At its core, enterprise performance management (EPM) is about linking budgeting and forecasting to strategy.
Other applications that are part of EPM include consolidation, disclosure, activity costing and profit optimization. I will put these extra applications aside and concentrate on the important roles IT plays in selecting EPM applications.
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EPM in the cloud
Many EPM vendors provide cloud-based solutions. The customer works from desktops and connects to the vendor's remote system. Clearly, the time to implement is much shorter, as the vendor owns the infrastructure and software implementation.
But IT still needs to understand the following issues:
- Multi-tenancy: Since multiple customers share the same server, how is your application protected from others?
- Uptime: IT needs to ensure that the uptime will be greater than 99%. This is no different than what a firewall offers, but you must make sure that the cloud vendor is well-behaved, too, when it comes to reliability.
- Latency: What is the average time for a transaction to go from the desktop to the cloud and back?
- Customization: To what extent can your company modify the software to reflect its unique financial requirements?
Managing EPM data
One cell at a time: Users will be inputting a fair amount of data. IT should therefore review the enterprise performance management software user interface. Ideally, it will be Microsoft Excel-like, and usable with little or no training. IT should also validate that the user interface supports rules and other validation criteria.
More on enterprise performance management
Read why one company switched from Excel to SaaS CPM
Learn about 'last mile of finance' EPM trends
Evaluate EPM software vendors
ERP friendly: You are likely to move data from your ERP system to the EPM budgeting application. Check to see what automated interfaces exist between the ERP system and the EPM software.
Middleware: At the transaction level, some vendors support a middleware stack to move data to and from the EPM system. Middleware is often used to connect EPM systems to both customer relationship management (CRM) and ERP systems.
Extract, transform, load (ETL): ETL represents a bulk data-transfer approach that can be quite useful for sharing data between the EPM and feeder systems.
Excel templates: If the vendor offers Excel-like spreadsheets for online input, it might offer Excel templates in the same format. This allows users to work offline and then bulk load their input from an Excel template.
Enterprise performance management encourages accountability
One problem with budgeting is the large number of budgets that are floating around at one time and the need for senior financial managers to keep track of their progress. Therefore, IT has an important role in verifying that the following capabilities exist in the EPM software package:
Initialization: Each individual preparing a budget should receive a starter kit that contains the following:
- Budget templates for the new year
- Last year's budget
- Modeling assumptions
- Instructions on where to send the completed budget
Check in, check out: The system must support check in and check out. An initialized budget is said to be checked out to an individual. Once that person is done creating a draft budget, the budget is checked back in. The supervisor will review the budget and perhaps check it out to the individual for revisions.
Dashboard: The system should provide visibility into the status of every budget element.
Consolidation: A draft consolidation must be always available for aggregating results and seeing if they meet management requirements.
Extending beyond budgets into forecasts
The IT department should verify that the functionality needed to support advanced forecasting is supported by the EPM software vendor. Those functions include:
Rolling forecasts: Companies vary in their definitions of budget periods and forecast periods. For example, some will declare a six-month budget, and every three months roll the forecast out, starting with months seven to nine. There must be a well-defined set of techniques available (such as percentage increase) to roll the budget forward.
Driver-based modeling: A driver-based model is a smart way to handle budgets. That model uses a small number of "drivers" to model a financial situation. For example, if you have a sales plan, you can model the number of salespeople needed, then model their salaries and commissions.
Driver-based models are generally more accurate. The software for this type of modeling must support the link between assumptions (drivers) and the modeling of budget results. More advanced modeling is even better, including techniques such as goal seeking.
How budgets reflect strategy
The first year of a new strategy must be reflected in the budget. The budgeting software vendor must demonstrate that its product is linked to strategy software (e.g., from IBM, Oracle, SAP and SAS) and automate the extraction of a first-year strategy and populate the budget.
Bottom line: EPM vendor rhetoric notwithstanding, IT has an important role to play in examining prospective software for budgeting and forecasting and linking it to strategy.
ABOUT THE AUTHOR: Barry Wilderman has more than 30 years of experience as an industry analyst, researcher and consultant at such companies as META Group, Lawson Software, SalesOps Analytics and McKinsey and Company. He is currently president of Wilderman Associates. Contact him at Barry@WildermanAssociates.com and on Twitter at @BarryWilderman.