Components of a Successful EPM Strategy

Proposing an Enterprise Performance Management (EPM) strategy over the short to medium term inevitably requires anticipating the needs not just of immediate beneficiaries of an EPM system, the financial department, but also potential beneficiaries of the fully integrated enterprise-wide EPM system. These might include departments like sales, marketing, retail store managers as well as other external stakeholders like suppliers, lenders, etc. A modern day EPM infrastructure should consider the following components:

1. Technical infrastructure
2. Enterprise portal-based platforms
3. EPM innovations like Software as a Services (SaaS)

KPIs are linked to strategic goals by turning qualitative, strategic statements into quantifiable and measurable operational metrics. These metrics can then be used to measure the various areas of the business across the different processes like budgeting, management reporting, etc. The KPIs should be visible and measured in all the key reports created for the budgeting and internal reporting process.

The EPM infrastructure required to achieve the goals of a modern organization over the medium term is illustrated below. It must have the capability of capturing structured and unstructured, financial and non-financial data from transaction systems; transform this data into timely, relevant and consistent business information which can then be delivered to the various stakeholders within the organization in an easily accessible platform. The seamless flow of data from transaction systems to the EPM applications will ensure that the organization can devote most of its efforts to analyzing its data instead of collecting and creating it.

The diagram above illustrates the various components of this infrastructure. The bottom layer refers to the type of technical components that would need to be in place to facilitate this process. The middle layer looks at some of the Business Performance applications that are likely to be deployed and the top layer looks at the delivery mechanisms, such as an Enterprise Portal.

The Data Integration Platform refers to everything - from the data capture and storage for the different transaction systems, to the data modeling and integration into the appropriate EPM applications in the middle layer. The data repository in the short-term could be a "financial" data mart that will meet the needs of the (primarily) financial application being developed (budgeting, external & internal reporting). The solution is flexible enough to grow as the needs of the organization grow. This might mean developing a data warehouse encompassing function-specific data marts (e.g. Retail Stores, HR, Sales etc.) or an integrated data warehouse with data fed directly from the different transaction systems. The choice can be made at the appropriate time but will be based on performance; desire for real-time versus latent or time-lagged data; scalability; maintenance and administration, etc.

The Performance Management Platform is essentially the application layer of the solution and can support several applications. Again, it has been designed for growth. As the company decides to grow its applications to include strategic planning or predictive analysis for example, the data integration platform should be easily able to support this growth. The relevant data for each of the applications can be accessed using 3rd party ETL tools where necessary.

The Information Delivery Platform deals with the presentation of the data to the relevant stakeholders. The data can be presented as production ("out-of-box") reports directly out of the separate applications; pulled out the data marts using Business Intelligence Tools; published to a corporate portal or aggregated and displayed on corporate dashboards. Portals and dashboards allow a company to have a broad and holistic view of the performance of the companies because they show data from different sources in a simple visual layout.

Most vendors in the EPM space are moving over to a new approach to software development known as Services Oriented Architecture (SOA). At the core of SOA is a set of design practices for building software where functionality is implemented as a collection of independent services and an established communication mechanism exists between these services. This enables all of the components in a complex IT infrastructure to interoperate more easily and efficiently, and significantly reduces the time and effort for systems to be integrated.

It is important that over the medium term, the company must ensure that its vendor of choice has an SOA approach to its software development. This will reduce the Total Cost of Ownership for the company in general and the IT department in particular. In today's environment, there are issues with vendors deploying multiple, disparate reporting and analysis tools, as well as various packaged analytical applications. There is an administrative burden associated with the installation processes, as well as the management of hardware, operating systems, and user interfaces. A modern EPM architecture seeks to address all these issues and we will begin to see EPM vendors adopt this type of architecture of the coming years.

A corporate portal is a Web-based gateway to a company's information and a knowledge base for employees and other stakeholders. It enables the capture and secured distribution of structured & unstructured data, financial & non-financial data. This is a particularly useful approach for the EPM user as it gives them access to the different applications they need within the uniform interface as illustrated below.

The real value of a portal based approach as it applies to EPM is that the information delivered to the user is targeted and profile driven. So the right people get the right information at the right time. A CFO could select from his list of options the weekly sales figures, monthly management profit and loss statements and the corporate dashboard showing the performance of the company across all of its markets and products. The performance can be color-coded and presented as graphical, intuitive, analytic icons showing green for above performance, yellow for meeting performance and red for below performance. The VP of Budgeting could customize his personal portal so he could run the budgeting application directly from his portal, set up the appropriate drivers, consolidate the numbers and distribute the relevant reports to specific departments.

One of the advantages of portals is that it could bring down the cost of training. Most users are familiar with a web-based interface as they surf the Internet regularly. A portal based EPM means that consumers of EPM information need not necessarily have to learn about the different packages for strategic planning, budgeting, BI reporting, analytics, etc. Why should a company's Controller need to learn how to run a report from his budgeting application and yet another one from his consolidation tool? He should be able to select the reports he needs from his menu, indicate what frequency he needs and get it delivered to his personal portal automatically. If however, he had the inclination to delve into the software he would always have the option to launch the software from his portal.

Portals advocate user-defined workspaces and encourage collaboration. Incorporating some of the collaboration tools from Microsoft for example, it's possible to do specific EPM tasks in real-time within the corporate portal. For example, a strategy-driven organization can do their strategic planning with their senior leadership team online and see the effect of the different scenarios on their forecast operational numbers, all in real-time.

A challenge for the current EPM tools today is combining structured and unstructured data. EPM tools are typically designed to deal efficiently with structured data stored within standard databases, however a lot of the EPM tools struggle to cope with unstructured data. If one wanted to capture data like a competitor analysis of a website or industry report and make it available within the budgeting process, what process or tool can do this? The new financial analyst mentioned previously might have prepared the marketing budget and came across some interesting research that helped her determine her figures for the cost and type of seminars within the budget. She might want to share that research to the rest of the budgeting team from across the world. A portal is an easy and effective way to share this research beside her budgeting numbers.

On the technical side, the SaaS provider hosts the application and data centrally: deploying patches and upgrades to the application transparently, and delivering access to end users over the Internet through a browser or smart-client application. A variety of security mechanisms can be used to keep sensitive data safe in transmission and storage. Service providers might provide tools that allow customers to modify the data schema, workflow, and other aspects of the application's operation for their use.

With SaaS, the job of deploying an application and keeping it running from day to day: testing and installing patches, managing upgrades, monitoring performance, ensuring high availability, and so forth - is handled by the provider. By transferring the responsibility for these "overhead" activities to a third party, the IT department can focus more on high-value activities that align with and support the business goals of the enterprise. Instead of being primarily reactive and operations-focused, the chief information officer (CIO) and IT staff can more effectively function as technology strategists to the rest of the company, working with business units to understand their business needs and advising them on how best to use technology to accomplish their objectives.

For a lot of executives responsible for the EPM processes like budgeting & external reporting, the thought of outsourcing their budgeting processes, application and data is a worrisome one. Understandably, worries about sensitive data, loss of ownership, etc. are prevalent in their minds. However, this concept is not that alien as quite a few companies already outsource their accounting operations today.

One of the advantages of SaaS is that the company avoids the not inconsiderable cost of hardware, licensing fees, supplementary software, implementation resources, and technical resources to administer the application and ongoing maintenance fees for the vendor. Consequently, most of the financial and human effort required to implement a EPM application is focused on getting the infrastructure set-up and less on actually creating a world-class, best practice application.

With SaaS, end users access their information from anywhere in the world via a web browser. The data, business logic and hardware are hosted by the provider. The companies pay a monthly fee per user and can start using the applications in a few short weeks (and in some cases, days). The company never has to worry about time-consuming and costly upgrades or purchasing the appropriate hardware and software. Instead it can focus early on in the process on refining the business logic.

The flexibility of SaaS can paradoxically be its limitation. The ability to log into the EPM application anywhere there is an Internet connection is a cherished notion. It means you can be productive even if you lose your laptop at the airport. You simply go to the nearest internet kiosk; logon and you have access to the tools to do your budget. However, if you are traveling to a remote location with no access to the internet, this could be a serious limitation. Unlike some solutions that enable you download a version of the application onto your laptop to work offline; a true managed solution is only available online. However, it's important to know that there are Excel-based tools that some providers offer that enable you work in a disconnected state.

So what is the right way to implement a SaaS solution? The key, as obvious as it sounds, is the choice of provider. The selected provider must have a deep understanding of the budgeting process, preferably within your industry. They also need to have solid partnership with the appropriate vendors (if they themselves are not the EPM vendors) in order to provide you with the most appropriate licensing options at the best price. SaaS is in its infancy when it comes to EPM. Some of the vendors are thinking about it but are worried about the impact in their licensing model. Over the next 18 months, there will be a clearer picture of the role SaaS plays in the EPM space.

Preparing financial information for these external audiences can be time-consuming, as each of these audiences may require the same information to be presented in a different format or level of detail, with various explanatory notes included. On the receiving end, the recipient typically invests more time re-keying the information into a spreadsheet or special purpose database for aggregation, analysis and evaluation.

With XBRL, financial information and supporting text from internal systems can be expressed in a single specification, which can be used to generate the information required by each of these audiences with no re-keying of information (see diagram below). A single XBRL document can be converted to printed output, published via the Web, fed into an SEC database (e.g., EDGAR) or forwarded to a creditor for analysis.

Having the ability to generate a single file that can be used to report to multiple external audiences can save a great deal of time and effort by the staff that prepares and publishes financial information. With an XBRL-friendly system, receivers of financial information can quickly load the file into their system and begin the analysis process rather than spend time re-keying or scanning data into these systems. This provides welcome relief to all parties in the financial information supply chain, as regulators and investors demand timelier, frequent and more detailed delivery of financial results.

While this ideal solution is a challenging one to accomplish, it is ultimately the right path. In trying to minimize the risks to attaining this goal companies would do well to follow some simple rules like: break the overall goal into smaller chunks; have a proven project team; follow a project management methodology and choose the right delivery partner.

Written by Bernie Akporiaye, Data Management Group Practice Manager, Performance Management