Enterprise Performance Management (EPM)

What is Enterprise Performance Management?

Enterprise Performance Management (EPM) is the process of monitoring an enterprise's performance, with the goal of improving business performance. It involves budgeting, planning, forecasting; modeling the value creation of a company; consolidating results; performance analysis using key performance indicators (KPIs) such as sales, overhead, and operating costs as well as Return on Investment (ROI); and analyzing how changes in one area affect other areas.

Enterprise Performance Management (EPM) integrates ideas from Performance Management with Business Intelligence, to make actual performance information available in real-time to the relevant stakeholders. EPM uses a separate data management level to ‘harvest’ data from the operational processes and supplies it to Business Intelligence applications, such as planning, dashboards, scorecards, reporting, and analysis.

The Purpose and Goals of Enterprise Performance Management

Enterprise and corporate performance management are essential for all businesses, and the following are the goals of having enterprise performance management systems in place.

• Setting up and defining the necessary goals to ensure the fulfillment of the organization’s objectives: Goal setting is the most effective way of initiating and encouraging better performance across the organization. This helps employees focus on what’s really important. It also encourages the alignment of the individual employee objectives with the overall business objectives while optimizing an employee’s individual performance. And on top of all that, goal setting helps in the identification of the key result areas while also allowing individuals to work on improving these areas. As a result, it is a big part of measuring performance management.
• Set the right expectations for employees and managers: You need a robust business performance management system to come up with clear expectations for the employees and managers. At the same time, it allows you to build on the current performance of an employee and then come up with a strategy and list of expectations that the employee is more likely to meet. The right expectations will bring results, meaning you shouldn’t expect a poor performer to be a top performer overnight. To set attainable, healthy, and reasonable expectations:
  • Define your expectations clearly
  • Give your reasoning behind that expectation.
  • Document the expectations
  • These steps are important because the moment your employees understand their roles, accountabilities, and responsibilities, they will be more productive and consistent.
• Improved communication: Good communication is essential for the success of your strategic performance management system. Excellent communication defines what business performance management is because it encourages not only a good communication culture but also ensures better engagement between teams and, most importantly, the alignment of individual and business objectives. For effective communication, leverage the power of one-on-one interactions with all team members, give continuous coaching and feedback to encourage skill development, incorporate team-building activities, and encourage collaboration.
• Setting performance standards: Enterprise and corporate performance management’s success relies on the performance standards you have set for the enterprise/business. Your business needs to set up new performance standards if you notice the following: It is also important to set performance standards for you to avoid the following management problems:
  • General lack of effort from the employees
  • Unmet goals (could result from your goals being unrealistic/ unattainable
  • Inadequate resources
  • Poor collaboration between teams
• Coming up with individual performance and training plans: You need an enterprise performance management system for training and the improvement of the skills, knowledge, and experiences of your workforce. It’s also an important part of boosting your employee retention rates. As you know by now, you can improve employee retention by encouraging personal and career development, and you can do this by coming up with a plan to help your employees gain the desired skills and knowledge. For this to happen, identify the skills and training your employees to need, create a training budget and plan, and determine how the newly acquired skills will be applied.

Enterprise Performance Management (EPM) Process

As with most traditional software, enterprise performance management systems were initially installed on-premises. Today, more and more EPM software systems run in the cloud. A cloud platform provides a range of benefits, including larger data storage capacities, stronger security, and easier integration with complementary applications such as financial consolidation, financial close, planning, tax reporting, profitability and cost, account reconciliation, and other applications. Here’s how the EPM process typically works:

• Access data across all business units. Leverage the agility of the cloud to access financial and operational data from business units across the organization, including IT, marketing, HR, operations, and sales. Data can be sourced from e-commerce systems, front- and back-office applications, data warehouses, and external data sources. Make more confident decisions and respond to disruptions faster with complete, accurate data.
• Create a strategic plan. Use EPM data analytics to build forecast models and ad hoc simulations across multiple dimensions. Make data-driven decisions that maximize profitability, and performance, and drive alignment with your strategic plan.
• Budget. Work collaboratively across lines of business to crowdsource plans and build flexible budgets. Leverage automated workflows for a clean and efficient process.
• Track and report. Use real-time data to assess performance across the enterprise and determine if adjustments are required. Prepare reports that align with corporate and regulatory guidance.
• Assess and analyze. Review performance and profitability against the strategic plan. Identify new areas of opportunity, resolve areas of underperformance, and use the intelligence to inform the next cycle of strategic planning.

History of EPM

• From paper to spreadsheets: The concept of EPM has been around for decades. Before computers, EPM processes and solutions were managed manually via meetings, phone calls, and discussions. In the 1970s, the first EPM software applications became available and accounting solutions began collecting budgeting and financial information for reporting purposes. Spreadsheets were introduced in the 1980s with software such as Lotus1-2-3 and VisiCalc. Spreadsheets allowed finance teams to automate budget and report creation and replace manual worksheets. The availability of email in the 1990s allowed people to share spreadsheets, which led to better collaboration and collection of budgeting and reporting data. Around the same time, the first EPM software packages began to automate the financial consolidation and reporting process. These products included: IMRS Micro Control (which later became Hyperion software), Hyperion Enterprise for financial consolidation and reporting, and Hyperion Pillar for planning processes.
• From on-premises to the cloud (Today): Over the past couple of decades, EPM software platforms evolved from Windows-based client/server systems to internet-enabled, web browser-based applications. Today, there’s an increasing demand for cloud-based EPM software, also known as software as a service (SaaS). When EPM software is “in the cloud” it simply means that the application is housed on a network of remote servers, instead of at a company’s location. The cloud offers a more affordable alternative for EPM that lowers both operational expenses (OpEx) and capital expenses (CapEx) because it eliminates the need for companies to purchase software and hardware or hire additional IT staff. With no costly infrastructure to support, resources can be invested in growth opportunities, while employees can focus on more value-added tasks instead of managing IT.
• Analysis to action (Next-generation EPM): Historically, EPM systems have focused on transitioning finance from spreadsheets to more robust solutions that let teams spend less time on low-value tasks such as data manipulation and reconciliations and more time on high-value tasks like the analysis. But even after making the move from spreadsheets, there’s still too much time between analysis and action. Enter the next generation of EPM, which has new capabilities that incorporate emerging technologies, such as artificial intelligence and machine learning. These technologies are powerful decision-making tools because they close the gap between analysis and action. They help improve the quality of decisions made by finance managers and executives by detecting hidden patterns and insights in historic data. The impact on decision-making is widespread, from tactical (which vendor to pay first) to operational (budget reallocations) to strategic (mergers and acquisitions). Beyond decision-making, these technologies can automate routine tasks to eliminate manual labor and reduce the likelihood of errors. There are many tasks in the financial close and reconciliation process that fall into this category. This type of automation will free up valuable time for finance professionals to engage with operations and spend more time providing the forward-looking guidance that management needs to capitalize on the next opportunity.

EPM Business Processes

The business processes associated with EPM can be broken down into five functional areas: Strategic modeling, planning and budgeting, close and consolidation, reporting, and performance analytics. Read on for an overview of each of these areas.

• Strategic Modeling: Strategic modeling allows users the opportunity to develop long-range strategic forecast models. It is useful for detailed forecasting and analysis of trends and frees up time spent on manually gathering data. Strategic modeling gives users a sense of confidence in the accuracy of their projections, reports, and audits.
• Planning and Budgeting: Using EPM software for planning and budgeting gives users flexibility and scalability with their forecasts. While standard EPM products include out-of-the-box planning content, others, such as Oracle EPM, go a step further and provide the user with the ability to create custom parameters for future planning and budgeting.
• Close and Consolidation: EPM software can be used for streamlining financial close and consolidation, making it easy for users to report on their business with confidence. This support gives users peace of mind when it comes to meeting global regulatory requirements and provides the requisite transparency of data for stakeholders both internal and external.
• Reporting: Financial reporting has been revolutionized by EPM software. It provides a format for neat, consistent, standardized reporting. EPM software can be used to consolidate briefs into executive reports, distribute report content to stakeholders, and integrate financial decisions, among other functionalities.
• Performance Analytics: Analyzing past performance is made easier and more accurate than ever before with EPM technology. EPM technology is used to conveniently analyze trends across years, divisions, and against planned performance. This data creates a holistic picture of the enterprise that is invaluable for leadership, management, and stakeholders.

Implementing an EPM Strategy

• Map Your Current Landscape: To launch a new EPM strategy or modernize the one you have, first take stock of where you are. What current systems do you already have in place that contribute to enterprise performance management? What’s working and what isn’t? What potential new tools may you need to invest in to upgrade your strategy?
• Consult with All Relevant Stakeholders: Next, invite all relevant stakeholders to be part of the process. This means leaders in finance, accounting, sales, revenue management, supply chain, resource planning (and more, depending on your organization). Discuss your current EPM landscape and give stakeholders a chance to share feedback and insight.
• Define Goals and KPIs: Together, define the goals and KPIs you’ll use to measure the success of your new EPM strategy as well as those you’ll use to monitor ongoing business performance. Some will be department specific while others will be organization-wide objectives.
• Document Your Execution Plan: It’s always best practice to document your plan for execution. Specifically for an undertaking that involves multiple functions and has such a significant impact, it’s essential to clearly define roles and responsibilities as well as deadlines to keep your EPM strategy on track.
• Measure and Report Results: Put defined processes in place for measuring and reporting on results. A new EPM system will automate much of this for you. Still, it’s important to set aside time to discuss what performance reports mean for your organization and how you can leverage them for actual planning and other strategic initiatives.

Enterprise Performance Management Technology Trends

1. Deployment models remain a challenge: When rolling out an entirely new EPM solution with different deployment models (cloud vs. on-premises) at a global operation, it can mean replacing some large legacy systems and processes. This effort is no small feat and can result in one to three-year on-prem implementation times (or longer). Fortunately, solutions such as Anaplan can be implemented in a fraction of the time it typically takes to get an on-premises solution up and running due to the agility of the platform and the natural language syntax putting modeling in the hands of the business.
2. All innovation is not created equal: In addition to the move toward cloud solutions, EPM innovation is evolving along four vectors: user-experience simplicity, social collaboration, advanced analytics, and integration with other business applications. However, these four are often not equal in importance, and many Anaplan customers indicate a preference for the following order:
   • Integration: Robust and straightforward data and metadata integration are critical.
   • Experience simplicity: Users have experienced many technology rollouts, and adoption increases when technology aids their work and drives efficiencies.
   • Advanced analytics: In today’s fast-paced world, organizational leaders need insight and flexibility in their planning platform to evaluate scenarios and the best courses of action quickly.
   • Social collaboration: When planning doesn’t include the right people at the right time, decision-making is delayed and misinformed.
3. Flexible EPM modeling is “The King”: As SaaS solutions have become prevalent in EPM, widely acknowledged differentiators provide competitive advantages, such as the robustness and flexibility of modeling, reduction in IT dependence, and management reporting capabilities.

Benefits of Enterprise Performance Management

At its core, the function of enterprise performance management is to improve organizational efficiency by balancing high-level business strategy with operational performance. Here are some of the benefits of EPM:

• Better strategic alignment: Having clear goals and concrete plans that detail how to execute them (and measure progress) translates into a clearer organizational structure and prioritized objectives. This clarity of purpose offers employees throughout the organization increased stability and a greater sense of direction and unity—which in turn translates into better strategic alignment across departments.
• Improved business intelligence: By setting clear goals and actively tracking performance against key performance indicators (KPIs) across the organization, managers, and teams have a cohesive view of the current status of the business. This data empowers management to run projections, identify opportunities and threats, and make informed decisions to improve efficiency and profitability.
• Improved profitability: By continuously monitoring the business’s financial performance and tracking margins, EPM can help business leaders to predict the profitability of future initiatives and scenarios. This enables them to adjust their strategy to take advantage of opportunities and avoid pitfalls, removing inefficiencies and maximizing returns.
• Greater regulatory oversight and compliance: Accurate, real-time data from touchpoints throughout the business makes it easier to ensure regulatory compliance. Many modern EPM systems offer features that assist companies to generate detailed reports. This makes financial close easier by automating corporate financial reporting and tax reporting.
• Streamlined financial processes: By promoting detailed expenditure projections, EPM facilitates better financial planning and analysis, resulting in more accurate budgets. With process automation and continuous tracking, EPM streamlines financial consolidation by removing a lot of the time-consuming admin. It also reduces errors from the process of reconciling the books for financial close.

See Also

• Enterprise Resource Planning (ERP)