Delivering
Stakeholders Value on Enterprise Performance
Management
What
is Enterprise Performance Management?
AMR
Research has defined Enterprise Performance
Management or EPM as combining “strategic
goal setting and alignment with planning,
forecasting, and modelling capabilities. It
uses powerful analytics to drive smarter operational
plans. It creates an agile environment to
respond to changes or opportunities as they
occur, introduce new activities, but always
aligned to strategic goals. Importantly, EPM
is an iterative, continuous process.”
So, essentially, Enterprise Performance Management
is where strategy and planning meet execution
and measurement.
EPM
is equal parts philosophy, and technology.
There is a difference between performance
measurement and performance management. Every
organisation already measures performance
to some extent. Metrics from simple to complex
have been established to give employees and
managers information about how well they perform.
Organisations establish these metrics and
then review them on an ongoing basis.
Performance measurement is a key part of EPM,
as it alerts the business to respond with
action. However, when it is brought together
with strategic organisation or individual
goal setting, business planning, accountability,
and incentives, it becomes performance management.
EPM,
by necessity, includes both operational and
financial information. Supply chain, customer
management, technology performance and production
analytics are a fundamental part of the EPM
model and must not be neglected in favour
of just a financial view of the enterprise.
Last but not least, both sets of information
must tie back to the stakeholders’ values
and businesses goals and assist in helping
shape and change them for the good.
Who
needs to care?
According
to a recent survey by CFO Magazine Research
Services, 63% of CFOs are saddled with inadequate
budgeting, forecasting, and decision support
systems. There is a significant amount of
transactional data within core ERP systems;
it needs to be used and in a big way.
True,
many businesses are achieving tactical rewards
through basic data exploration tools, but
few are achieving strategic performance benefits.
An EPM initiative requires management philosophy
and supporting technology as well as senior
management commitment to succeed. The good
news is you can start small by addressing
the greatest point of pain first in a Proof
of Concept.
Today’s
uncertain economic and political times have
caused many executives to stop and think and
reflect on what’s really important to
the business. Publicly traded firms, which
have come under increasing market scrutiny,
are scrambling (in many cases) to figure out
the business and IT implications of new government
and standards body regulations (for example,
Sarbanes Oxley). This is where EPM can come
into play, as many of these emerging mandates
dictate the timing and scope for the external
disclosure of any financial or material interim
results. Disclosure means analysis, and analytics
are a core part of any EPM Model.
The
key is to develop a continuous, collaborative
and active plan as opposed to a passive EPM
planning process that reflects stakeholders’
values, strategic and operational goals and
can respond to the changes that such new pressures
demand.
When
do you start?
There
can be several reasons to start with measuring
your enterprise performance. Triggers for
that can be when you compare your organisation’s
performance with industry benchmarks or when
you calculate the Economic Value Added™
of your organisation. The results of that
exercise triggers organisations to invest
in Enterprise Performance Management. So what
does Economic Value Added - EVA mean?
EVA is the measure of a company's financial
performance based on the residual wealth calculated
by deducting cost of capital from its operating
profit (adjusted for taxes on a cash basis).
EVA is also referred to as ’economic
profit’.
Economic Profit is a Performance Metric to
understand economic profit; it helps to distinguish
between a performance metric and a wealth
metric. A performance metric refers to a measure
under company control, such as earnings or
return on capital. A wealth metric, on the
other hand, is a measure of value that - such
as equity market capitalisation or the price-to-earnings
(P/E) multiple - depending on the stock market's
collective and forward-looking view.
Where
do you start?
There
are a lot of ways to get started with an EPM
strategy. Here are some practical things to
consider:
• Ensure senior management support
• Understand stakeholders’ values
• Understand strategic goals
• Translate stakeholders’ values
into performance measurements
• Define KPIs that support strategic
goals and stakeholder values
• Review prior planning successes and
failures
• Pilot, then roll-out an active EPM
planning, measurement and monitoring framework
• Begin the move to more predictive,
collaborative and continuous planning
• Optimise your business and IT processes
according to the measurements results and
benchmarks
• Plan for cultural change, the impact
is not the technology but the business processes
How
can an EPM approach help you?
When
it comes to active, continuous EPM planning,
measurement and monitoring, there are only
a few serious solutions to consider. An EPM
approach, Reference Models, Toolkit and Benchmarks
are now available for organisations. The EPM
approach is aligned with Enterprise Architecture
Management results to show the scenarios and
impact of decision making in Enterprise Performance
Management.
As
EPM reaches new levels we believe that the
next three years will see significant uptake
in the market of approaches, that go beyond
just budgeting, planning and forecasting –
to more comparative and continual measurement
and planning models that support enterprise
wide stakeholders’ values and business
strategic and tactical goals. This is being
driven in part by new corporate governance
demands and a need for transparency in business.
In
the same way that the trend toward EPM is
gradually pervading the business as companies
look to drive their results to the next level,
it has created a need for new approaches that
can be implemented by different type of organisations.
The EPM approach is an exceptionally powerful
way of creating business value. It promotes
a continual and active planning cycle that
can help support a company-wide EPM strategy.
What
can EPM Planner do for your business?
The
EPM approach can be used to implement on-going
KPI measurement processes that are aligned
with the stakeholders’ values. Typically
built using spreadsheets, with only limited
historical or trend information, plans often
take too long to be useful and don’t
have the right assumptions.
Using
the EPM approach, performance measurement
data – at any level of detail –
can easily be leveraged. With the EPM approach,
your actual performance measurements helps
you to decide what to do, compared to industry
benchmarks it well help you to optimise your
stakeholders’ value.
The
EPM approach will help you to define, plan,
implement and manage the performance measurement
processes, to support performance management
and planning. Many companies often plan without
any or limited participation from the people
ultimately held accountable. If these people
aren’t involved, they will not ’buy
in’ to the plan, and will only have
excuses when the plan is not achieved.
The
EPM approach uses an EPM Reference Model to
help you to define your stakeholders’
values and align them with the value measurements.
These value measurements are the cornerstones
to define your KPIs and translate that into
performance measurements.
Performance
measurements are compared to industry benchmarks
to help you in your enterprise performance
management decision making. Enterprise Architecture
results deliver the insight and overview over
Business and IT and therefore helps you to
do your impact analyses when optimising your
processes.
Benefits
of EPM Planner
Enterprise
Performance Management solutions must be comprehensive
and span all performance levels to manage
the interplay among all types of indicators
and provide a unified vision of the organisation.
EPM can offer the following features and benefits:
• Enhance Stakeholders’ Value;
• Improves decision making;
• Minimises uncertainty and meets KPIs
and Objectives;
• Focuses on the indicators that reflect
strategy and are most critical;
• Synchronises communication of goals,
strategies and metrics across broad geographic
areas and allows users to view, update, share
and work simultaneously on common information;
• Optimise challenges associated with
reporting detailed financial and operational
data from multiple applications, databases
and legacy systems;
• Empowers organisations to make faster,
smarter decisions by implementing performance
measurement loops based on KPIs and aligned
with stakeholders values and transforming
related data in valuable information;
• Integrates key management processes
such as Business and IT planning, budgeting,
forecasting, consolidation, reporting and
analysis within a single approach in a closed-loop
environment.
A
comprehensive Enterprise Performance Management
approach supports all stages of the EPM lifecycle,
allowing you to plan your strategy, set goals,
manage risks and initiatives, measure and
monitor indicators, take corrective and preventive
actions and report and analyse your performance
within the enterprise organisation.
