EPM – Enterprise Performance Management

Makrand Jadhav 📋 blog 📅 May 11, 2023

In order to run and operate their business organizations deploy enabling systems and tools. Some systems record and process the business transactions e.g. ERP which captures sales orders, financial entries, inventory dispatches, etc. And CRM which captures service requests, deals, promotions, etc. The second set of systems analyze these transactions and help organizations take important decisions. These are called DSS or decision-support systems.

As the name suggests, Enterprise Performance Management (EPM) is one of the decision-support systems which enable organizations to model, monitor, and analyze their business performance across the enterprise – sales, finance, operations, and HR. Using EPM systems organizations can create their business plans/AOP and use it to track the progress through the year with rolling forecasts. Business analysts and users can analyze the performance across various metrics, respond to changing business dynamics, and ensure all the functions are working towards meeting the annual or long-range business plan. One of the salient features of EPM is its ability not just analyze past data but also predict future outcomes and scenarios.

What is EPM?

Imagine you are playing a game of cricket. You are batting and you need to know how is your team doing and what do you need to do to win the game? Obviously you will look at the score card. It will tell you where you are currently vs the target, what is your current run-rate vs what it should be, which bowlers have completed how many users, where was the other side at the same point in time, etc. This will enable you to pace your performance to meet the target.

In simple words, EPM is the score card of your organization’s business performance.

EPM entails the business processes of creating, planning, monitoring, and analyzing the corporate and divisional business plans such that they meet the organizational objectives viz. revenues, profits, costs, margins, etc.

Benefits of Enterprise Performance Management (EPM)

All investment and expenditure decisions organizations make need to deliver a ROI. EPM enables organizations to model, analyze, and visualize their entire business plan i.e. from making investments (production capacities, sales & promotion, IT & systems) to generating returns (revenues, cash flows, valuation). Enterprise Performance Management solutions execute this process across the stake holders within an organization – finance, sales, operations, and HR. Key benefits:

  • Communicate the business strategy with all stakeholders – EPM software allows organizations to model and visualize their business plans. These reflect the business strategies in terms of investments, expenses, and outcomes. This can be done for annual, short-term (1-3 years), or long-range period (3-5 years). Thus, all the stakeholders will be easily able to internalize the overall plan and understand the business direction.
  • Proactively manage the health of your business – EPM platforms can help organizations capture early trends by detecting performance vs plan. Alerts can be programmed to highlight exceptions or triggers for users to act. E.g. If the cash flow projections trend down by more 0.5% pls alert the Finance manager. Monitor progress and Identify interventions needed. Don’t need to wait till the end of the period to determine if they are tracking to plan.
  • Test and validate business strategies before they are executed – This is a unique capability of Enterprise Performance Management solution. Whether you ought to make a decision related to capex spend or adding a new sales channel or entering new markets, EPM solutions enable organizations to model these strategies and evaluate the possible outcomes, even before you have executed any of them. This is enabled by the “what-if” scenario modelling capability of EPM solutions.
  • Predict and develop future scenarios – EPM tools include statistical models which can help organizations predict outcomes e.g. demand forecast. Thus, EPM becomes a system which not only allows them to analyze the past performance but also project the future state.

How Enterprise Performance Management Software Works:

The business plan is usually translated into an annual operating plan which is a holistic plan extending across the organization. The organization as a whole may target $ 500 million revenue goal, translating to 17% market share or 23% YoY growth. Post that this plan will get translated into the revenue target for sales, production target for the production team, and P&L target for Finance. Even though every function may look at the plan distinct to others, the overall plan is inter-linked. Thus, EPM solutions need to provide for a “enterprise” or “connected” nature of planning where different plans are connected and reflect the changes made to one another automatically. Gartner calls this xPA i.e. Extended Planning & Analysis.

EPM solutions enable businesses to predict the future outcomes of their decisions across multiple dimensions – costs, workforce, sales, margins, etc. Visualize an automatically aggregated data cube with multiple parameters (time, territory, segments) showcasing all the key business metrics (P&L, Balance sheet, Cash flow, EBIDTA) at the most granular level (product, segment, project).

The process usually starts by bringing in the business plan data based on forecasts, market analysis, or future projections. This is then dovetailed to represent revenue, costs, EBIDTA by functions, segments, products, territories, etc. Normally this translates into business objectives for the various functions and the respective roles. This process is called the AOP (Annual Operating Plan) and once completed becomes that baseline to compare future performance.

After the AOP is finalized comes actuals and rolling forecast. The actual performance is captured from the core ERP/transactional systems. This needs to be loaded into the EPM systems to arrive at the actual performance and the variance analysis. This is an important step as now the organizations will be able to find out which strategies are working and which need tweaks. E.g. a product may be above plan in certain territories and below plan in others. Practices across territories can be compared and shared to improve performance for the territory which is lagging. Or Production may not be meeting its KPIs but Sales has. Variance analysis forms a key output of the EPM system. It gets reviewed in every possible details i.e. impact on P&L, balance sheet, cashflow of the respective segment, product, BU and territory.

The next step is to develop the ongoing plan which will take the organization towards the annual target – it is called the rolling forecast. In this, functions review their recent variance and calibrate their plan and provide a revised forecast for the upcoming period. This is normally done for 1+3 months period i.e. next 1 month’s forecast as firm and the 3 months as directional.

This is a continuous process executed by the planning teams to give the organizational view of where they stand against the annual plan at any given point in time. And which areas need attention in order to make the AOP.

Some of the leading Enterprise Performance Management software which organizations can use to digitize their EPM processes include Anaplan and Workday Adaptive Planning.

Conclusion

Deflytics has been in the EPM domain for more than 10 years. As an EPM solution providers, we have helped several organizations solve their business priorities through EPM solutions. We leverage our domain knowledge and along with global EPM software providers help organizations solve challenges in four broad areas – Financial Planning & Analysis (FP&A), Supply planning (Demand, Supply-chain, and Sales & Operations (S&OP) planning), Workforce planning, and Sales planning (territory allocation, quota planning, incentive compensation, sales forecasting, marketing planning). We have completed more than 70 projects across these use cases and served customers in Manufacturing, IT/ITeS, Life Sciences, Services, Media, SaaS, and Unicorn domains.


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