EPM Architecture Is Bigger Than Finance

Posted by Steve Berry

Jun 19, 2018 9:35:00 AM

EPM Is Bigger Than Finance

Money decisions made without operational guidance are just as risky as those made without financial guidance. Your EPM architecture should integrate both sets of knowledge.

Should a home appliance manufacturer move some of its production offshore in order to reduce payroll expense even if it means higher transportation costs, greater supply chain complexity, and longer lead times between new model rollouts? What types of discounts, customer service options, return policies, or other incentives should a big box consumer electronics retailer offer customers in the face of withering competition from Amazon? How much should a big pharma company pay to acquire a hot biotech startup with a promising new cancer therapy?

The answer, of course, is always: “It depends.”

Companies across every industry face such critical financial decisions every day. And even if made in very different industries, these decisions have a lot in common as they typically:

  • Have deep and lasting impact on the life of the business
  • Are technically complex
  • Must be made in a compressed timeframe
  • Can’t rely on the past as an accurate model of the future
  • Take place in a highly dynamic environment
  • Involve stakeholders from diverse but highly interdependent parts of the business
  • Involve unknown key decision factors

Today this is business as usual. Such critical financial decisions are no longer one-offs, but a routine part of day-to-day operational life. What this means for decision making is that what might have been an 80% financial decision or an 80% operational decision back in the day might now easily be an 80% financial/operational decision — in that no longer does a dividing line exist between the two. Stakeholders across finance organizations and operations must collaborate in a way that is agile, iterative, ongoing, and real-time. And despite having different professional perspectives they all must be able to see the whole picture and communicate within a common frame of reference while they each also simultaneously leverage their own individual domain-specific expertise and tools.

It is to enable this type of collaboration that is the fundamental reason why EPM exists. An EPM architecture does (or should, if implemented correctly) provide a single universal truth of how the business is performing as an integrated whole. It is not like having, for example, different Excel spreadsheets in multiple departments with no way to correlate or synchronize updates in one spreadsheet with updates in another, or in real time. Nor is it like old-fashioned accounting software that only provides financial numbers in isolation from the operational data that actually drives the financial numbers.

A Good EPM Architecture Means Less Busywork and More Insight

Out-of-date technology helps explain why 80% of data analysis is spent on data preparation. That translates to a lot of busywork for the accounting and IT staffs tasked to identify, source, and prepare the data (much of which is collected, stored, and formatted in a way that best serves a purpose other than the one on which a current request is based). One consequence of this extra work is obviously the cost involved — both the direct cost and the opportunity cost of not doing something that adds real value. Another consequence is the delay between when the request for data is made and when the data actually provides insight — which means the opportunity to act on the insight may be lost in the meantime or at least reduced. And a third consequence is that the sought-after data is found not actually to be very insightful — for any of several possible reasons. There could have been a miscommunication between operations, finance, and IT. Or, once the requested data is in hand, it points to other questions or other decision factors that are more relevant but which the present data can’t fully address. If so, the quest for data starts all over again.

But EPM does connect financial and operational data. It does so in real time and in a way that enables stakeholders on all sides to evaluate what/if scenarios so they can answer questions like the ones presented at the top of this article. Then, after a decision is made and implemented, the EPM system also enables stakeholders, again on all sides, to evaluate the outcome and bring to bear their own respective toolsets and expertise for maximum impact. Finance teams, for example, might evaluate different sources of capital more in line with expected revenue streams and expense schedules after a new supply chain partner comes online. While operations, for its part, might more closely monitor that partner’s technical performance in line with those financial expectations.

And just as important as the EPM architecture itself is how it is implemented — so that the implementation does in fact address both the financial and operational sides of the business (and the IT side too!). A great EPM should be big enough for all three.

Is your business strategy aligned with your technology? Too often, the answer to this question is, “We don’t know.” Technology decisions are often made with little understanding of how, if at all, an investment in your finance ecosystem will drive the business forward. Many times, business leaders perceive technology as a cost – an expense they must manage, rather than a vehicle to help the company achieve its financial goals.

We work closely with our clients to converge business strategy with technology. As product development, sales, marketing, supply, delivery, etc. evolve over time, so does technology which is why we are committed to improving enterprise performance. For instance, many of our clients are hesitant to abandon legacy systems but our team of finance-forward consultants help them see the value of new, possibly outsourced, EPM solutions.

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Topics: Cloud EPM, Finance Best Practices, Finance Operations, Enterprise Performance Management (EPM)