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What is Enterprise Performance Management (EPM)?
I thought for my second blog, it would be appropriate to take a step back and look at defining what Enterprise Performance Management (EPM) is, especially as it still surfaces in conversation as a question, a good question in fact. I have presented at many exhibitions and seminars and been approached by people wanting to talk to me about all sorts of HR type challenges. Whilst topics such as “salary planning” can be a component of an EPM solution, EPM isn’t the tool for managing employee performance, for that you might want to take a closer look at a human capital management solution such as SAP Success Factors. So, in order to answer the question “what is Enterprise Performance Management?” a good place to start is probably by differentiating Enterprise Performance Management (EPM) from Business Intelligence (BI). There has been many a debate since the early 2000’s when the EPM category of software was classified about whether BI is a subset of EPM or is EPM an extension of BI. Part of this debate arose as many software vendors that started life as pure play BI solutions companies broadened their portfolios to include EPM solutions. However, if we look at some basic principles, here BI comprises the tools for analysis and reporting that aid decision making. A variety of BI tools are available today that address requirements from basic transaction reporting through multi-dimensional analysis and on to data mining all the way to sophisticated predictive analytics, let’s also recognise that we have now entered the era of “Big Data” which is spawning yet further tools, techniques and capabilities around reporting and analytics.
Many organisations have built data warehouses that aggregate information from transactional systems and serve as the data source for the BI tools in use. Of course having tools for BI (reporting and analysis) is redundant as an enabler if there is any suspicion on the quality of the data source – so in many cases we see terminology and technologies supporting this area of risk, called master data management, being an integral part of any BI framework. So, assuming we have good data, ask the right questions of that data and can make good decisions based on the output of our BI tools we are still left with the question of “what to do next?” and “what if we change this factor, that factor or both by differing degrees?” These BI reports stand alone, there is no interaction to drive a desired behaviour or activity such as the creation of a new initiative to implement a corrective action against an unexpected poor result in the report or drive an opportunity to invest further financial support to the underlying causes of a particularly good report through an integrated planning system. This is because EPM needs people, process and action, and that brings us to my positioning that “EPM extends BI” and not the other way around.
After implementing a BI framework, organisations move to automate processes that leverage this information. The most generic example of this I can think of would involve solutions originally intended to enable strategy management. Of these probably the most pervasive of would be the scorecarding applications that numerous vendors offer. Scorecarding is often perceived as something that can be accomplished with BI dashboarding tools or even Excel with conditional formatting. Of course that’s only true if the goal is purely to generate an inert report on the metrics of key performance indicators (KPIs) or at its most sophisticated support drill down on KPI’s to the operational metrics underpinning those KPIs. However, for a scorecarding application to be considered as “enterprise performance management compliant” it needs to offer more. Most importantly, they should be capable of creating new initiatives, allocating accountabilities, managing a portfolio of strategic initiatives and projects along with the capability to link objectives (what you want to accomplish) with KPIs (how you measure success) with activities (what you need to do to achieve your goals) with accountability (who is responsible for achieving the goals) – then you’re in the ballpark of an Enterprise Performance Management application.
So with the above example we can see how an application needs to combine people, process, data and actions. We can see another illustration of this if we take an example from the finance field such as budgeting or planning applications. Unless the right people engage in the process at the right time, the data can be validated, prior to submission, to ensure quality is maintained and where global assumptions and allocations can be run consistently we have the potential for planning disasters. If we don’t have these activities controlled through a workflow aspect of the solution then all we have at best is an access database or some other such tool behind a spreadsheet, but most probably we only have the spreadsheet! Managing financial performance is without a doubt the most common application for EPM. However, EPM, can (and arguably should) be applied to a broader set of disciplines within the enterprise. Organisations which deploy a financial planning solution which is unable to extend to deliver a broader more integrated view of the planning processes (let’s face it, every activity happening across the enterprise has an impact, positive or negative, on the financial health of the enterprise) I would suggest those organisations have missed a trick and potentially missed the single largest component of ROI or ROCE on their project. Operational modelling and planning is by far and away the bigger component of an integrated business planning solution. The value to be gained from seeing the financial impacts on the P&L of those operational variables as they are being planned for (increase in demand, shortage in stock, change in channel strategy or sales forecast etc.) gives enterprises a significant advantage in planning for correct capital strategies.
We frequently talk about the EPM processes as being a closed loop, they certainly should never be seen as linear in nature, nor cyclical either, but all aspects should be ongoing at all times. In fact EPM is truly an omnipresent process if undertaken correctly and having the appropriate technology to support these processes enables this to happen. Thus if correctly deployed across the organisation the analogy is one of enabling the Board to manage the Enterprise as if a large scale ship with lots of data input and feedback to the Captain who in turn feels confident in what he is being told, knowing that a number of “what if” scenarios have been played out safely in the EPM solutions rather than waiting for BI reports against actual data and can then make decisions on course corrections as subtle gentle “nudges” as opposed to lurching commands which are unsettling for the crew (employees) and passengers (stakeholders). It is for these reasons I am of the opinion that EPM is an extension of BI.
Any questions? Then please don´t hesitate to comment. I will reply immediately.