Typically, at the heart of a good CPM system and strategy are budgeting, planning and forecasting software that can eliminate manual labor and introduce more accurate and timely data for financial performance management. Clunky spreadsheets might be replaced altogether, or they could live on as front-ends to CPM applications that can be used to better manage data at the back-end.
According to industry analysts and experienced CPM users, financial reports and statements can be generated and audited for compliance more quickly with CPM software – potentially freeing up corporate executives and business managers to spend more of their time guiding operations and effectively managing financial performance.
For example, at logistics services provider DHL Global Forwarding North America, getting access to financial data used to take far too long, making it difficult for both finance and operations managers to track budgets and make forecasts as the division of DHL International GmbH expanded its business internationally.
Financial performance management software speeds access to budget data
Finance workers at DHL Global Forwarding North America now use IBM’s Cognos TM1 financial performance management software to get more real-time access to budgeting and business forecasting data. Anand Saxena, manager of financial reporting at the North American unit, said that every hour, more than 100,000 records are automatically downloaded into TM1 to produce a consolidated view of key performance indicators (KPIs). The downloads take less than two minutes, according to Saxena; previously, getting the data was a manual process that took up to three hours.
The CPM software has helped enable DHL Global Forwarding North America to complete its top-to-bottom budget in one month, down from three months before, Saxena said. And now that budget updates are sent out in near-real-time and all finance staffers can access the latest data simultaneously, budget discussions are held across four time zones via video conferencing instead of having employees travel to meet at one location.
In addition, about 500 managers at all levels can now view spreadsheet-based reports that are ready the day after monthly financial results are finalized in the accounting system. Saxena said it used to take three employees an entire week to produce the reports, at a time when DHL Global Forwarding North America had annual revenue of $1 billion. Today, the revenue figure has reached $3.5 billion, and all managers are able to quickly see a top-level view of their unit’s performance as well as line-item details.
“In terms of budgeting and forecasting, the biggest improvement is when it comes down to crunch time and you’re in the last minutes of your budget and everything has to be done yesterday – obviously, if you can do it in a few minutes instead of a few hours, everybody is happy with that," Saxena said.
Seeing the light on financial performance management
After implementing Oracle Corp.’s Hyperion CPM software, Coherent Inc., one of the world’s leading suppliers of photonics-based products, has seen the financial performance management light. According to Matthew Maxson, Coherent’s vice president of IT, the company has gained a veritable bullet list of benefits, including a reduction in its monthly financial-closing cycle time from 10 days to four and improvements in data consistency, the budgeting and forecasting process, management reporting and Sarbanes-Oxley Section 404 compliance.
But first, there were some implementation hurdles to get over. For example, “reducing integration layers and feeding the [CPM applications] from one consistent data source was a challenge,” Maxson said. To address that, he added, Coherent’s IT staff worked directly with Oracle’s product and development team to deploy Hyperion Enterprise Performance Management Architect, a business process modeling tool with interfaces to Oracle’s E-Business Suite ERP software. That enabled Coherent to pull the required data into the CPM system “cleanly in one uniform process,” Maxson noted.
Data issues frequently crop up on the challenges side of the CPM equation.
To begin with, CPM tools “are a bit different from enterprise applications because they’re so configurable,” said Paul Hamerman, an analyst at Forrester Research Inc. “They’re basically a blank sheet of paper, and that flexibility creates a challenge – you need a lot of people involved to set them up and define your models.”
Robert Kugel, an analyst at Ventana Research, said an even bigger challenge comes when CPM users try to pull together financial and operational data into “a unified and synchronous view,” which must be done in order to track advanced CPM metrics such as customer profitability calculations.
And ultimately, data doesn't mean much unless it’s framed properly for CPM uses.
Financial performance management metrics can be hard to pin down
“Many organizations don't know how to measure performance,” said Neil Chandler, a CPM and business intelligence analyst at Gartner Inc. “They have tons of operational-level metrics, they have dashboards coming out of their ears, [but] they don’t have a clear and consistent view [of performance metrics].”
Companies shouldn’t overload executives and other end users with CPM metrics that they need to track, Chandler cautioned. Gartner recommends limiting the number of metrics to between five and nine per business role within an organization. CPM applications can then be used to present the chosen metrics in a closed-loop environment, enabling companies to cascade CPM concepts beyond the finance department and throughout the organization, Chandler said.
Kugel agreed that the process of choosing which KPIs to track can be “a huge challenge” – and one that doesn’t go away when the initial CPM software implementation is completed. “The math is simple, the data collection is doable,” Kugel said. “But what are [you] trying to measure? You need to give that a lot of thought – and know that the things you’re measuring will evolve over time.”
Chris Maxcer is a freelance writer.