Financial Reporting, Planning, and Budgeting As Necessary Pieces of EPM Part Two: Challenges and User Recommendations



Naturally, financial reporting and forecasting analytic solutions will have weaknesses. For one, they are still limited to only the data within general ledgers. Optimizing financial management processes is only a first step on the road to their better alignment with other organizational business processes. Hence, various enterprise business intelligence (BI) solutions enable organizations to track, understand, and manage enterprise-wide performance, and they leverage the information that is stored in an array of corporate databases/data-warehouses, legacy systems, enterprise resource planning (ERP), supply chain management (SCM) or customer relationship management (CRM) applications.

Once limited to the finance department of large companies, BI/analytics has expanded across departments and now even addresses the needs of customers, suppliers, and partners outside of the firm, given that if BI can help any department understand and serve customers better, that should in turn lead to better financial results. Companies have become adept at storing huge quantities of data on customers, products, and employees. However, this valuable data is often wasted, because it is analyzed in pockets, thus preventing valuable insight throughout the enterprise and beyond. To that end, nowadays, popular uses of BI include management dashboards and scorecards, collaborative applications, workflow, analytics, enterprise reporting, financial reporting, and both customer and partner extranets, to name some. These solutions enable companies to, for example, gain visibility into their business, acquire and retain profitable customers, reduce costs, detect patterns, optimize the supply chain, analyze project/product portfolio, increase productivity, and improve financial performance.

This is Part Two of a two-part tutorial.

Part One related financial reporting, planning, and budgeting to EPM.

Corporate Performance Management (aka EPM and BPM)

The latest evolutionary step introduces the concept of corporate performance management (CPM), which is often interchangeably referred to as enterprise performance management (EPM) or business performance management (BPM), and is an emerging portfolio of applications and methodologies with business intelligence (BI) architectures and technologies at its core. Historically, BI applications have focused on measuring sales, profit, quality, costs, and many other indicators within an enterprise, but CPM goes well beyond these by introducing the concepts of management and feedback, i.e., by embracing processes such as planning and forecasting as core tenets of a business strategy.

CPM also crosses traditional department boundaries (i.e., silos) to manage the full life cycle of business decision-making, combining business strategy alignment with business planning, forecasting, and modeling capabilities. In other words, it would entail mapping a structured set of data against predefined reports, alerts, dashboards, analysis tools, key performance indicators (KPIs), etc., to monitor and improve business processes based on the upfront established corporate strategic objectives. Further, CPM creates a closed-loop process, starting with developing high-level corporate goals and subsequent predefined KPIs, through measuring actual results against the KPIs and representing this comparison in a scorecard, with the results reported to management through intuitive reporting tools, and ultimately feeding these results back into the business modeling process for corrections in the next planning cycle.

CPM leverages the performance methodologies such as the balanced scorecard or activity-based costing (ABC), and although these approaches help determine how and what to measure, they lack a mechanism for dynamically changing values to keep abreast of the business reality. Ensuring the closed-loop management is CPM's enhancement of BI applications, which traditionally focus on measurement, which is basically worthless without the ability to act on it. Consequently, a perplexing variety of existing tools and techniques can lay claim to being part of the CPM trend—ranging from business intelligence tools and analytics (e.g., packaged data-marts; data mining tools; extract, transform and load [ETL] tools; and dashboards or executive information system [EIS]) to BPM applications and scorecard products.

Thus, CPM is the evolutionary combination of technology and philosophy, building on the foundation of technology and applications that many enterprises will have likely already implemented. The demand for these applications lies in the fact that they incrementally add value to already installed business applications, even the legacy ones, to a degree that the enterprises may finally see some long belated benefits and feel somewhat better about implementing cumbersome ERP systems. Indeed, many enterprises have already deployed some BI products too, such as querying and reporting tools, planning and budgeting applications, analytic applications, incentive management systems, portals, and scorecards, along with data warehouse technology, data models, and integration software, and what not. Anyone attempting to conduct the technology inventory stocktaking will likely find some CPM components already in use.

CPM Vendor Landscape

For the above reasons, the vendor landscape remains diverse, with every vendor touting some (or total) CPM capabilities. Thus, the arms race to marshal the most complete CPM platform has intensified lately, especially following up on the recent Cognos acquisition of Adaytum for its planning and budgeting functionality. Eventually, more organizations will turn away from best-of-breed point solutions to pursue integrated CPM suites, possibly with the idea of having a corporate-wide BI/CPM standard, as they seek to source components from a single vendor rather than integrate disparate product sets themselves. Still, the point solutions might be safe for some time to come, due to the fickle nature of BI users' brand loyalty.

Analytic technology has a good staying power within its groups of satisfied users (i.e., CIOs and CEOs), and thus some specialists like omnipresent FRx financial, budgeting and forecasting reporting products will not be that easily displaced. BI products and technologies are still offered by several of Microsoft's product groups as bits and pieces, which often creates an "island of analysis" rather than the consistency needed for collaborative decision making.

Thus, there is competition from the more rounded BI providers, such as Cognos, Business Objects, SAS Institute, Informatica, and Hyperion, and from tier one ERP providers, despite many of these vendors' likely less sharp focus on financial reporting, planning, and budgeting at this stage. It will be particularly interesting to watch Microsoft's approach to Crystal Reports (now part of Business Objects), which made quite a splash a decade ago when selected as the reporting engine for Microsoft Visual Basic. Its technology partners largely overlap with FRx to include Best, ACCPAC, MBS, Exact Macola, and Epicor.

The competition does not end with more rounded BI providers either, given a slew of slick budgeting and planning products that many go well beyond leveraging GL data. In addition to the above mentioned BI powerhouses, Applix, Cartesis, Longview, Comshare (now part of Geac), Closedloop (now part of Lawson), OutlookSoft, Prophix, and SRC Software would be only some. For example, OutlookSoft's software allows for bi-directional data collection, analysis, and communication of information contained in internal and external data stores such as ERP and CRM systems.

Another financial reporting "intruder" is Cetova, a spin-off of consulting firm GL Associates, which has created a financial statement reporting product, C-FAR, leveraging the years of implementation experience with former J.D. Edwards' World and OneWorld product lines (now part of PeopleSoft), which has been a coveted but never penetrated market for FRx.

User Recommendations

When evaluating your current system determine the additional value that can be generated using the GL database. Look for a quick return on investment (ROI) because financial planning, budgeting, and reporting processes should be improved by access to concise, targeted information. While the budgeting and planning applications (FRx's and other vendors' alike) might not account for perpetually changing variables like consumer confidence or fluctuating interest rates, their output certainly offers benefits over shooting in the dark. Still, challenge every vendor to help you re-plan and re-budget quickly in response to many unpredictable events abroad (e.g., natural disasters, stock market crashes, fuel price changes, general strikes, new competitive product on the market, etc.).

However, as CPM involves more than business planning, with such initiatives like performance measuring, alerting and scorecarding, it is not likely that all these components are available from one vendor at this stage.

On a more general note, the CPM evaluations should involve the IT organization, finance, and operations, and most firms should create a joint committee or task force to evaluate how automation can improve enterprise-wide performance management. Although CPM starts with strong financial management, it will eventually extend beyond financial planning to almost all areas of corporate activity. Therefore, organizations choosing BI suites should consider both their financial management tools and future integration with key business-area solutions (e.g., PLM, CRM, SCM, etc.). Enterprises should conduct business analysis in a single analytic environment, using data from many sources, rather than to regard reporting, planning, budgeting, and profit analysis as separate components.

The most important point for prospective buyers of CPM technology—is to do a very thorough analysis of your existing systems, where your corporation's business needs will be in the next few years, and how you intend to integrate the systems (do not forget that mapping data from one place to another is the most arduous, expensive, and time consuming part of the whole process, and one of the major reasons for the failure of BI projects) before you even talk to any vendor. Be both open-eyed and open-minded, since it is tempting to create specialized data models and tactical data marts to support quick deployment of CPM portfolio, but this can lead to the long-term inflexibility.

The best start for CPM initiative towards building the entire corporate information factory (CIF) would be to identify the most painful points and to try solving them by leveraging existing BI/analytics initiatives, while staying aware of being inflexible and of automatically settling for an incumbent vendor if its products and plans do not match up well to your strategic requirements. Also, one should not fall into the trap of "low-hanging fruit" and easily obtainable short-term return on investment (ROI) benefits at the expense of long-term strategic benefits that are either of a "soft" nature or are of lower value in the short-term.

While the needs of employees, customers, and business partners will vary, successful integration tools will need to provide access to such applications as inventory control, ERP, CRM, data stores, packaged applications, legacy systems, and a myriad of other applications. The effort will likely be immense, but the returns from an integrated information portal can be significant. As with any such purchase, users choosing point planning or BI products should consider the integration infrastructure and effort needed to combine these products versus the cost and functionality issues of choosing an integrated CPM product suite (if still possible to find). Mission-critical issues like scalability, reliability, manageability, and ease-of-use go without saying.

For smaller enterprises that are more inclined to rely on their ERP vendor on extended functionality such as BI and portals, the route to the complete CPM might be more straightforward. However, even as a first step, i.e., leveraging canned reports that come with ERP systems, usually works if users do not need a real depth to what they are doing. It is however, a completely different case when they have to produce contextually astute financial reports for example, owners, investors, business partners, and employees, and that is still the sweet spot of the like of FRx.

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