By Anil Neupane

Enterprise performance management (EPM) refers to an integrated management approach that links strategic goals directly to the operational and financial activities necessary to reach those objectives. It is often referred to, with the usage of terms such as Corporate Performance Management (CPM), Financial Performance Management (FPM) and so on. It comprises Strategy Management, Profitability and Cost Management, Business Planning, Financial Consolidation, Spend, Supply Chain and other operational performance areas. EPM aligns the processes, systems, and metrics needed to measure and manage the performance of an organisation.

EPM supports both cost optimisation and growth initiatives. It is a suitable fit for nearly all organisations and should be a priority initiative for CFOs to enable finance function to deliver short and long-term strategic benefits to businesses.

It is considered as a diagnostic tool to monitor the pulse of an organisation by using a set of processes, frameworks, and systems for activities such as planning, measuring, communicating, and monitoring business results. Enterprises typically link these activities to corporate strategies and objectives and might drive them down to many individuals within the organisation to encourage accountability and control. Forrester defines business performance solutions as a category of purpose-built software applications that support these activities. The major BPS functional elements include:

 

Strategy and performance measurement address goals, objectives, and accountability

A strategy management application supports formal strategy management philosophies (eg, the Balanced Scorecard) but might be adapted to a business’ specific needs. Applications often display the strategy definition in visual strategy maps. Scorecards measure progress against the goals and objectives set forth in the strategy framework. Performance dashboards display more detailed information and allow drilling down to root-cause detail. Dashboards typically include a variety of key performance indicators (KPIs) that might include strategic scorecards as well as relevant comparisons against plans, budgets, forecasts, prior performance, and industry benchmark data.

 

Planning, budgeting, and forecasting solutions support multiple forward-looking processes

Although used almost universally as a control on spending, budgeting often falls short in supporting performance initiatives often as a result of some rigorous and inflexible process and not necessarily due to a software shortcoming per se. Fortunately, in addition to budgeting, the planning solutions support a variety of scenario-based planning activities as well as forecasting processes that add value beyond which is provided by traditional budgeting processes.

 

Cost and profitability management provides detailed analysis to improve margins.

This complex modelling activity helps organisations analyse development, production, and operating costs against revenues by product, customers, and lines of business. Cost and profitability management applications often use activity-based costing as the methodology to develop sophisticated cost and profitability analytical models.

Financial reporting and consolidation produce financial statements. Financial reporting and consolidation applications produce reports focused on delivering financial statements based on accounting results. Statutory consolidations support regulatory compliance and generally accepted accounting principles (GAAP) requirements. These applications also support internal reporting of financial information.

 

Why are companies after it globally?

Despite the economic downturn and a global decline in overall IT spending of approximately 3 per cent, spending on CPM Suites remained positive (growing at 3.6 per cent in 2009). Through the last 24 months of economic uncertainty, EPM has helped to manage cost optimisation efforts, but through 2010, many more EPM initiatives were justified on the basis of supporting growth strategies. Furthermore, many of the stalled or sidelined EPM initiatives that did not advance in 2009, were reinstated during 2010.

 

With economic downturn during the last few years, companies around the world are more focused on cutting costs and increasing performances. Therefore, EPM has been their major focus to achieve this objective and to have a better understanding of the drivers of corporate profitability.

 

Although awareness of the EPM concept has become more widespread, according to an estimate, 40 per cent of large enterprises and as much as 75 per cent of midsize businesses are using spreadsheets or legacy applications to meet their core management processes for BP&F, financial consolidations and financial reporting.

 

SAP EPM Suite

SAP is a global leader in EPM products. SAP recognises the importance of supporting these functions for an enterprise by establishing a new cross-functional unit, focusing on business performance optimisation. This unit brings together integrated technology and product portfolio with the people, ecosystem partners, and best practices specifically designed to help organisations drive business performance, manage risks and optimise the financial value chain. SAP Business Objects and EPM solutions bring together a set of applications that combine strategic goal-setting linked to effective budgeting and reporting, with additional abilities to analyse profitability. Similarly, SAP Business Planning and Consolidation (SAP BPC) is another tool that is dominating the global EPM suite market.

 

The major strength of SAP is its dominance in ERP market and its support base around the globe. Lately, SAP has an implementation partner in Nepal as well.

 

EPM and Business Intelligence

It is sometimes confusing to distinguish between business intelligence (BI) and EPM. The major reason behind this is because different vendors define these terms in different ways. In general context, business intelligence supports EPM tools to achieve results. In terms of strategy, Business Intelligence offers the tools necessary to improve decision-making, but not linked to organisation’s strategy. On the other hand, EPM provides a closed-loop support: linked to strategy through CSFs and KPIs. In terms of purpose, the BI tool helps organisations set and monitor their goals whereas EPM tools help organisations guide their business towards its goals. The scope of BI may be limited to one or more departments or functional areas whereas the scope of EPM is for the entire enterprise.

 

As shown in the figure above, EPM forms the higher level of pyramid whereas BI sustains the EPM processes as a supporting tool.

 

EPM in terms of Nepal

As in the case of companies around the world, most companies in Nepal still use spreadsheets or legacy system for financial planning, budgeting and consolidation. Due to this, the predictions are often time consuming, inflexible and inaccurate. Unlike few years back when there were very little EPM tool options in Nepal, now the country already has a SAP implementation partner. Therefore, companies now have opportunities to implement best EPM tools, like SAP EPM or SAP Business Planning and Consolidation. This shall greatly help business companies distinguish themselves from their competitors.

(Neupane is a SAP global certified consultant currently working in London. He can be reached at neupane_anil@hotmail.com)