4 Key Ingredients to Cloud-Based Enterprise Performance Management that Enable Business Agility
What is EPM and what are the key ingredients of an EPM system that enable business agility?
- By John O'Rourke
- January 19, 2016
"Hey boss, great news -- the year-end financial results match up exactly with the budget that was set at the beginning of the fiscal year."
How often does this scenario occur in your business? Rarely or never, right? That's because things happen; things that weren't expected when the budget was approved. Economic conditions change, industries are disrupted, competitors change tactics, employees turn over, customers are acquired -- the list goes on and on.
To survive and thrive in today's volatile market, organizations need to have agile business processes that allow them to adapt and change in response to changing market and business conditions. Companies can no longer operate based on static financial budgets with outdated business assumptions.
In Fast Times, Static Budgets and Spreadsheets No Longer Cut It
Running a business on spreadsheets and e-mail may work fine when there are five people in the company, but when the company grows to 50 or more, things start to get crazy. Version control creeps in, conflicting versions of the truth arise, calculation errors cause inaccuracies in reporting and planning, and the finance team gets stuck reconciling all of the gaps.
Managers need to have real-time insights into key performance metrics that are delivered through interactive dashboards and reports. Isn't that the domain of BI? Yes, but BI's cousin EPM (enterprise performance management) also plays a key role in supporting agile business processes, and the two should work synergistically.
What is EPM and what are the key ingredients of an EPM system that enable business agility?
EPM 101
EPM is a process and system designed to help organizations link strategy to plans and execution. It's a cycle that organizations go through: setting goals, defining plans, closing the books, and reporting the results to stakeholders. Organizations perform a variety of analytics to understand "why" the results are above or below expectations and model various business scenarios that can impact future performance. Modeling questions include, for example:
- What if we raise prices?
- What if we move resources from one region or product line to another?
- What's the impact on revenue and profits?
It's a bit of a hamster wheel that we go through on a regular basis -- monthly, quarterly, and/or annually -- but when it's done right, EPM can improve efficiency by eliminating spreadsheets and making your planning and reporting processes go faster. It can improve accountability by getting more line managers involved in the planning process and empowering managers with self-service access to financial and operating results. Finally, it can provide insights into the business that maybe aren't visible on the surface and which are actionable -- so it creates greater business agility.
4 Key Ingredients of Cloud-Based EPM
EPM can sound complex, and sometimes smaller companies are confused about where to start in adopting EPM solutions. To help answer that question, I've identified 4 key ingredients of an EPM solution that are essential to enabling agility for fast-growing companies -- or any organization operating in a fast-changing environment. These are:
- Single version of the truth
- Faster reporting
- Dynamic planning
- Advanced modeling
Let's explore each of these and look at how they help you gain agility.
Single Version of the Truth
One of the key challenges with spreadsheets I mentioned earlier is version control and multiple, conflicting versions of the truth. Spreadsheets are inherently disconnected, so if someone changes a report or plan, that change is not always shared or picked up and reflected in the rolled-up view of the business.
One of the key benefits of an integrated, unified EPM suite is that it works off of a centralized database and common metadata definitions. There's a single chart of accounts used to report and plan, a consistent set of organizational structures or hierarchies, and common business rules and security controls. Spreadsheets can still be used as a front-end to the system (as can Web browsers and mobile apps) for reporting, data entry, and analysis, but the heavy lifting is done by a back-end system that includes a centralized database of financial and operating plans, actuals, metrics, and assumptions.
Faster Reporting
Improving key financial processes is one of the benefits of moving from spreadsheets to packaged EPM software solutions. An important one for improving the finance department's agility is the financial close process. Companies that are able to reduce the financial close and reporting process from 25 days to 5 or 10 days can deliver financial results faster internally for improved decision-making. This also allows more time for review and analysis before reporting results to external stakeholders.
Cloud-based EPM suites typically include financial consolidation and reporting modules purpose-built to streamline the period-end close and reporting process. They can easily integrate data from single or multiple general ledgers. They are designed to handle issues such as currency translation, intercompany eliminations, journal adjustments, and minority ownership, and they include process management and workflow that allows managers to keep track of and improve the process.
Dynamic Planning
With the pace of change in business constantly accelerating, organizations can no longer rely on static budgets to guide their investment and resource-allocation decisions. Although most companies still have an annual budget, they're relying less on the budget and instead augmenting it with rolling forecasts on a quarterly or even monthly basis. This allows organizations to compare actual results to the original plan and incorporate the actuals along with updated forecasts from management into their projections for future periods. This more dynamic approach to planning is critical for responding quickly to changing business conditions and for reallocating resources as needed to capitalize on new business opportunities.
Cloud-based EPM suites provide purpose-built budgeting, planning, and forecasting modules designed to make planning faster and more dynamic. They can collect data via the Web, Excel or a mobile interface and easily track multiple budget/forecast versions and scenarios. With built-in process management and powerful reporting, they support dynamic planning techniques such as driver-based planning and rolling forecasts -- which are critical to improving business agility.
Advanced Modeling
Although improving the annual budget process and shortening forecasting cycles are important to achieving business agility, ad hoc scenario modeling is also an effective way to perform "what if" analysis and predict the impact of key business decisions. Examples of ad hoc modeling activities include detailed sales volume forecasting, marketing funnel and pipeline modeling, long-range planning, and M&A modeling. These modeling activities are typically performed using spreadsheets and are disconnected from the corporate planning processes.
Some of the modern, cloud-based EPM suites include advanced modeling modules that can link ad hoc operational modeling to corporate plans and models. By allowing operations analysts to extend corporate models with additional dimensions and calculations, they gain the required autonomy and flexibility to meet their own needs while ensuring consistency and alignment to corporate models and plans. It provides the best of both worlds.
Why the Cloud?
Although EPM solutions in general can help organizations become more agile, cloud-based EPM solutions provide key advantages over on-premises solutions when it comes to business agility. Eliminating the need to set up hardware and other infrastructure makes the deployment process faster. You can get up and running in a matter of weeks or a few months with an initial solution. As you want to turn on additional modules or add users, cloud-based solutions can quickly be scaled to address new requirements. In addition, you only pay for what you need via subscription-based pricing.
Real-World Customer Examples
Companies that replace spreadsheets with cloud-based EPM solutions typically see the agility benefits immediately.
- An education company reduced the annual budget process from 12 weeks to 3 weeks
- A talent-acquisition company reduced board reporting from 4 days to 4 hours
- A software company reduced the financial close from 16 days to 4 days
- A medical device company reduced the "what if" analysis process from 8 hours to 1 hour
If you are ready to get your nights and weekends back and improve the agility of your organization, reduce your reliance on spreadsheets and e-mail for management processes and consider cloud-based EPM solutions. Your competitors are probably doing so already.