Thursday, July 3, 2014

Integrated thinking for Enterprise Performance Management (EPM)

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.

7 comments:


  1. Thanks for sharing such a great information..Its really nice and informative.

    SAP Training in Chennai

    ReplyDelete
  2. I hope this information may change my business carrier.I can remember these things whenever taking the decision.
    Content marketing services in chennai

    ReplyDelete

  3. All 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

    ReplyDelete
  4. Good post Rajendra....you have presented it in avery simple and effective way....

    ReplyDelete
  5. Really Good blog post.provided a helpful information about integrated thinking for enterprise.keep updating...
    Digital marketing company in Chennai

    ReplyDelete
  6. 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.
    SEO Company in India

    ReplyDelete
  7. Thanks for sharing the helpful information to me, It will be helpful for me.

    Regards,

    3d walkthrough services | 3D Visualization Company

    ReplyDelete