While many may think of EPM in terms of software toolsets, EPM is much, much more than that. However, before we delve into what EPM is, let's take a look at why many organizations are undertaking an EPM initiative.
The goal of an EPM initiative is to steer the entire organization in the same direction. An EPM initiative serves as a road map for the entire corporation. It allows all levels of the organization to chart their way toward a common destination. It also provides upper management the visibility to see through the fog to know when portions of the organization are going off course and facilitates their ability to make course corrections along the way.
An EPM initiative can also serve to remove confusion within the enterprise. By providing upper management visibility deep within the enterprise, it can prevent departments from optimizing their efficiency to the detriment of the corporation's overall efficiency. It can readily identify business unit and departmental sub-optimizations and ensure that investments are aligned with the corporation's goals.
These goals are resonating very well with executive management in today's climate of increased regulation and, quite frankly, fear. While compliance with the Sarbanes-Oxley Act may be the catalyst that is driving many EPM initiatives in publicly traded companies, it is the implications of Sarbanes-Oxley unwanted media attention along with threat of jail terms that are driving many corporations to increase their corporate governance and insight into all levels of the business. Now that the Sarbanes-Oxley Act requires that a public company's CEO and CFO attest to the accuracy of their financial statements, those individuals want to make sure they have all the information necessary to compile a complete and accurate financial statement. Many organizations are turning to EPM to provide these capabilities.
An EPM initiative not only charts where you've been, but also allows you to plot the next few steps along the way. As stated within the prospectus of virtually all stock and mutual funds, past results are not an indication of future returns. This holds true for your company's financial statements as well as its stock price. Financial statements, the typical measure of an organization's progress, only provide point in time or historical period results. While much can be inferred from these reports, the lag in producing them often results in little problems being identified on an aging report only after they have grown into a much larger problem. A well-crafted EPM implementation melds the trailing indicators that typically constitute financial reporting with leading indicators that can help predict future trends. Depending on the methodology you choose, an EPM implementation often combines financial metrics with non-financial metrics that can identify the health of your enterprise from a variety of perspectives.
What is Enterprise Performance Management?
An EPM initiative is made up of the following components:
- Strategy
- Process
- Methodology
- Change Management
- Business Intelligence
- A Toolset
Strategy
You can't implement EPM without knowing your corporation's strategy. If the purpose of EPM is to steer your organization toward a common destination, you'll have a rather difficult time getting there unless you know that destination. This sounds simple enough, but the mistake of attempting to implement EPM from the bottom up has been made countless times. While an EPM system may come with industry standard key performance indicators (KPIs), these KPIs are just noise if they haven't been validated and accepted as supporting your corporation's strategy.
Your corporation's strategy must also be actionable and measurable. Increasing top line revenue and reducing risk is not a strategy, it's common sense. Beginning an EPM initiative at this level will almost guarantee the misalignment of the enterprise's true objectives with the measures within the EPM system. Similarly, an EPM initiative should never be approved if all it promises are vague objectives such as "better and faster decision making" or "better insights into the enterprise's performance." An EPM initiative, however, does have the capability of serving as a catalyst for developing and refining your corporation's strategy into one that is actionable and measurable. However, in order to be successful, this needs to be a Phase 0 type activity that occurs at the beginning of your EPM initiative..
Process
An EPM implementation sits at the intersection of two of your enterprise's key process cycles, the Strategic Cycle and the Operations Cycle. The Strategic Cycle focuses on strategy formulation and execution. This process is far more virtual than it should be in many enterprises, but in theory, it should be the driving force in designing an EPM solution. The outputs of the strategy formulation are then used as inputs into the planning and budgeting steps of the Operations Cycle. The Operations Cycle is not your organization's operations, but the operational execution of the strategic direction by the business unit and departmental managers of your corporation.
EPM Process Model
Figure 1
Sitting at the intersection of these two cycles, an EPM system facilitates the communication of the strategy to the operational areas of the enterprise and, at the same time, reports back to executive management on the progress being made toward the corporation's objectives. It also facilitates what many organizations have struggled with for years: the ability to monitor progress being made in near-real time and adjust the overall strategy as information on the practical progress of the current strategy's execution comes pouring in.
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