How financial planning and analysis (FP&A) drives business value in the maritime sector

2018-12-24T22:36:16+01:00September 2018|Categories: Article|

Advanced financial modelling of maritime business operations to support asset management

Times are challenging for organizations in the maritime sector that want to keep up with the digitalization trend. The quantity, variety and complexity of data as well as our knowledge and skills to extract insights has grown exponentially. However, this growth is no longer in line with the number of employees that can work with the tools and data.

Financial Planning and Analysis (FP&A) is one of the core functions of financial organizations and there is no other discipline in finance that has more potential to create or destroy business value as FP&A. If the job is performed poorly, FP&A is a process of diminishing expectations and commitment throughout the entire organization. If done well however, FP&A will drive business value as no other finance department.

Financial analysts in the maritime sector not necessarily require a corporate finance background

Financial analysts are likely to monitor working capital, optimize inventory, analyze investments in new assets or support due diligence processes. They also tend to forecast impact of economic and political events in the surroundings of the organization like hikes in oil prices or interest rates. Besides monitoring working capital and cash flow, FP&A specialists analyze popular other measures of financial health, such as liquidity and solvency ratios to meet bank covenants. In the maritime sector the focus is often on the financial impact of certain specific operations, such as the operations of wind turbine installation vessels or efficiency of oil rigs and ferry lines.

FP&A in the maritime sector

FP&A in maritime and offshore related businesses face forecasting and modelling challenges due to the complex technical nature of the assets involved. Maritime assets like drilling rigs, cruise ships, heavy lifting vessels and subsea infrastructure are highly capital intensive and forecasting a set of reliable financials can only been achieved when understanding the complexity of the equipment and the drivers that determine the results.

Therefore, financial analysts in the maritime sector not necessarily require a corporate finance background. Often successful analysts start their careers as mechanical- or offshore engineers. In highly specialized technical industries, FP&A requires a set of specialized tooling that helps analysts to estimate future effects of technical choices. Models that combine marine engineering and corporate financial calculations enable them to make reliable forecasts of complex processes. For example, the estimation of subsea pipeline installation costs highly depends on weather windows that are available at that specific part of the ocean. The effect of fuel price increases can only be estimated with thorough understanding of the engineering principles of ship propulsion systems.

Models that combine marine engineering and corporate financial calculations enable companies to make reliable forecasts of complex processes.

How marine engineering models could support FP&A

The explosion in both financial and non-financial data and the advanced techniques to model and analyze this data do not make the job for FP&A analysts any easier. But not only the subject matter of the work changes, also the role of the FP&A professional. Although FP&A implicitly includes forward-looking planning, most experts have so far only had to explain events in the past. Now they are asked to make prognoses instead of historical analyzes. The good news is that the data and the tools to do this are now available, enabling them to take their profession and added value to a higher level.

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