BUSINESS PERFORMANCE
Introduction.
Driving corporate performance without a performance management tool is like driving a car on a foggy day without power steering or power brakes: low visibility, little control and real difficulty in changing directions. Although organizations are currently using performance management components such as financial consolidation and management reporting, planning and budgeting as well as dashboards, these applications are often disparate and heterogeneous, just like transaction management tools were characterized before the arrival of ERP.
While ERP has unified the environment of transaction-centric applications such as order entry and invoicing, Business Performance Management (BPM) aims to unify the environment of management-centric applications. These applications typically include strategic planning, modeling, simulation, budgeting, financial consolidation, management reporting and analysis, dashboards, and scorecards. In other words, BPM is a closed loop that provides high visibility and powerful steering capabilities to top management.
Components of BPM
Before describing the key factors that affect the success of a BPM initiative, a brief review of the typical software components used today in the BPM cycle is presented below.
Strategic planning applications are tools for goal setting such as increased market share and revenue targets or for analyzing strategies through modeling and simulation. The results of strategic planning applications are fed into more detailed budgeting applications.
Budgeting applications enable the iterative process that involves corporate management, business units and departments. The vast majority of users today rely on highly flexible tools. However, Excel sheets are hard to consolidate unless they follow a standardized template In contrast, budgeting applications provide an environment that enables the iterative budgeting process around a single database.
Financial consolidation applications are typically used for both statutory and management reporting. They are together the most complex and important component of BPM because they are the financial foundation for performance management.
Financial consolidation applications also require tight integration with budgeting applications because they share common data, rules and processes as well as with transitional applications from which they extract the data to be consolidated.
As reporting and analysis is critical to any BPM solution, most BPM solutions have built in reporting and analysis capabilities. Some also support other common tools like report writers and business intelligence (BI) tools. Traditionally, BI tools access large data warehouses where data is aggregated from multiple transitional applications into a single database. In the case of BPM however, BI tools access budgeting and consolidation database instead. These BPM databases are more tightly controlled than traditional data warehouses since they contain critical information that has already been validated for publishing to corporate stakeholders and regulatory bodies.
Dashboard applications produce reports that display key performance indicators (KPIs). These KPIs can include financial information extracted from BPM databases or non-financial information (such as JIT) extracted from a data warehouse or directly from transitional applications. Dashboards also include a pre-defined target for each KPI and compare actual KPI results with these targets. Scorecard applications are often an implementation of the balanced scorecard methodology, which consists of formal processes that assure the alignment of individual business units with corporate strategy. The drive for using scorecards is that statistically 80% of strategic plans fail because of poor execution.
Most definitions of BPM include Business Intelligence as one of its components. While BI provides a view of the facts, BPM also provides the means to act on these facts through modeling, planning, budgeting and forecasting. It is clear that these components must ultimately be integrated in order to maximize their effectiveness.
Key Factors in Selecting a BPM Solution.
The success of a BPM solution relies on its ability to provide the following capabilities:
1- Insight
Although transitional applications like ERP and CRM are “real time” by nature, the summary reports generated from these transactions are not typically available to management in a timely manner and do not tend to offer the necessary degree of granularity. In contrast, BPM aims to provide management with a clear picture of the overall business situation at any time, with the ability to be guided into this picture to see the most important details. This allows management to quickly react to an evolving business situation and continuously steer the business in the right direction.
2- Quick Access
Quick access to information implies the ability of end users to create and view reports at any time without external help from the IT department. It also implies that the data sources from which these reports are derived are always accessible. The value of a summary report is in allowing the user to find
Out where each number came from, all the way down to the transaction level. For example if total sales are lower than the projected value, the user would want to know if it is due to the poor performance of a product line, low sales in a particular subsidiary or resulting from perhaps the loss of a strategic customer. The more granular the information, the more insight the user will have. This implies that each number in the database is associated with multiple business “dimensions” so that reports can be created by product, location, salesperson, customer, etc. In short, more dimensions lead to deeper analysis and greater insight.
Up-to-date Information expectancy (inactivated) is another key challenge for today’s businesses. Real-time visibility and control are ambitious but reachable goals. Short product cycles and rapid market changes are the main drivers behind the need for the real-time enterprise. In practice, this need translates into reducing and ultimately eliminating data staging. While the ideal situation is to always access data at its source, performance, validation and aggregation issues imply the use of intermediate (staged) databases, which can induce undesired latency.
The objective is therefore to minimize the use of such staged databases and rely on a single BPM database as a trusted vault in order to obtain consistent and up-to-date information when viewing reports and making decisions.
3- Exception Alerts
Business leaders are overwhelmed with large amounts of data generated by their transaction systems and applications, making it difficult to know what are the most important information or how to anticipate critical events. It is impossible for a user to be continuously glued to a computer screen to monitor all data and reports. Exception alerts are a more efficient way to inform users of deviations beyond predetermined thresholds. Once an alert is received, the user can view the associated reports, drill down to the most important information that caused the alert and take action.
4- Predictive Analytics
The ability to view a comprehensive picture of the business situation as described above is certainly a key feature of a successful BPM solution. However, the enormous amount of data generated by transactional applications often contains valuable hidden information that is difficult for even the most
Well informed individuals to discover. Thus, predictive analytics empowers business leaders by automatically extracting this hidden information so that they can detect trends and anomalies to make sound business decisions. Predictive analytics is becoming an indispensable complement to traditional reporting and analysis because it adds a new facet for deeper insight. Hidden information discovered by predictive analytics could indicate anomalies, predict customer churn or help in generating a forecast based not only on historical data but also on the key drivers that may be really affecting a business.
5- Anomaly Detection
Predictive analytics can pinpoint anomalies in data such as suspicious transactions. This is particularly helpful in assuring compliance with regulations like Sarbanes-Oxley and IFRS, as well as compliance with internal corporate policies. When an anomaly is detected, an alert can be sent to the appropriate person within the organization for immediate action.
6- Forecasts
Predictive analytics can also be used as a powerful forecasting tool. It can direct users to key trends that may be impacting their forecasts and plans and shows the interrelationship between these and other variables. For example, it can show that a given product’s revenue is affected more by production capacity than sales capacity. Predictive analytics can take several such factors into consideration, help generate a forecast that is more accurate and focus an organization on the variables that most positively impact their business performance.
7- Insight into Actions
A BPM solution should allow quick and easy implementation of decisions in response to insights. These decisions could include process or organizational changes, development of new products, mergers and acquisitions or re-adjustment of the budget. The tools provided by a BPM solution should allow quick and easy addition of scenarios for budget adjustment or rapid absorption of the financial information of an acquired company. Real insight is actually a clear understanding of the current situation combined with a broad vision of different trends inside and outside the organization. The role of management is to use this information to make effective decisions.
8- - Control
If deep insight is the most important aspect of a successful BPM implementation, it has no real value unless the information on which it is based is highly reliable. Hence, controlling this information is another key aspect of BPM. Control includes the use of a separate and protected database, sophisticated validation and calculation rules, traceability of all events, and tight control of user consistency and ultimately high confidence in what is being reported to the different stakeholders.
Data used by BPM applications originates from multiple sources (ERP, CRM, etc.) in multiple business locations. These data need to be validated and stored in a separate protected database (a BPM vault) in order to guarantee a single version of the truth to all stakeholders in the organization. The advantage of a BPM vault is that it can unify plans, budgets, forecasts, performance targets and consolidated results all in one place, thereby delivering a trusted source for all business leaders.
9- Validation Rules
This is where policies and regulations are formally expressed in order to ensure the validity and compliance of captured data and allow business unit managers to explain deviations. Rules must be easily defined by end users without IT support for greater flexibility and reactivity. In addition to its formal syntax, each rule must be clearly described in plain text in order to explain its purpose. It is important to note that rules apply to data that is automatically from back-end applications as well as data entered manually by business unit managers. Rules should also have different levels of severity. If a deviation is detected, the application should be able to do one of the following:
Traceability is a key component of control. The origin of each number entered or calculated and each rule or process created or modified must be clear when it is entered or changed and who has affected this data throughout its life cycle. Also, it must be possible to identify the numbers, rules and processes that were used in a particular calculation. In summary, each piece of information in a BPM database must be audited from source to disclosure. Traceability is critical not only for internal audits but also for compliance with government bodies and regulations.
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10 - Access Control
Access to the BPM vault from other applications or by users, for either data capture or information retrieval, must be tightly controlled. Control includes management of users, roles, applications, access rights as well as visibility into the activities of all users affecting data and the system itself.
Now, we are in a position to analyze which are the real advantages for driving performance with a Business Performance Management (BPM) tool with satisfactory selection process and fine tune implemented can provide for Managerial purposes carry out.
Integration
The current issue with implementing separate BPM applications that provide different functionalities (consolidation, budgeting, reporting) is that each application relies on its own database. This leads to duplicated information such as multiple versions of the same chart of accounts or the same rules and processes. This redundancy creates multiple versions of the truth and wastes time in understanding and managing the different applications. The main objective of a BPM solution is to unify all of these applications in a single version of data, rules and processes in order to assure trust and simplify these processes.
Unification of Budgets and Actuals
Budgets and actual results have many things in common: the same chart of accounts, validation and calculation rules, user community, etc. It is therefore obvious that managing budgets and actual results in the same database would avoid redundancy, simplify the development of budgets based on actual results, and also enable easy side by side comparison of budget vs. actuals.
Unification of Nomenclatures
The use of unified taxonomies such as XBRL can facilitate the exchange of information between BPM applications and transactional systems as well as information exchange with the outside world. The use of XBRL is a requirement by some global agencies and growing towards requirement status by the Stock Exchange Committee among others. XBRL simplifies financial reporting for public companies, assures consistency in the numbers and automates the reporting process through standardization.
BPM Engine – Unified Environment
A BPM database (BPM vault) coupled with rule and calculation functionality as well as process management capabilities constitutes the foundation of a BPM solution. This foundation is called the BPM engine and is shared by all BPM applications create a unified environment. The BPM engine is the answer to disparate and heterogeneous applications that often require duplicate data entry, rules, and processes, thus causing synchronization and inconsistency issues.
Facilitation to end users
BPM applications are accessed by different users to perform different functions. First, there is the initial installation and configuration. Then there is data capture and calculations and finally, reporting and analysis of results. In each of these stages, users need an interface that guides them in an intuitive, consistent and flexible manner, which is adapted to their profile. Ease of use of a BPM suite will dramatically reduce learning time, enhance user acceptance of the changes that it induces, thus allowing them to focus more quickly on positively affecting the performance of the business. BPM applications also induce both automation and changes in corporate processes to allow full control of the BPM cycle. In order to ensure user acceptance of these changes, they must help in optimizing action and decision-making, be easy to understand and as painless as possible.
Ease of use applies to three phases: initial system implementation, data entry and reporting or analysis.
Implementation consists of installing the software, defining the chart of accounts and performance metrics, reporting unit structures, business rules, processes and other key elements. These tasks should be easily done through business-focused interfaces and simple wizards, and allow import of information from other applications in order to avoid duplication and tedious data entry . Once the BPM software is implemented, users will regularly submit data related to their department or business unit. These data include budgets, actuals, KPI’s, comments on deviations, etc. This task should also be intuitive and easily done through customized processes that reflect the particular requirements of the business. After budgets are entered and rolled-up, and actual results are consolidated, users throughout the organization will need to view different reports and perform ad-hoc analysis.
BPM reporting and analysis tools should therefore allow end-users to easily define standard reports and select data to fit their particular needs without requesting assistance from the IT.
It is critical that a BPM solution provide trusted and up-to-date data to the reporting and analysis tools. This is accomplished by using a controlled BPM vault and by allowing reporting tools to read directly from this vault without the use of intermediate databases.
The browser interface offers the advantage of zero footprint of a thin client easing corporate roll out, while Excel offers a familiar and highly flexible interface, as well as the possibility to work offline and synchronize when reconnected. A BPM system is best when it incorporates all options (Microsoft office) into its capabilities allowing users to have the best interface available to get their jobs done.
Graphic-rich Reporting
Graphic representation of reports is the most visible advantage to elaborate interpretations and trends. It should cover a large variety of graphs and include popular alert features such as stop-light coloring (red for critical exceptions, yellow for warnings and green for acceptable results). Stop-light coloring should also be available in tabular reports by coloring the numbers located in the different cells of the report. Ease of adoption of a BPM solution lies in the ability to integrate it into the existing environment (database engines, back-end applications, BI tools, client tools such as web browser or Excel, etc.), as well as its ability to adapt to the specific needs of the business (local language, business processes, organization structure, etc.)
Business Compliance
Optimal corporate performance is a delicate balance between two separate objectives: increased profitability abiding by the rules. These rules are both internal policies and government regulations. Assuring the compliance of a global organization with a large number of transactions performed by a large number of users requires strictly documented processes with tight controls and high traceability. Compliance and visibility concerning internal policies and government regulations such as Sarbanes-Oxley and IFRS will ensure confidence and where necessary require swift action, thus increasing management’s confidence in reported results. Compliance is achieved through tight process control, high granularity and visibility of audit trails as well as detailed documentation.
Business Processes
Control processes are a sure way to guarantee compliance with pre-defined policies and regulations. They are actually a formal representation of these policies and regulations within the BPM solution. Control processes will validate data programmatically and through the proper workflow. They will assure that all appropriate steps of a given operation are properly executed and provide consistency independent of the persons involved in the execution. The audit trail must track every action performed on data, rules and processes. Who? What? Where? When? and why?. In addition, which processes and rules were used in which calculations? A BPM solution must provide the means to automatically record all this information and prompt the user for missing pieces. Actions should not be accepted unless the information is recorded.
Documentation
Documenting rules and processes and then implementing them as they are documented is a key requirement of compliance. A BPM solution must offer tools to create these documents and must allow users to view them as well as other external documents related to control and compliance. This will help
users understand the purpose of the rules and how to comply with them but more importantly, will allow CFO’s and other business leaders to have the trust required to sign off on the validity of the results.
Workflow
Inefficiencies, late discovery of anomalies and lack of alignment between a plan and its execution are all the result of poor processes. A key element of a BPM solution is therefore process management. It will enforce the BPM cycle throughout the enterprise and synchronize the different business units in order to reach common corporate goals.
The BPM cycle consists of processes that involve people, applications and data during the planning and budgeting, consolidation and reporting phases. Initiatives such as the balanced scorecard provide an enterprise-wide process for the BPM cycle that enables the alignment of business units with corporate strategy. Planning and Budgeting Process The iterative planning process of a BPM solution must be easily configurable by end-users according to the particular needs of the organization.
The process should include automated application flows as well as human workflow capabilities. It should also be able to span across multiple departments and business units in order to allow information to be shared. The ability to view the process at all stages, accept or reject submissions and manage simultaneous processes are all key elements of a BPM solution’s capability to help organizations optimize their budgeting and planning cycles.
Consolidation
The key requirement of the consolidation process is tight control of the data flow from business units to the BPM vault in order to guarantee that only validated information is entered in the vault before the consolidation is performed. The process should allow automated as well as human workflow and should
be easily configurable to fit the specific requirements of the enterprise and meet regulatory demands for the multiple locations and geographies in which they operate.
Reporting
The reporting process should cover capturing, calculating and ensuring the visibility of key KPIs. It also includes generating and publishing regularly produced reports to simultaneously meet the reporting and analytical needs of an organization’s business leaders. Adaptability to changes in the market landscape or customer needs is a major challenge for the enterprise. It requires quick detection of changes, rapid decisions on how to react and comply with policies and regulations. In other words, agility is about removing latency from all stages of the business cycle. A BPM solution that increases business agility will rapidly reduce expenses in a weak market while enhancing readiness in a fast growing one. It also allows the business to maintain its edge by quickly deciding to modify business processes to develop product variations or new product lines. The speed of detecting the possibility to change business strategy allowing drilling down to the source embeds predictive analytics and applications to alert the users (Management).
Autonomy
Implementing a BPM solution is an important undertaking for the enterprise. It involves the introduction of multiple applications in multiple business units to multiple user profiles. This leads to different levels of acceptance depending on the readiness of the entities involved and the ease of use of the applications. A BPM solution that provides autonomy to users and business units can be incrementally implemented throughout the corporation with a high probability of success.
This autonomy results in high agility for individual business units and enables them to contribute to the overall performance of the organization in a Lego-like manner through powerful collaboration tools. This provides autonomy to business units to track their business at their own level of detail so they can optimize their performance while still being able to report to and actively participate in the overall optimization of corporate performance.
Peer to Peer Collaboration
A major characteristic is the alignment of all entities involved in the execution of corporate strategy. Facilitating this alignment requires seamless peer-to-peer and vertical communication. It also requires fluid processes that span the different entities. This leads to better sharing of information and consequently higher visibility and better planning. It also leads to better synchronization between entities in executing the plan. Collaboration between departments includes information and process sharing. For example, the budgeting process should span across all functional departments within an organization. It should allow sales and marketing to view manufacturing capacity to better project product sales or a new product introduction in order to make the right adjustments within their own budgets.
Collaboration between business units should allow inter-company bookings and reconciliations to occur before they have an opportunity to affect the organizational closing cycles. It should allow business units to share information on similar or complementary products in order to adjust their plans. Hierarchical collaboration is about aligning business units and departments with the corporate strategy in the execution phase. A BPM solution should allow autonomy of business units but also permit monitoring and ensure alignment of these business units throughout the corporate hierarchy in order to assure proper execution against the overall corporate strategy.
Conclusion
Business Performance Management (BPM) is the next step towards business excellence. After the ubiquitous implementation of ERP and CRM applications, BPM will now constitute a major competitive differentiator for enterprises. If ERP and CRM represent the engine of the enterprise, BPM is its dashboard and controls. The objective of a good BPM solution is to provide management with accurate, detailed and timely information on the status of the enterprise, with powerful tools to steer it in the right direction, at the right time and at the right speed. BPM users should be able to sit in the driver’s seat, understand instrument readings, operate various controls, and follow the rules of the road; In summary: