If the primary reason you adopt EPM is to improve enterprise performance, then the best yardstick with which to measure and improve EPM ROI is by how much better the enterprise performs.
There are obviously many variables that can influence how well an enterprise performs — like new tax laws, a new CEO, a new disruptive technology, a shift in business practices, and countess other potential factors. And ideally if you want to measure the impact of any one variable on enterprise performance you would want to hold all the others constant, which, of course, you can’t. Nor is EPM a “normal” enterprise performance variable, because it improves the decision-making that encompasses all performance variables. That is, after all, why decision makers buy EPM.
The challenge, then, is how to gauge EPM’s specific ROI the same the way you would gauge any investment’s ROI — which is its value (i.e., improve enterprise performance) as a multiple of its cost.
Let's Start with Value
Because all performance variables are always in play, you can’t pin a single year-over-year absolute performance difference on just EPM alone. A relative benchmark is better — like your enterprise performance versus competitors over multiple years — in market share, margins, revenue, and profits. If EPM is “working”, you will see over time both steady improvement and also that the influence of other performance factors will tend to wash each other out. You will close the distance with competitors running ahead of you and widen the distance with competitors trailing behind you. You will also see acceleration in these improvements year-over-year. That acceleration (or lack of it) is the value of EPM solutions and your ability to use it.
EPM Value Comes from Benefits
That value is the return side of ROI. It results from all EPM’s benefits, both direct and indirect. (But while EPM’s benefits contribute to EPM’s value, at the end of the day it’s only the actual enterprise performance itself that counts.) Direct benefits include better use of financial and IT resources, such as less time spent in “Excel hell” and less time spent developing custom reporting applications. Indirect benefits include the ability to gauge the return from other investments like ad spending, marketing automation, and product innovation in terms of revenue, margins, and cash flow — and also the ability to aggregate those numbers to get a clear view of the best path forward.
Do you know what the unintended benefits of cloud EPM are for finance? Sure, moving to a cloud EPM solution should save money, make IT more efficient, and better synchronize cash flow with expenses. But the real benefit is better finance.
EPM Success Factors
And just like EPM benefits contribute to it’s value, there are also factors that contribute to EPM’s ability to deliver benefits, such as:
- How fast and error-free is the EPM implementation?
- What percent of stakeholders’ needs are supported?
- How much time do users spend getting help desk support?
Maximizing EPM value then is about maximizing EPM’s benefits, which means leveraging EPM’s success factors wherever you can. And while measuring and maximizing the return side of EPM ROI is relative and takes time, leveraging EPM success factors is much more clear-cut and you can do it now. For example, you can control who implements your EPM; you can take steps to ensure stakeholder needs are fully covered; and you can reduce users’ helpdesk frustration by getting a great help desk.
Now the Investment Side
On the investment side of ROI, EPM’s costs are also clear-cut and controllable (or should be). They include costs for:
- Software — Direct costs to license and maintain the software with patches, updates, and support. This applies both to the EPM software itself as well as to other software the organization needs, such as database software, in order to run the EPM.
- Hardware — Purchase, maintenance, and upgrade costs.
- Integration — Direct costs like fees charged by third party integrators and indirect costs, like disruptions of day-to-day operations.
- Personnel — The direct cost of hiring people with both financial and IT expertise (an expensive combination) to handle the implementation and upgrades, plus the ongoing support of systems and users.
- Training — This will include the direct cost of outside instructors, training materials, and the indirect costs of personnel taking time away from their regular work.
EPM costs are much easier to measure and minimize (and thus improve EPM ROI) if EPM is cloud-based. The subscription covers all direct costs so you know what those are without surprises. (See our post Should you use OpEx or CapEx for your EPM App Investment?) Those are also minimized by being spread over all EPM subscribers. For example, subscribers can access high-value talent at a fraction of what it would cost to retain that talent exclusively. That leaves indirect costs, which are also minimized since most work is done offsite by the EPM provider.
Once you know both the return and cost sides of the ROI equation, you’ll have a pretty good idea of how to measure EPM ROI. Even better, you’ll also have a good idea of how to leverage ROI success factors (such as by way of cloud) to improve EPM ROI.
Strafford strives to be champions of finance and enterprise performance management (EPM). With a decade of experience in migrating Hyperion environments to the cloud, we can help you automate, align and optimize the financial solutions that will improve financial consolidation and reporting, budgeting and planning, and financial analysis.
We'd like to hear about your finance organization's goals and challenges. Who knows, perhaps we can help!