If you want to know how well the organization is performing today, the latest financial reporting and analysis software can provide detailed insights into current financial performance. But if forecasting future performance to identify potential risks and opportunities is the goal, the closely related group of financial planning and forecasting technologies, especially corporate performance management (CPM) software, is the answer.
Experts say the key is knowing how to integrate them into underlying production processes. This will help provide enterprise-wide assessments of future trends rather than stove-piped and perhaps misleading conclusions about production schedules, staffing requirements, expenses, and other areas that have a direct impact on the bottom line.
CPM is the lynchpin of the financial planning category, a class of mature technologies designed to help organizations coordinate activities among financial planning professionals and line-of-business managers to achieve performance goals.
CPM applications represent a major step forward from traditional spreadsheets, which analysts say individual managers or departments still widely use for financial planning but which fall short for developing enterprise-wide forecasts. Another problem with using spreadsheets for financial planning is users must pull relevant data from production systems, and depending on how often this is done, this could lead to analyses based on outdated information. Fully integrated planning tools can be linked directly with production systems to extract the freshest information throughout the planning process.
Financial planning demand enterprise-wide view
Some experts classify CPM as a subset of business intelligence because of its role in monitoring and managing an organization's performance. It relies on key performance indicators, such as revenue, return on investment, overhead and operational costs for its analyses. CPM is also known as business performance management (BPM) or enterprise performance management (EPM).
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Historically used within finance departments, CPM software is now designed to be used across enterprises and includes modules for forecasting, budgeting and planning. Electronic scorecards and dashboards are often components of CPM solutions for displaying corporate information and comparing performance to established goals.
As CPM solutions have evolved over time, they've not only provided tools for assessing the recent financial performance of organizations, they've become more forward-looking to help managers plan more effectively. This includes the ability to flag possible financial problems before they become significant or alert managers to new market opportunities.
Analysts say some of the greatest value of CPM software is the ability to perform "what if" scenarios that can help managers forecast a particular product's sales after a change in selling price, for example, or how the economic troubles of one region might impact sales goals for the year. With forecasts in hand, finance and operations managers can then meet to formulate appropriate strategies.
The enterprise-wide orientation of the latest CPM tools is helping to reshape how departments work together, analysts say. For example, greater visibility into data can help organizations improve procure-to-pay operations, with ripple effects on sourcing decisions, said Thomas Kase, principal analyst at Spend Matters Group LLC, a Chicago-based business and technology consulting company. "You may consolidate the number of vendors you use to buy more from a smaller group of vendors to get bigger volume discounts," Kase explained.
With CPM software, flexibility is key
The maturity and competitive nature of the CPM market means the products offers similar features and benefits, according to analysts. But flexibility remains a characteristic that still distinguishes some CPM software. Older, less flexible CPM software sometimes forced organizations to make compromises in their underlying planning processes. That's because the software required companies to tailor their processes to fit the software's design rather than vice versa, said Marc Hoppers, managing partner with Cogent Co., a Dallas-based IT consultancy.
One example of this is a budgeting process that must rely heavily on the previous year's plan, which can stifle new ideas for future planning. "The way some CPM software is set up incents people to do what they did last year," Hoppers said. "We like new products that force you to think more dynamically about your data and how you do your business. These programs can help you better decide where want to place their bets for next year."
This was first published in July 2012