business case assumptions.

Maturity step 2: Using an ongoing ‘guestimate’ – at least looking ahead – integrating Capital Allocation into Rolling Forecasts and Performance Reviews

The next step in maturity is using business cases not just for target-setting but also in the forecasting engine. This means differentiating between baseline run-rate drivers and initiative effects—and tracking them against targets. As a result, performance dialogues will evolve into discussions about whether the expected impact of initiatives is materializing, ensuring a more strategic approach to business decisions:

A key challenge arises when tracking actuals. Since business case outcomes rarely have dedicated accounts, cost/profit centers, or work breakdown structure (WBS) elements, capturing their precise impact is difficult. However, in some cases, business partners "guestimate" the split between baseline run-rate effects and initiative-driven impacts within actuals. The goal is to spark meaningful discussions about whether the anticipated benefits materialized or whether external factors influenced the results. Ultimately, this fosters a sharper focus on ensuring the right strategic decisions are being made.

Mastering Collaboration Between FP&A, Finance Business Partners, and the Business Strategy

Strong collaboration between FP&A and Finance Business Partners is a key capability that must be mastered—whether operating at the Group level or as a local finance business partner. Both roles must work together seamlessly to enhance financial decision-making and align with overall business strategy.

As with any enterprise performance management discipline, the practical application of these concepts relies on a well-functioning internal collaboration engine within Finance and strong business partnering capabilities with the organization. The key building blocks of this collaboration are:

While this collaboration does not alter accountability structures, it enhances the strategic impact on financial outlooks—ultimately creating a greater opportunity to influence decision-making. This, at its core, is the primary role of a true finance business partner.

Article Authors

• Kenni Østberg Bjergby, CVP Group Finance – Novo Nordisk
• Andreas Bay Rasmussen, VP Head of Integration Performance Management – Novonesis
• Morten Guldager, SVP Global Financial Planning & Analysis – Scandinavian Tobacco Group
• Jeannette Wengel, Senior Director Group Finance – ROCKWOOL
• Jens Bak-Holder, Business Finance Officer – Falck
• Nicolai Bjerregaard-Skytte
• Rasmus Lund
• Philip Lerche, VP Group Financial Planning & Performance – Vestas
• Danni Aakeson, Global Head of Group Accounting – WSAudiology
• Mathias Juhl-Hansen, SVP Commercial Finance & M&A - Matas
• Jon Østergaard Horn, VP Group FP&A – FLSmidth
• Casper Albæk, VP Performance Management – Danish Crown
• Christian Bækdal, Partner, Business Finance – Deloitte
• Rasmus Rosbæk, Senior Manager, Business Finance – Deloitte
• Jonathan Brünniche Schou, Senior Consultant, Business Finance – Deloitte