EPM Management Processes
This is part 3 of a 4 part series of articles dealing with EPM Framework, by author and consultant, Michael Coveney, of STW Consulting.
In previous articles we have looked at the need for an EPM framework and the content required to help organisations plan and monitor strategy. In this article we will look at how the framework can be used to support decision-making within the management processes of planning, budgeting, forecasting and management reporting.
Performance management is all about taking decisions on the operation of both the business model and any associated strategy improvement initiatives. What goals should we go for? What things have to be done to achieve those goals? How much will it cost? How much did it cost? What will it cost in the future? Is the outcome worth it? What changes should we make? And so on.
These decisions are made through a series of activities that tend to be classified into the management processes of strategic planning, tactical planning, financial planning, forecasting, management reporting and risk management. There are three important things to bear in mind when designing processes:
- Although these are often seen as discreet processes, in reality they are each comprised of multiple activities that have strong links with activities within other processes.
- For effective performance management, none of these processes can be left out.
- In today’s volatile business environment these activities need to act as a single continuous process.
To construct the right processes, which for EPM should together focus on achieving the organisation’s mission, the following needs to be determined for each:
Process purpose: What is the purpose of each process and what decisions need to be supported?
Process activity: Who is involved in those decisions and what information do they require? What input is expected from them based on the decision taken/to be taken? How is the decision validated / approved?
Process monitoring: How are decisions monitored? What happens if the decisions made do not have the required effect?
The answers to the above should be documented and agreed, which then paves the way for designing how the supporting EPM system should operate.
Here is an example for some EPM processes. Given the limited space within this article, these are not fully covered here, but they should give a good idea on how to proceed.
Process Purpose
For strategic planning, the purpose is to produce a long-term plan that identifies goals to be achieved within set resource constraints for a defined business environment. The decisions to be supported include:
- What are the overall goals we are planning to achieve in the next 3-5 years?
- What are the resource constraints in which we are to operate in each of those years?
- What assumptions are we making about the business environment over that period?
- What are the broad strategies to be implemented (i.e. the way in which we want to achieve the goals)?
- How is the success of each strategy to be measured?
For tactical planning, the purpose is to agree a set of improvement initiatives for each strategy that ensures the organisation achieves its goals within the defined constraints. The decisions to be supported include:
- What initiatives are required to implement each strategy? How much would each of these cost, who would be responsible and how will we know if they are being implemented?
- Which combinations of initiatives give us the best use of resources within the defined constraints?
- Which initiatives are to be approved that will then become the focus of the financial plan?
For financial planning/budgeting , the purpose is to create a financial plan for both the operation of the business model and the strategy improvement model. The decisions to be supported include:
- What resources should be assigned to the ‘business as usual’ model? How does this compare to last year and the current forecast?
- What resources need to be assigned to the strategic initiatives?
- How does the total financial position compare to the strategic plan?
- Is the financial plan realistic and does it adequately support our strategy?
- How will the plan be funded?
We could go on through the other processes but hopefully you have the idea of what’s involved.
Process Activity
Now we have the questions we can start to work out the information requirements of each. This will comprise of information that needs to be given to users and the input that is expected back in return.
The best way to define this is to create an activity map that shows the different activities involved, their dependencies, and who is responsible. At many stages there will probably be the need for responses to go through some form of approval that may result in a submission being rejected.
For each activity shown in the activity map, we need to define what ‘slice’ of data each user will need to make their decisions, and what slice of data they will need to complete as part of their response. If the data can’t be defined from the business model, then that model will need to be amended.
Similarly, when presenting or gathering information, numbers don’t tell the whole story. There will need to be provision for handling text that forms the basis of a two-way communication.
Finally, for each activity, there needs to be a timescale in which the user must respond. This will include when the activity can start (which itself may be dependent on the completion of another activity) and when it is to be completed.
Process Monitoring
We have just mapped out a sequence of tasks and the order in which they take place. This will include monitoring the plan as part of the management reporting process. But what happens if something doesn’t go to plan? What if our assumptions on the business environment were not right? Or if forecast expenses are going to be greatly over budget? What if a particular initiative is not achieving the right effect?
There’s no point in waiting for the next planning round, which could be in a years’ time, in dealing with these issues. To manage performance, organisation’s need to take action as soon as potential issues arise. And that means triggering some or all of those activities defined in the activity map, but in the context of putting the plan back on track.
To do this we need to make a list of possible ‘exceptions’ and define what activities are to be triggered should those exceptions materialise.
Process technology
From the above we are now in a position to setup the EPM system. As you can imagine, the processes defined in this article cannot be effectively handled by simple menu systems. It needs the EPM system to contain dynamic workflow software that can trigger planning and monitoring activities based on events and exceptions as well as a date on a calendar.
In the next article, we will look at how to evaluate EPM technology solutions and how you can ensure they support a performance management framework. In the meantime if you can’t wait, you can download the full set of articles from ….
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By Michael Coveney, STW Consulting, EPM Contributor
Michael Coveney has more than 35 years of experience in the financial analytic software industry, helping enterprises combine ‘best management practices’ with technology to improve the efficiency and effectiveness of their performance management processes.His energetic style and insightful views has led him to become a regular speaker at international events, a course leader with the Antwerp Management School, and the author of many articles and books including his latest ‘Strategy to the Max’ – a down to earth look at all you need to know in setting up systems that support the implementation of corporate strategy.
The highly respected, UK based STW Consulting firm has developed a vendor independent, Performance Management framework built on years of experience that:
- Provides a clear holistic view of what Performance Management is by describing the processes involved and how they interact with each other.
- Helps organizations to identify what BI systems they need and how to put them together to truly support Performance Management
- Assists organizations when evaluating software and service provider offerings
Download the whitepaper at the link below.
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