The simplest definition of ‘Performance
Management’ I have learnt from Gary Cokins (An internationally recognized expert, speaker, and author in performance improvement systems and advanced cost management) is ‘how am I doing, on what is important?” This has got
two components: 1) What is important 2) how am I doing. Both are important, but
the one has to track the progress on the important issues.
The next point is ‘Enterprise’. The term enterprise
here means, it is enterprise wide. It is not only for few departments or set of
people, but for each department. It also means that it is the performance of
the enterprise, so the overall effect should be better for the enterprise. In
this some of the departments may have compromise their targets/performance.
The third important part is ‘Integrated’. This
means the various components of EPM are working with each other to improve the
performance of the enterprise. Those components could be many, but for our
discussion, we will talk about Strategy Management, Integrated Budgeting and
Planning, Profitability and Cost Management, Risk Management and Compliance.
All those components/concepts should give and take the information from each
other.
For all this integrated thinking about value
creation in companies is the starting point. Let us see how each component add
value and how they are integrated with each other as a concept.
Strategy definition (BSC way)
Once we have laid down the definition, the next
step is start walking on the path. The first step is define ‘What is
important?” This in other words defining the strategy for the enterprise. This
could be based on the methodology of Balanced Scorecard (BSC). In BSC the
enterprise defines its Strategic Objectives, Strategic themes, KPIs and Improvement
initiatives. As the EPM can be defined as ‘Doing right things and doing things
right’. The BSC defines the ‘Doing right things’. The Strategic objectives and
KPIs gives the enterprise targets for their department’s performance and
alignments also. The initiatives also help the enterprise to decide its
investments. This becomes the guideline for other components.
Budgeting and Planning
Once the KPIs and their targets are finalized,
the can be flown down to manage customer on one side through the Sales function
and the demand side. On the other side suppliers are managed through the
operations to manage the supply side. Third angle of the expenses and the
fourth one for the Product/service development. The balance has to be managed
to get the integrated planning and budgeting based on that. The initiatives
flowing from the BSC, will provide the investment budgets. The process will
provide the manpower requirements. This information will create the Sales,
Expenses, Investments and manpower budgets for the current period. The same has
to hand-in-hand with the forecast. This forecast integrates the external
environment with the internal strategic initiatives. Based on the current
budgets and the vision of the enterprise, the long term planning for 3 years
and for 10 years can be extrapolated.
The comparison between the Actual and the Budgeted figures will keep the
enterprise on its tows to achieve their performance. The accuracy of the
forecast plays a major role here.
Profitability and Cost Management
This is important for every enterprise, whether
‘for profit’ or ‘not for profit’. The BSC gives the targets for the revenue and
profits to be achieved. The Sales plan and initiatives gives the information
about the what to sale, whom to sale, where to sale, how to sale, how much to
sale, at what price to sale. The same has to be plotted into the processes of
the enterprise. The shared service departments providing services to the
Product, Customer and Channel facing departments. Ultimately the demand is fulfilled
passing across the value chain. This entire process creates not only the value
add but the addition of costs also. This has to be traced with a
‘Cause-and-effect’ methodology. This
method helps to find the drivers for the cost and the action on improving the
cost drivers improves the financial performance of the enterprise.
The budgeted expenses, planned methods provides
the information on the expected profitability of the enterprise. This
information feedback to the BSC is useful to get information on the
profitability targets before the enterprise puts the strategy into action. This
feedback is also helpful to change the initiatives that are not working as
planned.
Risk Management
One of the simple definitions of ‘Risk
Appetite’ is how much one is ready to spend to achieve the planned benefit.
Here the spending is real but the benefit could still be planned, which may or
may not be realised. More the information available for various types of risks,
more realistic would be the mitigation plan. This helps in deciding the
strategic objectives of the BSC. It also helps to define initiatives and in
turn the budgets.
Compliance
This is important for any enterprise and the
compliance could be internal or external (Statutory). Internal compliance
could be for various initiatives with their actions to be performed, the
investments to be made, products/services to be launched, reports to be
prepared etc. External/statutory compliance could be of the form of financial
data to be published, taxes to be paid, quota to be fulfilled etc.
Reporting
In all those components, the information has to
be shared with the right person in right time with right quality and right
format. This information can be in various formats for various stakeholders in
the enterprise. It also has various forms of visualization and modes of
delivery. The reports keep the people aware of their performance, the causes,
the trends and of the future of the enterprise. The right design of the
reports, their granularity helps the enterprise ‘why’ it is going wrong and
‘where’ it is going wrong. This information provides an action ‘on the platter’
to the enterprise.
Finally….
The technology vendor started with the
individual solutions which got acquired by the big players and they formed an
‘EPM suit’ of the products. This EPM suit had some integration of data among
themselves. But there are few smaller players providing not a suite but a
‘financial platform’ which is fully integrated set of solutions under the EPM
arena. As the product vendors are thinking the users also have to think of
those areas in an ‘integrated’ fashion. When the users will understand the
business linkage among those areas and use it for their advantage to improve
the performance of the organization, it will be a definite value creation in
the organization.
ReplyDeleteThanks for sharing such a great information..Its really nice and informative.
SAP Training in Chennai
I hope this information may change my business carrier.I can remember these things whenever taking the decision.
ReplyDeleteContent marketing services in chennai
ReplyDeleteAll are saying the same thing repeatedly, but in your blog I had a chance to get some useful and unique information, I love your writing style very much, I would like to suggest your blog in my dude circle, so keep on updates.
Online Reputation Management
Good post Rajendra....you have presented it in avery simple and effective way....
ReplyDeleteReally Good blog post.provided a helpful information about integrated thinking for enterprise.keep updating...
ReplyDeleteDigital marketing company in Chennai
These are very simple and very much useful, as a beginner level these helped me a lot thanks fore sharing these kinds of useful and knowledgeable information.
ReplyDeleteSEO Company in India
Thanks for sharing the helpful information to me, It will be helpful for me.
ReplyDeleteRegards,
3d walkthrough services | 3D Visualization Company