Demystifying Enterprise Performance Management For CFOs

Posted: Dec 20 2013, 9:46am CST | by , in News

Demystifying Enterprise Performance Management For CFOs
Photo Credit: Forbes

There’s been a lot written recently – and a great deal of confusion – about the importance of enterprise and corporate performance management (EPM/CPM) and data analytics to CFOs. I recently spoke with Gary Cokins, CPIM, president of Analytics-Based Performance Management and IMA’s new executive-in-residence, to get a better understanding of what CFOs need to know about implementing and integrating EPM’s various methods.

Jeff Thomson: In your writing, you often address enterprise performance management (EPM) and corporate performance management (CPM). What are they, and how do they relate to management accounting?

Gary Cokins: There’s confusion and a lack of consensus about enterprise and corporate performance management, which are synonymous terms. A lot of people think it’s just a CFO initiative with a bunch of dashboards, but it’s much broader than that. I think the good news is enterprise performance management is not a new thing that people have to learn. Rather, it’s the integration of existing managerial methods they’re already familiar with, such as strategy maps, balanced-score cards, customer profitability, using activity-based costing principles, driver-based budgeting and so forth.

(Interview continues below.)

JT: How do you account for the interest in enterprise performance management and corporate performance management?

GC: I think the interest stems from organizations’ frustration with strategy execution. They are OK with strategy formulation but have concerns with implementing their strategy. Another source of interest is that companies need to go deeper than just reporting the profitability of products and standard service lines to calculate customer profitability that includes channel and “cost to serve” expenses. An additional source is the shift from the annual budget to rolling financial forecasts.

JT: Enterprise performance management has many components. Is there one component that stands out in your mind in terms of its value to the accounting and finance function in business today?

GC: Since enterprise performance management is an integration of methods, there isn’t one that sticks out. It’s up to the executive team to prioritize the various components. If an organization needs more appropriate performance measurements, then the executive team should prioritize strategy execution. If an organization does not understand where it makes or loses money because of flawed, misleading cost-allocation methods, then the method they should focus on is activity-based costing. If the organization is more concerned with moving from an annual budget to rolling financial forecast, then using driver-based thinking should be their priority. The point is, there is no roadmap for implementation but there is a final destination to complete the full vision of enterprise performance management.

JT: Another concept you speak of often is data analytics and predictive analytics. What are they, and why are they important to the CFO team in industry today?

GC: There’s a lot of dialogue today about big data and analytics. To clarify some of the confusion, there’s business intelligence and then there’s business analytics. Business intelligence is being able to drill down and see things and then report on what happened. Business analytics, on the other hand, allows an organization to investigate and answer a different question, which is, “Why did it happen?” Analytics allows organizations to answer more questions and then ask even better questions. It moves an organization from raw data and transactional information toward knowledge and understanding, allowing it to have more insight and foresight. The organization is then able to make better decisions. The future is where decisions have an impact, and that’s where predictive analytics, which I look at as a subset of business analytics, plays a role. Predictive analytics answers, “What can happen?”

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Source: Forbes

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