Enterprise performance management

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Enterprise performance management (EPM) is a field of business performance management which considers the visibility of operations in a closed-loop model across all facets of the enterprise. Specific to financial activities in the office of the chief financial officer, EPM also supports financial planning and analysis (FP&A). Corporate performance management (CPM) [1] is a synonym for enterprise performance management. Gartner has officially retired the concept of CPM and reclassified it into "financial planning and analysis (FP&A)" and "financial close" to reflect two significant trends increased focus on planning and the emergence of a new category of solutions supporting the management of the financial close. [2]

Contents

Several domains in the EPM field are driven by corporate initiatives, academic research, and commercial approaches. These include:

Based on the mission and vision of an organization, different strategic needs may drive how EPM domains are leveraged and promoted within an organization. [3] For example, a professional services firm based in Canada may view the need to have effective and transparent supply chain operations very differently from a clothing manufacturer with operations throughout the world. What is common in the EPM approach is the closed-loop EPM process model advocated by Kaplan and Norton[ vague ] and their management approaches to strategy formulation, including balanced scorecard and strategy map techniques.

The four domains, or disciplines, referred to above exist to define and cover the six stages of the closed-loop EPM process model. The six stages of the closed-loop EPM process model are strategy development, translation, organization alignment, operations planning, learning and monitoring, and testing and adaptation.

Strategy formulation

Strategy formulation refers to an organization's activities that determine its agenda's direction. This is generally constructed of an organization's mission, vision, and strategic goals and objectives. Once the direction is established, an organization monitors its progress against those activities and takes corrective actions to reach a particular target state.

While execution is the key to any operational objective, the strategy formulation surrounding why execution should occur and the context by which execution should be performed is also important. In recent years, organizations embed formal approaches to risk management to address market opportunities that organizations pursue. In this way, strategy is aligned, performance is predictable, and executives can make better business decisions.

Executives live in a financially driven environment, where operational processes are traditionally a means of organizing resources inside the company and its value chain and employees are the responsible actors to execute those processes. The strategy gap that some industry watchdogs have noted is real and growing. Innovative technologies provide one approach to collapsing this gap and allowing corporate strategic outcomes to be fully realized and risk management programs to be fully described. [4]

The first two steps of the closed-loop EPM process model involve developing the strategy and then to translate the strategy into particular actions that the organization can undertake. Strategy development as a subset of strategy formulation represents the articulation of the key components of strategy: mission, vision, strategic goals, and strategic objectives. There are several approaches to strategy development which may be considered. However, this may occur the executive leadership of the organization approve the strategy and typically review this strategy every 3–5 years based upon a 10–20-year time horizon. Some business and national cultures may consider a longer-range strategy time horizon.

Strategy translation then takes the often-obscure direction and statements defined in the first step and considers how to make these directions actionable. In the case of strategic goals, these are lofty targets given generally 3–5 years to achieve. Strategic objectives then identify specific progress against goals in a given time period. For example, "product ABC will achieve a market share of x% over the next two fiscal years" would be a strategic objective. Key performance indicators assigned to these goals are determined which can monitor the organization progress towards achieving goals and objectives.

Business planning and forecasting

Business planning and forecasting refers to the set of activities, where business is planned against the strategy and what forecast activities or results of the organization may occur from operational execution during a particular time period. This discipline corresponds to the third and sixth steps of the closed-loop EPM process model. Financial forecasts are a forecast of how a business will perform financially over, say, the year ahead.

Preparing forecasts will help a business to assess its likely sales income, costs, external financing needs and profitability. Financial forecasts are essential if a business needs to raise money from a third party, such as a bank. But they also provide businesses with the means to monitor performance on, say, a monthly basis and thereby exercise effective financial control arguably the second most important management function in running a business.

Financial management

Financial management refers to the set business processes done to close the financial records of an organization at the end of a period in an accurate and timely fashion according to a generally accepted basis of accounting, including the financial statement presentation of results to both internal and external stakeholders, as well as providing appropriate explanations and insights to the nature of the financial results and all supporting documentation.

Supply chain effectiveness

Supply chain effectiveness refers to capabilities to not only manage an enterprise supply chain, but also to provide transparency to all parts of the value chain. This includes the ability to see the sales pipeline and create demand plans organized with suppliers to fulfil those demand plans. Another area of key focus is sales and operations planning (S&OP).

See also

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<span class="mw-page-title-main">Management accounting</span> Field of business administration, part of the internal accounting system of a company

In management accounting or managerial accounting, managers use accounting information in decision-making and to assist in the management and performance of their control functions.

Strategic planning is an organization's process of defining its strategy or direction, and making decisions on allocating its resources to attain strategic goals.

In the field of management, strategic management involves the formulation and implementation of the major goals and initiatives taken by an organization's managers on behalf of stakeholders, based on consideration of resources and an assessment of the internal and external environments in which the organization operates. Strategic management provides overall direction to an enterprise and involves specifying the organization's objectives, developing policies and plans to achieve those objectives, and then allocating resources to implement the plans. Academics and practicing managers have developed numerous models and frameworks to assist in strategic decision-making in the context of complex environments and competitive dynamics. Strategic management is not static in nature; the models can include a feedback loop to monitor execution and to inform the next round of planning.

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The word ‘dynamics’ appears frequently in discussions and writing about strategy, and is used in two distinct, though equally important senses.

Business performance management (BPM), also known as corporate performance management (CPM) and enterprise performance management (EPM),) is a set of performance management and analytic processes that enables the management of an organization's performance to achieve one or more pre-selected goals. Gartner retired the concept of "CPM" and reclassified it as "financial planning and analysis (FP&A)," and "financial close" to reflect two concepts: increased focus on planning and the emergence of a new category of solutions supporting the management of the financial close.

A balanced scorecard is a strategy performance management tool – a well structured report, that can be used by managers to keep track of the execution of activities by the staff within their control and to monitor the consequences arising from these actions.

Information technology (IT)governance is a subset discipline of corporate governance, focused on information technology (IT) and its performance and risk management. The interest in IT governance is due to the ongoing need within organizations to focus value creation efforts on an organization's strategic objectives and to better manage the performance of those responsible for creating this value in the best interest of all stakeholders. It has evolved from The Principles of Scientific Management, Total Quality Management and ISO 9001 Quality management system.

Enterprise architecture (EA) is a business function concerned with the structures and behaviors of a business, especially business roles and processes that create and use business data. The international definition according to the Federation of Enterprise Architecture Professional Organizations is "a well-defined practice for conducting enterprise analysis, design, planning, and implementation, using a comprehensive approach at all times, for the successful development and execution of strategy. Enterprise architecture applies architecture principles and practices to guide organizations through the business, information, process, and technology changes necessary to execute their strategies. These practices utilize the various aspects of an enterprise to identify, motivate, and achieve these changes."

Enterprise risk management (ERM) in business includes the methods and processes used by organizations to manage risks and seize opportunities related to the achievement of their objectives. ERM provides a framework for risk management, which typically involves identifying particular events or circumstances relevant to the organization's objectives, assessing them in terms of likelihood and magnitude of impact, determining a response strategy, and monitoring process. By identifying and proactively addressing risks and opportunities, business enterprises protect and create value for their stakeholders, including owners, employees, customers, regulators, and society overall.

Project portfolio management (PPM) is the centralized management of the processes, methods, and technologies used by project managers and project management offices (PMOs) to analyze and collectively manage current or proposed projects based on numerous key characteristics. The objectives of PPM are to determine the optimal resource mix for delivery and to schedule activities to best achieve an organization’s operational and financial goals, while honouring constraints imposed by customers, strategic objectives, or external real-world factors. Standards for Portfolio Management include Project Management Institute's framework for project portfolio management, Management of Portfolios by Office of Government Commerce and the PfM² Portfolio Management Methodology by the PM² Foundation.

Supplier relationship management (SRM) is the systematic, enterprise-wide assessment of suppliers’ strengths, performance and capabilities with respect to overall business strategy, determination of what activities to engage in with different suppliers, and planning and execution of all interactions with suppliers, in a coordinated fashion across the relationship life cycle, to maximize the value realized through those interactions. The focus of SRM is to develop two-way, mutually beneficial relationships with strategic supply partners to deliver greater levels of innovation and competitive advantage than could be achieved by operating independently or through a traditional, transaction purchasing arrangement. Underpinning disciplines which support effective SRM includes supplier information management, compliance, risk management and performance management.

The term demand chain has been used in a business and management context as contrasting terminology alongside, or in place of, "supply chain". Madhani suggests that the demand chain "comprises all the demand processes necessary to understand, create, and stimulate customer demand". Cranfield School of Management academic Martin Christopher has suggested that "ideally the supply chain should become a demand chain", explaining that ideally all product logistics and processing should occur "in response to a known customer requirement".

<span class="mw-page-title-main">Internal audit</span> Independent, objective assurance and consulting activity

Internal auditing is an independent, objective assurance and consulting activity designed to add value and improve an organization's operations. It helps an organization accomplish its objectives by bringing a systematic, disciplined approach to evaluate and improve the effectiveness of risk management, control and governance processes. Internal auditing might achieve this goal by providing insight and recommendations based on analyses and assessments of data and business processes. With commitment to integrity and accountability, internal auditing provides value to governing bodies and senior management as an objective source of independent advice. Professionals called internal auditors are employed by organizations to perform the internal auditing activity.

Integrated business planning (IBP) is a process for translating desired business outcomes into financial and operational resource requirements, with the overarching objective of maximizing profit and / or cash flow, while cutting down risk. The business outcomes, on which IBP processes focus, can be expressed in terms of the achievement of the following types of targets:

Business process management (BPM) is the discipline in which people use various methods to discover, model, analyze, measure, improve, optimize, and automate business processes. Any combination of methods used to manage a company's business processes is BPM. Processes can be structured and repeatable or unstructured and variable. Though not required, enabling technologies are often used with BPM.

Government performance management (GPM) consists of a set of processes that help government organizations optimize their business performance. It provides a framework for organizing, automating, and analyzing business methodologies, metrics, processes and systems that drive business performance. Some commentators see GPM as the next generation of business intelligence (BI) for governments. GPM helps governments to make use of their financial, human, material, and other resources. In the past, owners have sought to drive strategy down and across their organizations; they have struggled to transform strategies into actionable metrics and they have grappled with meaningful analysis to expose the cause-and-effect relationships that, if understood, could give profitable insight to their operational decision-makers. GPM software and methods allow a systematic, integrated approach that links government strategy to core processes and activities. "Running by the numbers" now means something: planning, budgeting, analysis, and reporting can give the measurements that empower management decisions.

Tagetik develops and sells cloud and on-premises corporate performance management software applications for use by corporate finance teams and their business users.

References

  1. "Introducing the CPM Suites Magic Quadrant", Lee Geishecker and Frank Buytendijk, 2 October 2002, www.gartner.com, M-17-4718
  2. Van Decker, John E.; Rayner, Nigel; Iervolino, Christopher (October 31, 2017). "Back to Basics: The Refocusing of Corporate Performance Management." www.gartner.com. Gartner. G00341616. Retrieved 2019-04-16.
  3. "EPM Software".
  4. "Organizational Structures Supporting Rich Survival". Springer. Retrieved 17 March 2023.

Further reading