Corporate Performance Management

The Expert Series

Index INTRODUCTION………………………………………………………………………………………………. 1 ABOUT RINEDATA……………………………………………………………………………………………. 2 CORPORATE PERFORMANCE MANAGEMENT: SILVER BULLET OR LEAD BALLOON? ………………………… 3-5 YOU CAN PUT LIPSTICK ON AN ERP BUT IT’S STILL AN ERP! …………………………………………………. 6-7 THE CASE FOR CORPORATE PERFORMANCE MANAGEMENT (CPM)…………………………………………. 8-9 AN INISGHT INTO ADOPTING A CPM SOLUTION……………………………………………………………... 10-13 FINANCIAL GOVERNANCE: RESISTANCE IS FUTILE! …………………………………………………………... 14-15 STRATEGIC PLANNING: MOVING IT OUT OF THE BOARDROOM……………………………………………... 16-17 THE BUDGET: A NECERSSARY EVIL? …………………………………………………………………………. 18-19 THE BUDGET: GETTING OUT FROM BENEATH THE SHEETS…………………………………………………... 20-21 THE CASE FOR COLLABORATIVE BUDGETING……………………………………………………………….. 22-23 CASHFLOW AND CPM: CAPITAL PUNISHMENT? ……………………………………………………………. 24-25 FINANCIAL CONSOLIDATION: BUY AN EXTRA WEEK EVERY MONTH……………………………………….... 26-27 THE LAST MILE OF FINANCE………………………………………………………………………………… 28-30 BUSINESS INTELLIGENCE: MAKE YOU BIGGEST ASSET IMPACT YOUR BOTTOM LINE……………………….. 31-32 BUILDING A BI SYSTEM BEFORE CPM: PUTTING THE CART BEFORE THE HORSE? …………………………... 33-36 CPM DELIVERY: RISE TO THE CHALLENGE………………………………………………………………….. 37-38 SUPERCHARGE YOUR FINANCE FUNCTION………………………………………………………………… 39-42 CUSTOMER TESTIMONIALS.………………………………………………………………………………… 43

Introduction Drawing from almost two decades of Corporate Performance Management (CPM) projects, Rinedata has created a series of whitepapers as a useful guide for our customers and prospective customers. This "Expert Series", broadly discusses the entire scope of CPM. This booklet has been compiled for the benefit of organisations considering CPM and those who want to get more value from their existing investment.

INTRODUCTION 1

About Rinedata

Rinedata was established in 1996 with the sole focus of providing full project life cycle services across Financial Consolidation, Budgeting, Forecasting and Business Intelligence initiatives

In simplistic terms - what is it we do: • Help to reduce reporting timescales • Make reporting processes more efficient • Enable better insight into information • Help to maximise the investment in software by extending its use • Using a combination of the above, help to create more time for analysis and decision making • Create relationships that have longevity, are trusting and most importantly, add mutual value

Connect with Rinedata

ABOUT RINEDATA 2

CORPORATE PERFORMANCE MANAGEMENT: SILVER BULLET OR LEAD BALLOON?

Corporate performance management (CPM) solutions are one of the fastest growing software markets in the world today. Gartner group estimates that the global market for CPM reached around 2.97 billion dollars in 2014, a year on year growth rate of around 19%1, but what exactly is CPM and what benefits do such solutions offer?

Business intelligence and CPM

Perhaps the most succinct definition of CPM comes from Gartner, who state that,“CPM is an umbrella term that describes the methodologies, metrics, processes and systems used to monitor and manage the business performance of an enterprise.”2 From this perspective, today’s CPM applications can trace their heritage back to the early dashboarding systems of the 1980s. Essentially, these executive information (EIS) and decision support systems (DSS) utilised the then emerging personal computer to present business data in a way that allowed executive teams to carry out basic multidimensional “slice and dice” analyses and drill-downs. Such systems were often static and allowed a limited level of analysis, nonetheless, they whetted the appetite of corporate decision-makers for actionable information and as a result the deployment of such systems grew significantly.

In 1989, in an effort to impose order onto the competing claims and definitions of DSS and EIS vendors, Gartner analyst, Howard Dresner,

proposed Business Intelligence (BI) as a catch all term that described the utilisation of "concepts and methods to improve business decision making by using fact-based support systems.” Over the intervening years this term has gained popularity and is now used to define a broad spectrum of applications that provide structured analyses to knowledge workers at all levels of the enterprise.

CPM then, takes this concept of business intelligence as a strategic reporting tool and extends it throughout the enterprise as a platform that incorporates the major business planning processes such as strategic planning, budgeting and financial consolidation into a single “closed loop” system.

The market today: acquisition and consolidation

Initially many vendors in the nascent CPM market were BI software houses and few provided comprehensive solutions that incorporated all of the business processes that the above definition of CPM demands. In fact, many vendors sold point solutions that addressed only isolated aspects of the planning and reporting cycle. However, over time the best of these developed organically into more complete offerings.

A wave of acquisitions by ERP companies seeking to improve the appeal of their products has meant that the current CPM market is composed of a selection of independent solution providers such as Tagetik alongside major suppliers such as such SAP and Oracle. The latter continue to acquire products and companies in an effort to improve both the breadth of their offerings and their

ability to deliver solutions successfully. The main challenge for these large vendors is the time and resources required to integrate their disparate acquisitions into coherent suites that integrate with their core ERP offerings.

What problems does a CPM solution resolve?

As in any emerging, dynamic market place there is some debate about exactly what business processes and technologies CPM incorporates. Each vendor’s list of features may vary, but a complete CPM solution should focus on the following issues :

• Strategic Planning. This is the process of defining high level corporate goals, objectives, plans and associated targets that guide the organisation in the medium term. In many businesses the primary issue with the strategic plan is that it has only a limited impact on the daily behaviour of employees. This is because strategies are comprised of programmes, tactics and plans of action while budgets, the result of the principal corporate planning process, are based around ledger account lines and there is little to connect the two. CPM applications resolve this problem by ensuring that targets and objectives in the strategic plan are linked to and drive the contents of the budget. Similarly, they ensure that results are fed back into the reporting process so that execution of the strategic plan can be monitored effectively.

• Scorecarding. For many businesses accurate information about customers and products is vital to driving growth and improving performance, yet the

CORPORATE PERFORMANCE MANAGEMENT: SILVER BULLET OR LEAD BALLOON? 3

majority of management reports focus solely on financial indicators. In an effort to address this disparity Robert Kaplan and David Norton proposed the Balanced Scorecard methodology in an article in the Harvard Business Review in 19923. This influential paper lays out a management framework based around four interlocking perspectives:

• Financial. This is the traditional financial view of company growth and profitability.

• Customer. This focuses on measures that lead to profitability such as customer growth, retention and satisfaction.

• Internal process. This concerns the effectiveness of internal operational processes that lead to the development of successful products and customer growth.

• Learning and growth. This perspective focuses upon those activities which ensure the long term success of the organisation. It monitors measures such as staff development and retention and utilisation of technology.

While many organisations have made use of the concepts of the balanced scorecard, one of the biggest practical hurdles to its effectiveness is that scorecards are often poorly balanced because they focus on what is easy to measure rather than what is required to give an holistic picture of corporate performance. As a consequence internal financial lagging indicators

predominate in many scorecards, undermining the whole notion of “balance” within the management process.

Through the provision of enterprise-wide data collection and centralised storage, CPM solutions resolve this problem, ensuring that scorecard measures remain optimally structured with customer and product information. Moreover, CPM solutions provide scalable reporting features that ensure that scorecards can be deployed throughout the organisation, resulting in a performance monitoring solution that remains relevant, up-to-date and balanced.

• Budgeting and Forecasting. The annual budget is a business process in crisis. In many organisations it is little more than a political game whose results reflect the negotiating power of budget holders and managers rather than the overall strategy of the organisation. This problem is only exacerbated by the technologies used to deliver the budget. Spreadsheet budgeting packs often contain logic errors and lack integration with source systems. ERP approaches, on the other hand, tend to lack flexibility and the ability to model different business scenarios. The sad reality is that for many managers the budget is a “once a year exercise in futility”, delivering a plan that is inaccurate and out-of-date as soon as it is complete.

CPM solutions address these difficulties by providing facilities that streamline all aspects of the budgeting and forecasting process. They facilitate the error-free collection and validation of data and provide built in scenario

modelling, consolidation and reporting functionality. This means the budgeting process can be completed accurately and rapidly and detailed re-forecasting can be carried out whenever external events require it.

• Financial Consolidation and Management Reporting. For most companies with complex group structures the financial close is a process that is fraught with challenges. Data collection is slow and often error prone. The need to deliver financial information in multiple formats using multiple recognition methods is complex and time-consuming. Although ERP applications have made inroads into resolving some of these issues their main drawback is that they are not applicable in enterprises where multiple ledgers are deployed. Furthermore, their reporting facilities often lack the flexibility and advanced visualisation features that add value to the management reporting process.

Unlike other solutions, CPM applications are able to consolidate data from multiple source ledgers. They handle multiple currencies, complex group reporting structures and detailed management and mapping of intercompany transactions. Similarly, they provide unique data visualisation tools and exception monitoring that not only aid the management reporting cycle, but ensure that problems and opportunities do not remain hidden.

• Business Intelligence. One of the issues that used to confront managers was the dearth of actionable information available

CORPORATE PERFORMANCE MANAGEMENT: SILVER BULLET OR LEAD BALLOON? 4

to inform their decision making. These days the situation is somewhat different. The proliferation of static ERP based reports and single source “slice and dice” analysis technologies mean that many managers are deluged with data with no clear way of finding what issues are most relevant and deserving of attention

All CPM applications are built on underlying BI platforms that allow data collection from multiple sources, ensuring that a complete picture of the business can be presented to management teams. Furthermore, CPM applications provide advanced exception tracking and guided analysis tools to alleviate “data overload” problems, leading decision-makers to issues within the data.

Corporate Performance Management: A 360 degree view of your business

The elements that comprise CPM solutions are not new. What is original is the way that they have been packaged into integrated suites that support all aspects of the business planning process. CPM applications deliver many benefits to the enterprises that utilise them. They leverage the data that is locked up inside Customer Relationship Management (CRM) systems and ERPs, transforming it into information that can guide vital customer and product related decisions. Similarly, they give decision-makers a 360 degree view of any obstacle by delivering relevant internal and external, financial and non-financial information. This means that rather than trawling the data for outliers decision-makers are able to spend their time assessing the best course of action.

Furthermore, the integrated nature of CPM suites means that debates about the validity of information become a thing of the past. In a similar way, since each step of the planning process is interconnected with shared data and assumptions, the business cycle itself becomes more rapid and more reliable. As a result organisations that utilise CPM are able to respond to challenges in the marketplace more swiftly and are better placed to outflank their competition when opportunities arise. While CPM solutions are no panacea for all corporate ills, most analysts agree than when they are deployed in conjunction with a trusted, expert partner they provide a solid platform for sustained competitive advantage and improved performance.

1 Gartner RAS Core Research Note G00165786

2 Corporate Performance Management: BI Collides With ERP, L.

Geishecker, N. Rayner Research Note 3Kaplan, R. S. and D. P. Norton. The balanced scorecard -

Measures that drive performance. Harvard Business Review

(January-February): 71-79

“After using a legacy consolidation tool for several years, the implementation of a new CPM solution has not only led to cost savings resulting from reduced man-hours and effort during monthly/annual reporting periods but also improved reliability and consistency of reported information as well.”

Andrew Bannister Group Finance Director Barloworld Holdings Plc

CORPORATE PERFORMANCE MANAGEMENT: SILVER BULLET OR LEAD BALLOON? 5

YOU CAN PUT LIPSTICK ON AN ERP, BUT IT’S STILL AN ERP.

In today’s dynamic business environment there is more pressure than ever to deliver sustainable value growth to stake-holders and the growing enthusiasm for corporate performance management (CPM) solutions can be seen as a direct result of these increased demands. CPM initiatives integrate all business planning and reporting processes into a common technology and process framework. Indeed, as Ventana Research describes it, “performance management is the strategy, methodologies and process of managing the performance of the organisation ... by leveraging assets to achieve a common set of goals and objectives.” CPM then, deploys people, processes and technology to deliver benefits to the strategic and operational functions of the enterprise. Of these three components, the choice of the most appropriate technology platform for CPM is often a subject of fierce debate.

“Uh, didn’t we fix this already?”

Given the amount of money that businesses have invested in enterprise resource planning systems (ERP) over the last ten years it is not unreasonable that the initial response of many finance teams to CPM is,“can’t we do this with our ERP?” Indeed, many vendors implied their ERP solutions would provide exactly the type of benefits that are now ascribed to CPM systems.1

However, research has shown that while some organisations feel their ERPs can be extended outside of their immediate context to add value to other business processes, few consider that they are the best

platform for planning and reporting.2 Moreover, even within those organisations that believe their ERPs can provide a strategic planning platform, hardly any use them for this purpose. Why then, this grass roots resistance to deploying ERP systems for CPM?

Transaction oriented versus data oriented

The root of these issues is to be found in the DNA of the ERP solutions themselves which developed from the integrated inventory control systems of the 1960s and the manufacturing requirement planning systems of the 1980s. These applications all share a common heritage of driving efficiency through controllable internal enterprise processes. Today’s ERP systems are a world away from their forebears in terms of the breadth and depth of the functionality that they offer. They are as multi-modular as they are ubiquitous, managing and integrating business activities throughout many functional departments from product planning and parts purchasing to inventory control, order fulfilment and tracking. Even so, despite their increasing scope and complexity they remain anchored in the standardisation, management and control of business transactions.

This focus makes them inappropriate technologies for the deployment of CPM initiatives since instead of being transaction-oriented, CPM activities are information-oriented. That is, they are driven by the needs of fact-based decision-making processes. Similarly, rather than being strictly calendar-based, best-practice business processes tend to be initiated by external factors such as an uptick in sales performance or the

encroachment of a competitor into a territory. Consequently, they demand a flexibility and openness to external data which ERP systems find hard to incorporate.

CPM: strategic, flexible and integrated

By contrast, most CPM applications have developed from the point-solutions of business intelligence (BI) vendors into comprehensive “closed-loop” suites. This means that by their very nature they are open-ended, information-driven platforms that are designed with strategic and operational use in mind and can encompass all aspects of the corporate planning and reporting cycle.

In contrast to ERPs, this means that CPM technology suites are:

• Strategic and operationally focused. In many organisations the strategic plan is dislocated from other enterprise planning processes. It is composed of high-level targets, sets of tactics and action plans. The corporate budget, by contrast, is usually based upon ERP ledger lines and there is no formal connection between these account lines and the strategic actions and tactics that are supposed to drive them. CPM applications uniquely bridge this gap by allowing strategies and tactics to be modelled consistently, linking them to financial (and non-financial) measures. While ERPs may have a role to play in collecting performance data that will feed back into the CPM suite, using such a system to manage strategy is like steering a car by turning each of its wheels by hand.

• Provide open-ended, flexible analytics. Because the business

YOU CAN PUT LIPSTICK ON AN ERP BUT IT’S STILL AN ERP 6

environment changes at an ever increasing pace, planning processes must be flexible. Changes in global economic conditions or competitor behaviour mean that managers need to be able to ask different questions about key indicators from month-to-month or even from day-to-day. They need a multi-dimensional view of the enterprise that incorporates sales distributions by product and by region and that flags exceptional activity automatically. They need the ability to analyse multiple business perspectives and to be able to drill down into detailed figures without requesting reports from IT. Unfortunately, ERP solutions are not able to support many of these activities. Indeed, much of the information they provide is still in the form of static reports, which are slow to produce, consume IT resources and do not guide management to problems in the underlying data.

• Integrate internal and external information. CPM suites span the breadth and depth of organisational planning and reporting processes. This means that they are able to integrate data from different internal sources. For the corporate close, for example, they may load and reconcile data from multiple ledgers and restate it using any number of formats or recognition rules. Similarly, they will integrate and surface external data such as the customer and product information stored in customer relationship management (CRM) systems. Moreover, best-of-breed suites provide predictive analytics that enable the organisation to take advantage of emerging market opportunities. While ERPs may

provide some of this information, they are historically bound to a financial, internal perspective of the business and so will not deliver the 360 degree view that is vital to driving improved corporate performance.

CPM versus ERP: Efficiency versus effectiveness

ERP platforms drive bottom-line profitability through efficiencies in the back-office processes they automate. CPM solutions do so by reducing cycle times, optimising resource usage and delivering improvements in data integrity. The fundamental difference between these applications is that, in addition to efficiency gains, CPM platforms are designed to enable the enterprise to execute its strategy and to monitor the results on a day-to-day basis. CPM suites, therefore, not only allow the business to work more productively, but directly support the processes that deliver top-line growth, something which ERPs are unable to do. This conclusion is born out by the recent acquisition strategies of many pure-play ERP providers who have purchased CPM vendors to remedy this functional gap in their offerings. It seems then, that even ERP vendors themselves are ready to admit that reaping the full benefits of CPM requires a purpose built technology platform to support strategic, flexible and integrated planning and reporting.

e right choice by Robert D. Kugel CFA

“Technology focussed finance professionals are often challenged to persuade management of the benefits of adopting emerging software solutions. A continually evolving business environment often (paradoxically) encourages an increased reliance on existing ERP and legacy systems. These are not necessarily the perfect tools to provide the platform needed for best practice reporting, strategic planning and performance monitoring. CPM suites can significantly enhance the armoury of the finance team when it comes to delivering information beyond the traditionally static, historic and transaction orientated. Their deployment often encourages thinking outside the existing process which can result in more collaborative, perceptive and crucially more valuable output.”

Greg Thomson Systems Accountant Melrose Resources Plc

YOU CAN PUT LIPSTICK ON AN ERP BUT IT’S STILL AN ERP 7

THE CASE FOR CORPORATE PERFORMANCE MANAGEMENT

Corporate performance management (CPM) initiatives are the subject of debate in many organisations today. The benefits of managing all planning and reporting processes via an integrated technology and process platform would seem to be compelling at first glance.

However, there are still those who question the quantifiable value of such initiatives, coming as they do hard on the heels of claims by many software firms that ERPs would resolve all of their process efficiency issues. Indeed, a recent study shows that when CPM programmes fail it is usually because of a lack of corporate sponsorship rather than due to technical shortcomings or implementation issues. While the inability to secure solid executive support may be related to the perception that a failed implementation will have career-limiting effects, such notions only gain traction where a clear and realistic business case is not present. This paper then, presents a simple 5 step methodology for developing a compelling quantitative argument for CPM that will not only gain executive backing, but lay the foundation for a successful implementation.

1. Find the pain

It is important to understand that CPM should not be viewed as a one-off technology install. It is both incremental and iterative. This means that any initial implementation will be finessed as strategies and processes evolve.

Therefore the first step in the development of a business case is to locate and analyse a specific, limited-scale business problem. An approach that is based upon addressing a concrete issue will greatly improve the chances of corporate buy-in. Good candidates for such an initiative might be streamlining the corporate close or revising a departmental budgeting process. The key here is to balance the pain of the problem with the scope of the implementation. A highly painful and visible problem will provide more benefit to the business, but may require a higher level of investment to resolve satisfactorily. An implementation of limited scope may provide less immediate benefit, but will prove the value of CPM and deliver a return on investment within a shorter period of time.

2. Document the process

Once a target business process has been identified, the next stage is to analyse and document each of its steps. The primary objective of this exercise is to identify the “who does what and when” for each operation that the process comprises. Additionally, a list of indicators should be developed to provide a baseline metric for each activity and the process as a whole. Typical measures will be indicators such as cycle time, man-time estimates and use of IT resources.

Care should be taken to ensure that there is an adequate analysis of the “connective tissue” between each activity as this where bottlenecks, delays or errors often sneak into a process. Moreover, there should be a detailed analysis of any system or data bound dependency, as these may form the basis for efficiency gains when the quantitative

benefits of the CPM initiative are calculated.

3. Define the project culture and its goals

With a clear picture of the target process in place, it should now be possible to develop a refined set of project goals and a shared vocabulary. These are vital ingredients of any business case and create a shared sense of purpose and culture for the project. As a minimum this step should aim to produce:

• Project terms and definitions.

• Key project objectives.

• Process maps and metrics of the target process.

• A set of clearly defined and understood critical success factors (CSFs) for the project.

• Project milestones and timetable.

• A map that links target process metrics to corporate objectives.

While all of these items are important, the most vital activity is detailing the connections between the target process metrics and corporate objectives. This will demonstrate how improvements in the process and technologies deployed in the revised process will have a direct impact on the stated aims and goals of the enterprise.

4. Optimise the process

When optimising the business process the 80/20 rule can be applied. This means that it is more valuable to focus upon a few major improvements to the resource utilisation, operations and technologies of the target process than attempting to redesign every minor activity. At this stage an

THE CASE FOR CORPORATE PERFORMANCE MANAGEMENT 8

improved process is more cost effective than the optimum one. Complete optimisation, if desirable, can be achieved in subsequent phases of the implementation.

Although each optimisation will vary, the following aspects should be taken in account during the redesign:

• CPM technologies deliver a centralised strategic information hub and web-based reporting and data collection mechanisms. These will impact the creation, maintenance and distribution of spreadsheets for planning, the re-keying of figures and file uploads in data collection and the management and distribution of reports.

• CPM fosters an increased movement towards a self-service culture with respect to the provision of analysis and reporting. This will mean a reduced reliance on static reports and IT resources and an attendant increase in independent “free-form” analyses.

• A shared verifiable data store that provides “one version of the truth” will mean a collapse in the data driven gaps between process steps. This will reduce the overall process cycle time, increase data accuracy and improve staff utilisation.

Once the redesign is complete, the benefits that it will bring to the previously compiled process metrics should be quantified in terms of time, resources and accuracy. The result will be an optimised process map and a table of estimated benefits.

5. Develop the Return On Investment (ROI) model

The final stage of building the business case is the development of the ROI model which provides a quantifiable assessment of the benefits that the CPM deployment will deliver. These benefits are derived from two sources:

• Increased efficiencies. These will be delivered through resource rationalisation, improved staff utilisation and from decreased cycle time and increased data accuracy.

• Increased value. This manifests in the form of better quality decisions and by improved management of corporate risk.

While efficiencies tend to be easier to asses, value is where strategic gains lie. (It’s certainly possible to be an efficient company, yet still destroy shareholder value through poor decision making.)

The estimated benefits from the redesigned process should then be evaluated in terms of their monetary impact on both efficiency and value growth. One common method to quantify improved decision-making ability is to look at the best performing organisations in a given marketplace and assume that better decisions will be expressed by a percentage shift towards best-practice-level performance. Similarly, better risk management can be assessed by an improved return on R&D investment or better execution in new market segments.

Next calculate the total cost of ownership (TCO) of the initiative by adding together software license costs, annual software maintenance fees, implementation costs, training, opportunity costs and ongoing administrative time. The ROI can then be calculated by subtracting

the anticipated investment from the estimated total return and dividing it by the investment.

ROIs for CPM implementations vary depending on the scope of the implementation, but because of their strategic nature and relatively low start-up cost they can be significant.

Summary

CPM is more than technology. It combines people and improved business processes with integrated planning applications. Therefore a concrete business case can best be developed through a small-scale initial deployment that evaluates all three of these aspects holistically. The methodology above will provide a realistic basis for evaluating investment in CPM derived from improvements in technology, process quality and leveraging of staff as well as detailing the economic impact of improved risk management and better decision-making.

“The project brought important results both in terms of improving the planning process and in monitoring our profit/loss and financial positions. Furthermore, the project has triggered a process of change management within the organisation - from focusing our operational controls mainly on the profit and loss statement, we have moved to forecasting our profit/loss and financial positions on the basis of individual customer jobs with a significant cut in manual effort by 50%.”

Marco Caucci Molara Group Planning and Control Manager Artemide

THE CASE FOR CORPORATE PERFORMANCE MANAGEMENT 9

AN INSIGHT INTO THE ADOPTION OF A CPM SOLUTION

The revolution of improved front office finance applications is upon us. Organisations require more sophisticated software to assist finance departments with delivering more performance-related information and truly become strategic partners to the operations. As a result, organisations can become more agile and ultimately retain their competitive edge. With today’s staggering pace of mergers and acquisitions and the globalisation of trade, executives recognise the need for a better way to evaluate their strategies and manage change.

So how can you be sure that the solutions the vendors offer are the integrated applications they claim to be? How can you be sure that any of them will live up to their claims and deliver the expected benefits once a solution has been purchased? This paper will provide an insight to the evolution of Corporate Performance Management (CPM) solutions and present a framework to help you evaluate software vendors.

The road to Corporate Performance Management

Over the years, the pace of business has increased dramatically. Organisations require more efficient ways of speeding up the processes of planning, reporting, and analysis. Around the mid 1980’s, the increasing availability of PCs and the further development of client-server technology resulted in the explosion of end-user systems that could better analyse the data that became available and thus serve the needs of

the executive community in a more efficient manner.

The early 1990’s saw vendors providing solutions that specialised in specific areas such as planning, budgeting, regulatory reporting and analysis. The general strategy of the vendor seemed to be to attain the ‘best of breed’ status in a particular area. This meant that organisations potentially had a different solution to satisfy their budgeting requirements compared to that of statutory reporting. The market now refers to these solutions as, ‘Point Solutions’.

As the internet finally started to mature in the mid 1990’s, vendors realised that they could capitalise on this platform and develop new products that could support a number of business processes under one common architecture. This is what gave rise to the BI/CPM revolution.

Drivers for change

To examine the problems associated with legacy reporting systems in more detail, let us take the example of a fictitious manufacturing company. Raw Materials Plc. It has its headquarters in the UK and has 30 locations across the globe. It has aggressive growth initiatives and plans to expand into developing markets such as China and India.

It has been using a financial consolidation point solution, procured in 1995, and bespoke Excel workbooks which, have been developed internally. Each of the 30 locations has a copy of the software, a version of the database application and a set of workbooks. The solution is used to facilitate Management

(Actual, Budget & Forecast) & Statutory reporting.

The organisation uses a multitude of general ledger packages around the group and does not operate under a common chart of accounts. Data is extracted from the ledger into Excel, manipulated and then manually re-keyed into the relevant reporting application.

The original system developer left the company in 2000 and limited training was given to the successor. Consequently, application changes have been somewhat limited and an increasing amount of development has taken place back in Excel.

Whether it is the maintenance of existing sites installations or indeed bringing new sites on line, it is a time consuming and costly affair. The installation and training process can only be done by way of a physical visit to the location.

Does any of this sound familiar?

Legacy Reporting Systems

Raw Materials Plc is faced with a variety of issues with it’s finance systems. Some of these issues can be compartmentalised into the following headings:

1. Architecture & Database Technology: o Out of date, unscalable and

unsupported database technology.

o Database architecture based

upon a fixed number of dimensions, thus reducing the analytical capabilities of the product.

2. Application Overload: o Numerous applications in use,

due to inability to have a single

AN INSIGHT INTO THE ADOPTION OF A CPM SOLUTION 10

application for all reporting needs. Maintenance of multiple applications causes a large overhead.

o Collation and validation of data

across various applications, causing unnecessary duplication of data and issues with data integrity.

3. Inefficient Processes: o In a distributed environment,

rolling out structure updates can be an arduous, error-prone exercise with the responsibility on the user to ensure the update is processed correctly.

o Data updates via file transfers

impacts the organisation’s ability to enforce the “one version of the truth” principle.

o Collaboration is difficult as there

is no single repository to which users are able to refer to.

o Report development is impeded

due to the inability to hold non-financial information.

o Unable to enforce intercompany

reconciliation processes, as users are able to submit intercompany balances without having to match these entries with the counter party.

o Informal approval/workflow

process, easily outmaneuvered and thereby in direct contradiction with compliance requirements.

o Limited integration of source

ledger systems, therefore placing heavy reliance on manual data entry.

o Reporting cycles may be held in

separate data repositories [Actual, Budget, etc] thus making it difficult to see the overall result and strategise accordingly.

4. Product Knowledge & Expertise:

o Lack of internal product and application knowledge, updates become difficult to apply.

o Lack of external market

knowledge, difficult to procure assistance for development and further training.

A combination of the factors described above ultimately limit the flexibility and usefulness of the product. As this is considered to be a mission critical application, this poses a major risk.

The Changing Role of Finance

To thrive in today’s environment, businesses need to harness the power of the data that exists within their organisations. Organisations often find that the raw data they require to operate their business efficiently does exist within the myriad of in house systems they possess. However, translating this into meaningful information, in a timely manner, is often where the problems begin to arise. It is imperative that quality information is delivered to the decision makers on an ‘on-demand’ basis to ensure organisations retain their competitive advantage.

In a time when cost cutting and headcount have an increased focus, finance departments are being pushed to provide a wider spectrum of services to the enterprise. They are no longer simply the gate keepers to financial information, but rather, need to act as true business partners to the various operations and provide both qualitative and quantative information.

What is Corporate Performance Management?

CPM and the many variants that exist may be an unfamiliar notion, but

their conceptual under- pinnings are not. The earlier incarnations, be they Management Information Systems (MIS), Executive Information Systems (EIS) and Decision Support Systems (DSS), were based on similar information management objectives. The distinct advantage over earlier concepts is the truly unified technology now available to manage these processes and applications.

Simply put, it is a framework for organizing, automating and analysing business methodologies, metrics, processes, and systems that drive and enhance the performance of an enterprise, thus, facilitating the execution of corporate objectives and strategy.

At the centre of the CPM framework are planning, budgeting, consolidation and analytic applications, all of which use a common, centralised database. This in turn facilitates the ‘closed-loop’ theory, which is closely associated with performance management. The ‘closed-loop’ concept assumes common data flows through all of the applications that make up your CPM solution and thus, as business drivers change, plans, budget and forecasts are updated in accordance.

CPM – Next Generation Reporting

CPM has been proven to have a direct impact on the topline performance of an organisation and directly help to automate, manage and streamline business processes. While there are a multitude of benefits you can achieve from adopting a CPM solution, four of the key areas where you can see rapid and tangible returns are:

1. Transparency:

AN INSIGHT INTO THE ADOPTION OF A CPM SOLUTION 11

Business processes will become absolutely transparent to the enterprise. This greatly improves visibility, collaboration and efficiency. Bottlenecks can be clearly identified and removed. It can highlight where delays are occurring and track each element of a process as it passes through a particular workstream. This in turn will also help any compliance pressures that you may have to adhere to.

2. Consistent Business Processes: o Every instance of a process gets

executed exactly as you have defined it, there can be no deviation from this. This in turn also means that a common methodology can be used to monitor and assess process efficiencies amongst the user community.

3. Centralised Data: With all performance related data in a single and centralised repository, there will be many benefits that can be realised. Some of these are:

o A standard, up-to-date technology used by the entire organisation

o No local instances of

software

o No file transfers relating to application or product updates

o No collection of data

submissions

o Common data and rules

o A single place to look for all financial and non-financial data

o A responsive platform to

adapt to new reporting requirements

o Proactive reporting for exceptions and alerts

4. Decision Making: o With a combination of built-in

financial intelligence and robust, flexible database technology, your users can spend more time on decision making activities, rather than simply collecting and processing the data.

The Evaluation Process

When an organisation is confronted with choosing a new CPM system, the decision can often be very confusing and complex. At first glance, all vendors will appear to offer a similar, if not identical solution.

To a degree, this statement is correct. The skill is to clearly and precisely match your internal processes and requirements with the vendor’s offerings. Then, evaluate whether they can be satisfied in their entirety, rather than being guided or indeed duped by the vendor to change your processes to fit with their product functionality!

1. Understand & Assess Business Requirements: Before collaborating with the vendors, you first need to assess your business and operational requirements. Then set the strategic goals and associated measures of success. This product agnostic analysis will address what your current procedures and process are, the deficiencies associated with these and what you ultimately require as an end result.

During this first phase, the evaluation team should also be

established. It should contain cross-functional members which will comprise of representatives from all of the key stakeholder groups, especially Finance and IT.

It also imperative that at this stage, ‘scoring criteria’ is identified so that throughout the following phases, a clear mechanism will be in place to rank the vendors offerings in terms of their understanding of your business issues, product functionality and market presence.

2. Request for Proposal (RFP) & Initial Vendor Evaluation: You must now decide who should make the vendor shortlist and also determine under what basis they qualify. Typically, a set of four vendors would be assessed. Do not overlook vendors who are unfamiliar. They could have a better solution or deliver equal functionality for less cost.

Using the business requirements definition as a foundation, you must now create the Request for Proposal (with scoring criteria), that will be submitted to each one of the vendors you decide to evaluate. The RFP will be the primary document which you use to assess the vendors and must represent both finance and IT requirements. It is imperative to ensure that the questions you ask are clear, precise and most importantly, challenge the vendor.

Based upon the feedback from the RFP process and scoring, evaluate the vendors product and hone in those areas which are of particular importance to your organisation’s requirements. The outcome of this process will result in further narrowing down the vendors short listed. Ultimately, the goal is to see if any vendor has failed to meet your

AN INSIGHT INTO THE ADOPTION OF A CPM SOLUTION 12

“must have” and “like to have” requirements.

3. Vendor Interviews & Proof of Concept: We would recommend that you consider a proof-of-concept exercise as part of the vendor interview process. This would be a customised demo specific to your requirements. All vendors can present an impressive demonstration that highlights the standard features most clients ask about. You need to push the vendors into areas that are unlikely to be part of a canned demo such as ease of setup, use and maintenance. Have the demo customised to your particular needs, focusing on the functionality you will use most often. Ask to see how one of your standard reports would look or how the system would handle some of your toughest calculations and logic.

Throughout the entire process, keep in mind that you are selecting not just a product, but a strategic partner as well. You need to determine if their people will integrate well into your team and company culture. Also whether they are financially stable and have a strong vision for the future of the product.

4. Due Diligence, Final Selection & Negotiation: Finally, we would recommend you visit at least three reference clients. Use this opportunity to understand their experiences during their process. Although references are advocates for a particular solution, they are generally very honest and therefore, use the sessions to learn about their relationship with the vendor, how the implementation went and of course whether the vendor has been responsive, post

the go-live date. In conjunction with the above, independent market analysis should also be conducted to further narrow down your choice.

By conducting a thorough evaluation, organisations can save time, money and most importantly reduce the element of risk. Implementing a flexible and repeatable model for evaluations, will give all stakeholder groups comfort that the evaluation was fair and complete, which will give the resulting project the organisational buy-in it will need to succeed.

A typical CPM adoption strategy tends to focus on the development stages of a project lifecycle, whereas, the vendor selection process often receives far less attention. So why is the vendor selection exercise so important and what are the risks associated with not adopting a comprehensive selection process?

Risk Mitigation

1. The Market: The CPM market has experienced rapid growth and turbulence as it continues to mature and converge with BI and enterprise applications. This consolidated market has meant Mega Vendors have eclipsed smaller vendors and new entrants, making it harder for them to get the same consideration. A common misconception is that by limiting the selection to the market leaders, the risk is mitigated; however this argument has its flaws. By dismissing niche or emerging players at the outset, you may be foregoing the chance of working with a flexible, more responsive partner, who could provide an inexpensive solution to your business requirements.

2. The Sales Pitch:

CPM vendors have an uncanny way of making their products sing and dance to the tune of the prospect. It will appear to the untrained eye that the vendor offering can easily satisfy the requirements set. However, you should question a) how clearly defined are your requirements and b) what has been achieved using the vanilla product and how much customisation has been used.

3. Communication: It is generally accepted that vendor selection projects require a steering committee that is cross-functional and made up of representatives from all of the key stakeholder groups, thus providing a forum for balanced discussions. How can we ensure that the stakeholders are effective in communicating their requirements to the committee, and conversely, how can we ensure that they communicate the overall vision to their divisions/operations locally, and thus getting the required buy-in from the entire user community from the outset?

The issues and risks highlighted above are by no means exhaustive but hopefully go some way in proving that the vendor selection exercise is key to the overall success of a project. To this end a clear and comprehensive selection process is essential.

“The CPM market can be very confusing, with many vendors seeming to say the same thing and offering the same functionality and an ostensibly identical or similar solution, we decided we would need the assistance of a specialist consultancy. We probably would have come to the same conclusion but it would have taken another 5-6 months!”

Gerry Devanney Group Financial Controller The Premium Aircraft Interior Group

AN INSIGHT INTO THE ADOPTION OF A CPM SOLUTION 13

FINANCIAL GOVERNANCE: RESISTANCE IS FUTILE!

Financial governance may still be a controversial subject in some boardrooms, but in the wake of recent accounting scandals and the affect that the financial crisis continues to have on the global business community it’s an aspect of modern corporate life that is here to stay. Indeed, the impact of this type of oversight has altered the role of the Chief Finance Officer dramatically in the last ten years as finance teams come under growing internal and external pressure to prevent financial irregularities within the enterprise as well as increasing the transparency and reliability of financial processes.

More controls vs. less time and resources: the unstoppable force meets immovable object?

The impact of governance on the role of the finance function can be seen as an increased focus on four related areas: the delivery of verifiable financial information, the development and maintenance of efficient and reliable business planning and reporting processes, the management of regulatory compliance and the deployment and regulation of comprehensive financial control processes. In many cases this translates into two potentially conflicting pressures. Firstly, there is the need to streamline the financial reporting and planning processes as exemplified by a rapid financial close and efficient and accurate budgets and forecasts. Running somewhat counter to this is the requirement to maintain a financial infrastructure that ensures accuracy and auditability, one that incorporates

multiple checks and balances to trace the source and history of each number. It goes without saying that the deployment of such processes has the potential to increase corporate bureaucracy and slow the business decision making cycle.

Spreadsheets and ERPs: the undynamic duo

It’s no wonder then that in the initial scramble to comply with regulations such as Sarbanes-Oxley and its international counterparts many companies spent large amounts of money on automating manual processes. Using a combination of spreadsheets, Enterprise Resource Planning (ERP) systems and manual labour they achieved a hurried and minimal level of compliance. Rather than being a function of best-practice methodologies these technologies were adopted simply because they were convenient. Spreadsheets are viewed as “low-cost”, easy to set up and do not require any support from the information technology (IT) department. Similarly, the ERP is already deployed throughout the organisation and is considered as the definitive corporate financial data store.

Unfortunately, this patchwork of technologies often causes as many problems as it resolves. For example, spreadsheets are excellent personal productivity tools, but without resorting to programming they lack the process control features and audit functions that serious financial governance demands. Indeed, it could be said that excessive reliance upon spreadsheets is likely to encourage the very practices that compliance procedures are intended to eliminate, to say nothing of the hidden manual labour costs and data integrity issues that

spreadsheets incur. Additionally, ERPs do not provide facilities to handle group consolidation or intercompany reporting in enterprises where there are a mixture of ledger systems. Furthermore, ERPs typically lack the ability to restate figures using different reporting formats and recognition methods.

Moreover, this piecemeal approach does little to resolve the underlying challenges that many finance functions face. Firstly, despite being interrelated each financial process is managed in isolation with its own technology. Secondly, despite the spiralling complexity of reporting requirements, finance teams have less time than ever to compile information from the multiple sources required for the financial close. As a consequence, validation becomes a costly luxury and data integrity is low. Thirdly, a lack of rigourous process control and workflow tracking mean that the history of figures cannot be verified accurately. As a result, many financial processes incorporate a high risk of data integrity errors combined with poor transparency and historical tracking.

Financial governance applications

One way that best practice organisations resolve these multiple headaches is by the adoption of a specifically designed integrated technology platform. One that not only addresses the unique challenges of corporate governance, but which also comprises features that aid the CFO in the broader challenge of monitoring enterprise performance. Such an application typically provides the following features:

FINANCIAL GOVERNANCE: RESISTANCE IS FUTILE! 14

• Financial Consolidation. The ability to collate, consolidate and then report upon core performance data is a key component of the financial governance process. Consolidation solutions must include double entry logic, journal management, full auditability, management of multiple currencies and complex group accounting structures. The consolidation process should also allow comprehensive reporting and analysis facilities for the preparation of the statutory and management reporting packs as well as handling corporate structures that comprise more than one ERP.

• Full integration with budgeting, planning and strategic management processes. In order to provide timely and efficient support for corporate decision making the application should provide a centralised, integrated platform for the consolidation, budgeting and forecasting processes. It should also provide a rich analytical environment for comparative reporting.

• Intercompany transactions. The application should enable tracking of intercompany activity at the level of individual transaction as well as allowing automatic transaction mapping to occur between business units. It should also provide a comprehensive approvals and rejections process and associated administrative reports.

• Access and role management. This allows the definition and management of individual users or user groups and maps them to roles, responsibilities and steps within the business processes.

• Risk management. The application should enable managers to assess a given process and identify and document the risks associated with it. It should also allow the definition and documentation of the appropriate control functions and provide an outline of corrective action where necessary, preferably through the use of a risk control and assessment matrix.

• Process control. The application should provide extensive control facilities that allow management and tracking of each step of a financial process. The application should provide sufficient detail to allow users to assess the effectiveness of individual process steps and provide detailed historical tracking of who did what and when.

Financial Governance and performance

Integrated financial governance applications resolve the pressure to provide timely and reliable financial information and guarantee its validity and compliance. They do this by ensuring that the financial planning and reporting processes are managed in an integrated manner and deliver them within the context of a secure process control environment. As a consequence the finance team can monitor performance and be assured that each financial process is rigourously policed.

Moreover, companies that utilise a centralised solution to meet their financial governance needs have a clear business advantage over their competitors. Since each financial process is managed in a more integrated and efficient way, the cost impact of meeting business regulations is reduced. Similarly, as

new national and international regulations emerge the flexibility and reliability of the application mean that the organisation is better placed to meet them. Ultimately, this means that the management team are able to spend more time focused on improving business performance safe in the knowledge that their decisions are based on figures that are not only accurate, but meet the highest standards of regulatory control.

“After using a legacy consolidation tool for several years, the implementation of a new CPM solution has not only led to cost savings resulting from reduced man-hours and effort during monthly/annual reporting periods but also improved reliability and consistency of reported information as well.”

Andrew Bannister Group Finance Director Barloworld Holdings Plc

FINANCIAL GOVERNANCE: RESISTANCE IS FUTILE! 15

STRATEGIC PLANNING: MOVING IT OUT OF THE BOARDROOM

Strategy n. (pl. strategies) 1 a plan designed to achieve a long term aim. 2 the planning and directing of military activity in a war or battle (Oxford English Dictionary).

Strategy: what’s at stake?

As the definition above implies, strategy is derived from the ancient Greek word for military leadership and planning. However, a brief analysis of strategic planning processes suggests that if business is war many organisations have little clue as to who they are fighting, what they are fighting for or why they are even fighting in the first place.

The ability to clearly define, communicate and execute strategy is the single most important activity of any organisation. Research has shown that companies that execute their strategies consistently deliver higher levels of shareholder value and remain in the top performing tiers of their markets, yet as Kaplan and Norton note, less than 5% of the typical workforce can articulate their company’s strategy.

A dislocated and incomplete vision

The biggest single problem with strategic planning is that it is not an integrated process. Indeed, while most corporate strategy documents do provide the basis for the first round of budgeting, this is typically a financial planning cycle based on accounts that are held in the corporate ledger package. By contrast a good strategy, is all about activities and in most cases there is no clear link between accounts in

the ledger and the tactics in the strategic plan. The budget then is an incomplete representation of the strategic vision.

This dislocation between the steps in the planning process is mirrored in the disparate technologies that are often deployed to manage it. For example, it is not unusual for the strategic plan to be developed as a Word document containing spreadsheet inserts for fiscal assumptions and powerpoint slides to illustrate salient points.

On the other hand, the budgeting process is typically an in-house developed spreadsheet solution or an extension of the company’s ERP system. In some cases it may even be a specialised budgeting solution. Reporting and monitoring of actuals may be provided by old-style green screen reports or the IT department may have invested in a Business Intelligence tool to provide rudimentary slice and dice reporting.

The consequence of this patchwork of technologies is that there is little or no chance of the strategic thinking encapsulated in the original plan flowing unimpeded though the individual steps of the planning cycle. Moreover, monitoring the execution of the plan is practically impossible.

Lack of communication = missed opportunities

Similarly, it is not uncommon that the strategic plan remains as shelf-ware, gathering dust in its three ring binder never to be communicated to those whose job it should be to implement it. This lack of communication results in missed business opportunities. Not merely because employees are not executing the designated corporate strategy, but also because many

innovations flow up from the customer facing elements of an organisation. As a consequence, companies that do not have two-way communication channels in place to evaluate these new ideas may become stagnant and fall prey to their competitors.

Event driven versus calendar driven

Research indicates that the average company spends around 4 months annually in producing its strategic plan. This means that most organisations simply do not have the time and resources necessary to reassess their strategy in detail should unexpected events occur. As a consequence many organisations operate in a state of cognitive dissonance, knowing that their strategic assumptions are flawed, but lacking the time to complete a root and branch revaluation of the impact of change. One only has to look at the fate of the american automobile industry to see the negative consequences of continuing to execute a strategy whose basic market assumptions are out of date.

Lack of ownership

Ownership of tactics is a key part of delivering any strategy. However, most employees first involvement in the strategic planning process is when targets are assigned to them at budget time. Since these targets are usually developed without their participation, it’s not unusual for budget-holders to feel little responsibility toward meeting them.

One way to engage stake-holders in the execution of strategy is to incentivise them to deliver on the aspects of the plan for which they are responsible. This is another aspect of strategy where

STRATEGIC PLANNING: MOVING IT OUT OF THE BOARDROOM 16

communication is absolutely vital to ensure that incentives appropriately match the behaviours they are designed to reinforce. Without an integrated view of the plan it is all to easy to get it wrong.

For example, a retail bank recently developed a strategy to “get to know” its customer base to generate add-on product sales and the middle management team developed an incentive plan that rewarded “call-throughput”. Unfortunately, although there was an increase in the volume of customer calls dealt with, it came at the cost of a reduction in the average amount of time spent with each customer. Consequently, the number of add-on sales actually decreased year-on-year.

Lack of balance

Target setting is a key part of the strategic planning process. However, research indicates that the majority of plans focus on data that is easy to collect. As a result targets in strategic plans typically monitor internal indicators rather than external market conditions. They contain a surfeit of financial measures and a few non-financial yard-sticks. Furthermore, they tend to be biased towards reporting historical performance rather than forward looking indicators.

The problem with this approach is that while financial measures provide an excellent transactional view of what has happened, long-term corporate viability often depends on being able to predict non-financial measures, such as staff retention and learning, customer satisfaction and product reliability.

Closing the loop: Corporate Performance Management

The combined impact of all these factors is that in most organisations strategies are not communicated

effectively, are poorly executed and inadequately monitored. This is where Corporate Performance Management (CPM) solutions can provide an answer. As Gartner Group notes, “CPM is an umbrella term that describes all of the processes, methodologies, metrics and systems needed to measure and manage the performance of an organisation.” As such, this class of application is designed to address the weaknesses inherent in strategic planning processes and technologies.

Specifically, a CPM application will :

• Provide a platform that treats the entire planning cycle as a closed-loop process. This means that strategic targets are integrated into high-level budget targets and actual data flows through the system to provide monitoring of progress. The result is a feedback loop that enables the organisation to tailor its behaviour to take advantage of changing market conditions.

• Provide a centralised data repository which functions as a single version of the truth with consistent and focused business rules.

• Provide strong forecasting and predictive facilities to counter the historical bias of existing reporting solutions.

• Provide strategy mapping, workflow management and data visualisations that allow strategy to be broken down into its tactical components, so that they can be communicated quickly and clearly to stake-holders

• Allow effective monitoring of the plan through advanced exception reporting facilities that enable progress to be easily measured, balancing internal and external measures while including non-financial and financial performance indicators.

• Ensure that stake-holders have a clear sense of what is expected of

them by tracking responsibilities, individual targets and monitoring performance against them.

CPM: enabling corporate agility

CPM applications provide a centralised, holistic planning framework designed from the bottom-up to ensure that all participants in the execution of strategy are fully aware of how their day-to-day activities affect the delivery of the plan. The use of CPM systems revolutionises strategic planning, converting it from a calendar driven event into a continuous cycle of planning, delivery, monitoring and feedback. It ensures that the planning process can incorporate new economic assumptions, competitor products and unexpected events as well as fostering innovation from business units. Indeed, through the use of these solutions, corporate strategy can be transformed from a static snapshot of executive thinking into a fundamental aspect of every business decision that each employee makes every day.

"Numbers give the board and executives the hard data needed to monitor, analyse, and assess business performance and strategy. Key numbers are identified in the strategic planning process, and specific targets are set to measure performance against goals. The business's management systems must be able to capture valid, complete, and pertinent numbers that show whether operations, people and strategy execution are effective, and they must point to where adjustments are needed."

Thomas Cowan President & CEO VECKER Institute

STRATEGIC PLANNING: MOVING IT OUT OF THE BOARDROOM 17

THE BUDGET: A NECESSARY EVIL?

Few people enjoy the budgeting process. It can be one of the most problematic, complex and tedious aspects of the business planning cycle. Research has shown that over 50% of companies that use traditional budgeting tools and methods are unhappy with the process and the resulting plan. In most cases the reasons for this widespread discontent can be traced back to two key issues: A poor budgeting process and inappropriate tools.

Focusing on what you can measure rather than on what matters

To illustrate this let's examine a typical budgeting process. The first step is for the senior management team to meet to determine the direction of the enterprise for the coming twelve months, usually within the context of the strategic plan. Based on these discussions they will develop high level targets, often little more than sales and profit growth figures allied to a set of key objectives.

Once these high level targets are communicated to departmental heads, one of two things happens: Managers either blow the dust off of last year's plan and attempt to modify it to meet the new targets or they will open up their departmental spreadsheet models and start entering numbers.

Both approaches have serious consequences for the resulting budget: simply reusing last year's plan and applying changes based on "gut feel" takes no account of new macro-economic conditions or the underlying drivers of profitability.

Departmental models, on the other hand, are often too detailed and focused on the line-items that exist in the general ledger. Indeed, research by the Hackett Group has shown that it is not unusual for a company to have detailed monthly plans for photocopier costs, yet lack a realistic model of what it will sell to its top ten customers. This is because most budget models focus on what is easy to measure rather than on what is important to executing strategy.

Horse trading: where their budget becomes your problem

The path to completing the budget is strewn with obstacles. The data collection stage, for example, is a slow and often manual process. In most budget cycles it consumes the majority of resources and time. Budget holders struggle to collect the data that they can, consolidate it, tweak the figures and horse-trade with subordinates in an effort to come up with final numbers that they feel are achievable.

However, when the departmental figures are collated and they fall short of the original high level targets, CFO's often resort to issuing top-down directives: all revenue centres must increase turnover by a fixed percentage. Discretionary expenses are to be reduced. Margins must be adjusted. In order to meet these cost trimming requests budget holders may cancel projects and initiatives without a thorough analysis of their overall impact. Consequently, while the budget may meet its targets and be completed on time, the resulting plan is one that no-one feels committed towards delivering. It's no wonder then, that only 30% of budget holders feel that the budgets they agree to are achievable.

Stitched up

This situation is exacerbated by the mixture of technologies used in the typical budget process. These days it is not unusual for businesses to attempt to complete their budget using the data capture module of their ERP or perhaps a bespoke spreadsheet solution. The problem with these approaches is that they use products that have not been designed with collaborative corporate budgeting in mind. Spreadsheet systems are cumbersome, single user and prone to error. ERP modules can be clumsy to use and may focus on capturing data at general ledger level. It is not uncommon for departments to use multiple or incompatible tools and collect data at different levels.

One effect of this is that budgets often resemble some sort of Frankenstein's monster; they are composed of incompatible parts sewn together for convenience and lack any real focus or coherence. Worse still, they fail to be linked in any meaningful way to the strategic plan.

Planned obsolescence

Perhaps the biggest single problem with the budgeting process is the amount of time that the process takes. By the time that two bottom-up phases have been completed and the final top-down adjustments have been put in place 4-5 months may have elapsed. In today's dynamic marketplace that means that the prevailing market conditions will have changed and the make-up of company itself may even have altered substantially.

Problems with the budgeting process

THE BUDGET: A NECESSARY EVIL? 18

As the above example demonstrates, the typical budgeting process is deeply flawed:

• The budget is not integrated. Departments plan as operational fiefdoms with their own tools and to their own levels of detail. The result is a data integrity nightmare.

• Comparative reporting is difficult. Actual figures may be collected and reported at a detail level but the budget will be planned in a more consolidated way. These two types of data may even be stored in different data repositories. As a consequence, carrying out meaningful reporting against the budget is a task in itself.

• The budget is not linked to strategy. Most budgets focus on planning the items that exist in the general ledger. These do not accurately represent the operational tactics that the business must execute in order to achieve its strategy.

• The budget is not fact based. The horse-trading and negotiating which inevitably becomes part of the budgeting process mean that the final budget is not based upon the real drivers of business success; rather it is a reflection of the politics within the organisation.

• A lack of commitment. The number of iterations and excessive detail mean that managers do not feel that they own the plan.

• The budget is too slow to produce. The typical budgeting process last 4-5 months and multiple iterations. The sheer

amount of time and effort involved make it out-of-date as soon as it is complete.

• "Thank goodness it’s over!" Rather than being treated as the key to delivering the strategic plan, the budget is regarded as a necessary evil. Surviving the process is more important than the accuracy of the resulting plan.

How Corporate Performance Management can turn the budget into a competitive advantage

The budget provides the foundation for all other business planning processes. It should enable an organisation to align its resources and activities so that executing corporate strategy becomes everybody's every day job. Unfortunately, in many organisations the budget is actually an obstacle to this happening.

Corporate Performance Management (CPM) applications provide the best practice solution to these problems. They allow budget holders to plan at an appropriate level of detail, enable the budget to be linked to corporate strategy and, most importantly, reduce the time taken to complete the planning process. As a result CPM solutions allow organisations to transform the budget process from a necessary evil into the first point on a virtuous circle of strategic delivery.

“Budgeting is not pleasant. Too often referred to as a necessary evil, largely as a consequence of the time taken to collate and the likelihood that high level adjustments will be required as the results do not sit comfortably alongside corporate objectives. Done efficiently and effectively, a budget can be a critical piece of the strategic planning jigsaw - done less well and it becomes obsolete almost before its completion."

Paul Newton VP Finance Croda International Plc

THE BUDGET: A NECESSARY EVIL? 19

GETTING OUT FROM BENEATH THE SHEETS

Finance teams love spreadsheets. They're easy to use, quick to set up and simple to distribute. They allow staff not versed in Information Technology to create and maintain simple business models, develop new scenarios and share them with their colleagues.

It's ironic then, that the very flexibility and openness that make spreadsheets ideal as personal productivity tools undermine their suitability for corporate budgeting and reporting.

To illustrate this, let's examine the budgeting process of a global manufacturing company with a handful of sales offices, three production centres and twenty cost centres in multiple locations around the world.

Pieces of the puzzle rather than the full picture

The budget manager develops a spreadsheet pack for the data collection and consolidation process of the annual planning cycle. The pack is based on the chart of accounts and can be consolidated using a macro built into the master spreadsheet. The pack also contains a Word document extracted from the strategic plan that lists key goals that budget holder's should focus on during the planning process.

The problems typically begin before any numbers are even collected. Since spreadsheet applications are single user and contain poor built-in features for working collaboratively, the budgeting pack must be sent to users via email. This means that users sometimes lose the pack or worse

still receive the wrong sheet altogether.

Once the sheets have been distributed to the budget holders at the production sites, they use their own in-house models to develop raw material cost estimates. However, because growth assumptions are not stored centrally these models are driven from a previous version of the revenue forecast.

Other departments fair no better: The sales managers generate their cost projections based on outdated expense policies, whilst managers in the personnel and finance teams add extra lines into the discretionary spending category to capture items that are not in the ledger.

The result is a disjointed and error-prone data collection process. Information is not shared between departments and incorrect assumptions are propagated throughout the plan. Rather than giving a clear picture of where the business is going, the assembled budget resembles a jigsaw puzzle with missing pieces.

No time for analysis

Things become even more complex when there are changes. Halfway through the second pass of the budgeting process the macro-economic assumptions change and the board decide that the sales targets should be increased. The pack has to be reissued with an updated timetable and a new assumptions document.

Not only do budget holders have to go through the process of re-entering their numbers, but since there is no version control some complete the wrong pack. Similarly, the extra lines added by the

personnel and finance departments play havoc with the consolidation process and many figures must be re-keyed and consolidated manually.

Given these problems, it is no surprise that a recent report by KPMG indicated that up to 91% of spreadsheets contain undetected errors. Moreover, research has shown that the data collection and consolidation process consumes around 80% of the available time in the typical budgeting cycle. This affords management teams little or no opportunity to analyse the content of the budget itself.

A lack of joined up thinking

Once all the budget data has been collected, consolidated and approved a fundamental problem arises: there is no reliable way for senior management to be confident that the budget is going to achieve their goals. This is because the budget pack and legacy reporting systems focus on the chart of accounts and the strategic plan is forward-looking and activity-based.

Spreadsheet-based budgeting: not the tool for the job

This example reveals a number of the flaws of spreadsheet-based budgeting systems:

• They are non scalable. Because they are personal productivity tools, spreadsheets do not provide a collaborative, scalable planning environment. Once a budgeting process grows beyond a few users the simple act of managing the spreadsheets becomes a job in itself.

• There is no single version of the truth. With a spreadsheet-based solution everyone has their own

GETTING OUT FROM BENEATH THE SHEETS 20

version of the numbers. This leads to time-wasted in non-productive disagreements about who has the correct figures and other data integrity issues.

• There is not enough time for analysis. In a spreadsheet-based budgeting cycle, too much time is spent collecting data and not enough time is spent on analysis and scenario modelling.

• They don't support strategic planning. Spreadsheet-based budgets and reporting tools tend to focus on the historical reporting structure of the organisation. Strategic planning is concerned with business activities.

• They are inflexible. Spreadsheet-based budgets are difficult to change. Once the pack has been sent to departmental budget holders, updating assumptions or adding new lines can only be done by reissuing the budget pack. This creates a version management headache and leads to problems with data integrity.

• They do not support compliance processes. The current regulatory environment demands that data integrity controls and audit trails exist in all financial processes. Spreadsheets were never designed to provide this level of auditability. As a consequence, it's almost impossible to find out who changed a given figure and when.

• They discourage re-forecasting. A rigid,"one-shot" budgeting process simply fails to reflect the complex, dynamic nature of today's business environment.

In order to remain competitive organisations must re-forecast regularly and consistently, something that is not feasible with a spreadsheet-based planning system.

Get out from beneath the sheets: Move to an integrated corporate performance management solution

The budget is the cornerstone of all other business planning processes. It should enable an organisation to align its resources and activities so that executing corporate strategy becomes everybody's every day job. Unfortunately, most organisations continue to struggle beneath the burdens imposed by spreadsheet-based budgeting systems.

Corporate performance management (CPM) applications provide the best practice solution to these problems. They deliver a single-source, scalable and easy to use technology platform that takes the effort involved in the budget data collection exercise and converts it into time for scenario analysis. BPM solutions support complex budgeting processes, scenario modelling and integrated strategy management and allow organisations to transform a once-a-year planning chore into real business insight and competitive advantage.

“At Hamworthy Plc, we have recognised that spreadsheets have reached their limits for all Group data-collection and reporting processes. Some of the problems we come across each year are include:

• The initial time to set up the templates and circulate them around the Group

• The impact of subsidiaries introducing new product groups in to the templates - typically identified for the first time during the budgeting process

• Version control, with subsidiaries preparing more versions than are actually submitted to Group, as well as ensuring everyone is kept in the loop as to what changes need to be made / have been made from one version to the next

• General integrity checks and ensuring consistency between P&L, Balance Sheet and Cashflow

• Since we re-forecast our current year on a monthly basis - ensuring that the 'opening position' for the budget period reflects the most up-to-date position is a major issue.”

Gary Coleman Group Chief Accountant Hamworthy Plc

GETTING OUT FROM BENEATH THE SHEETS 21

THE CASE FOR COLLABORATIVE BUDGETING

Corporate Performance Management (CPM) tools have come a long way in the ten years since Gartner first defined the category in 2001. At the time there were very few applications capable of providing a truly enterprise-wide platform that could connect all the disparate parts of the corporate plan into a single closed-loop process. While most applications in the category provided a solid platform for integrated budgetary planning, few included the ability to tie these to the assumptions of the strategic plan and even fewer provided anything beyond the most rudimentary facilities for collecting the strategic and tactical thought processes behind a given plan.

A budget is more than just numbers

Indeed, it may well be these technological limitations that have strait-jacketed some CPM implementations into little more than technology projects that replace error prone spreadsheets with a more integrated and robust technology. There is little doubt that this may be an advisable approach for the initial phases of a broader CPM implementation, but consider the following: firstly modern CPM suites provide much richer data capture facilities than their forebears. Secondly, rather than being an end in itself the financial data produced by the annual budget or quarterly forecast are merely the most visible output of a complex process that encompasses a wide variety of non-numeric information.

Indeed, each draft of an annual plan or forecast will incorporate not only internal and external performance data and assumptions, but also the results of economic discussions, competitor analyses and a raft of contextual documentation ranging from the more structured content of web sites, Word and PDF files to the

less structured content of e-mails and exchanges via messaging technologies.

This raw material can be broken into three distinct categories:

• Quantitative information The traditional bedrock of the budgeting process: financial and non-financial numeric indicators that describe in numeric terms the goals of the enterprise.

• Qualitative information Non-numeric information that will impact upon the plan such as the strategic and tactical goals of the organisation. Similarly, this category will also include information about competitor activities and product launches, geopolitical opportunities and/or environmental considerations.

• Communications These form the connective tissue that relates qualitative assumptions to quantitative data. They also document the discussions and debates concerning the problems and opportunities inherent within this information. Examples of such data would be memos, e-mail chains or intra-organisation messenger transcripts.

Traditionally, much of this qualitative contextual information is discarded in favour of a purely numeric view of the business and yet it is arguable that there is as much value in the thought processes that the planning process provokes as there is in the numbers that it produces.

This reductive aspect of forecasting and budgeting means that the wider business context is sometimes absent from the resulting plan and that the process itself can devolve into an internally focused game of sandbagging, subterfuge and horse-trading. Indeed, the business world is rife with examples of organisations that engaged in such internecine strife only to have been blind-sided

by competitors with disruptive technologies or business models.

Collaborative budgeting: a transformational opportunity

A broader view of the enterprise planning process coupled with the functionality of modern CPM suites offers forward-thinking organisations the opportunity to adopt a more comprehensive, workflow-based approach to planning. Collaborative budgeting ensures that each of the three information categories are captured within the CPM system and then formally combined into an integrated plan. Consequently, approvers and key-level decision makers are able to view the thinking behind each assumption and scenario, enabling organisations to guarantee that no major competitive strategies, product launches or macro economic indicators have been missed, while delivering a robust and comprehensive operating plan which will enable the business to execute its strategies effectively.

Organisations that accept the challenge of this approach will need to ensure that their CPM suites provide the following tools:

• Workflow facilities These templates document the appropriate steps for each stage of the process as well as ensuring that they are followed in the agreed sequence. For a collaborative budgeting application, key steps will be ensuring that all three types of information have been loaded into the system as part of the final submission.

• Quantitative information capture CPM applications have traditionally provided robust facilities for quantitative data capture. They allow organisations to streamline the creation of forecasts and budgets that are aligned with strategic plans and tactical initiatives, while eliminating the data integrity issues

THE CASE FOR COLLABORATIVE BUDGETING 22

associated with spreadsheet-based solutions. By storing information in a centralised database along with comparative actuals they ensure a “single version of the truth” and a closed-loop planning/reporting cycle.

• Qualitative information capture The most recent generation of CPM applications provide advanced capabilities for storing contextual information. Of course there is still support for the more traditional "cell note" style of narrative on a given figure, but applications suitable for collaborative budgeting provide the ability to store:

• PDF files

• Word Documents

• Excel Spreadsheets

• E-mail threads

• "Cuttings" from external web sites and data sources

Moreover, this information can be indexed by plan or linked to individual planning figures where necessary.

• Communications capture Many large scale finance functions routinely make use of intra-office messaging technologies such as office messenger to undertake business discussions and used wisely this can provide the backbone for collaborative budgeting discussions, transcripts of which can then be stored in the centralised CPM database. Likewise, messaging technologies can often be more effective in obtaining immediate responses from colleagues than methods such as telephone or e-mail.

• Finance Portals Many CPM suites provide web-based portals that enable budget holders to securely access the information stored in the system via corporate intranets. Effectively this allows the CPM system to become a one-stop-shop or finance-hub, delivering planning and contextual information to the entire finance community. Moreover, by exploiting these built-in features the enterprise can maximise the return on a technology that has already “bedded in” while avoiding the necessity of implementing a separate document management system.

Collaborative budgeting: a 360-degree view of your business

A comprehensive implementation of the document capture features of a CPM system is required in order to collect the rich array of quantitative, qualitative and communications data that underpin collaborative budgeting initiatives. However, the inclusion of all types of data into the budgeting process along with a workflow-based process can provide the enterprise with a 360-degree view of the business environment and the ability to detect problems and opportunities well ahead of the competition.

THE CASE FOR COLLABORATIVE BUDGETING 23

CASH-FLOW AND CORPORATE PERFORMANCE MANAGEMENT: CAPITAL PUNISHMENT?

In today's economic environment finance functions are under more pressure than ever to unlock the cash in their collection processes. However, business structures and supplier relationships are more complex than they have ever been. Globalised corporate infrastructure and acquisition programmes mean that finance functions are often formed of poorly integrated fiefdoms or lack good cross-functional connections to the revenue generating parts of the business.

Similarly, as organisations push into new territories these markets bring with them unfamiliar cash collection practices: payment terms may differ significantly from those in more established territories or there may be foreign exchange controls in place that disrupt and delay the inflow of cash from operations.

It’s no wonder then, that as organisations feel the effect of the “credit crunch” in addition to these internal pressures, investors are placing renewed focus upon corporate cash generation. Indeed, the tight management of working capital is an indicator of efficient and effective internal processes and is highly sought after by investors when forms of credit are restricted. Moreover, research indicates that organisations who emphasise improving the efficiency of their cash collection processes consistently outperform their competitors and

deliver greater value to their stakeholders.

Short term fixes vs. long term solutions

As a result of the “credit crunch” customers are taking longer to pay their invoices and are demanding longer payment terms. Conversely of course, businesses are attempting to shorten their terms or even demand payment up-front. While such measures may have a positive impact on cash-flow in the short-term there is the distinct possibility that ultimately they will result in corporate "blowback" driving smaller suppliers out of business. Best practice organisations are eschewing such tactics in favour of a more medium-term view that incorporates a rigorous review of their working capital management practices:

• Process control. Such organisations ensure that their cash-flow reporting has a high priority and visibility and ally this to a detailed understanding of their different collection processes. They undertake streamlining initiatives to reduce overall collection cycle times. Moreover, they define working capital and cash targets and drive them down the organisational hierarchy as well as horizontally between functions into every relevant part of the business.

• Forecasting accuracy. Research has shown that cash-flow forecasting in the majority of organisations is low, with around 25% reporting that their cash-flow forecasts are regularly off target by 30% or more. Best-practice organisations, on the other hand, have much higher rates of accuracy. They achieve this by strengthening the links between

finance and the departments that provide inputs into the forecasting process and ensure that lines of responsibility are unequivocal. Furthermore, they build forecast submission processes that include a comprehensive and controlled review and approval phase.

• Incentive plans. Unlike the majority of businesses, best practice organisations establish bonus and payment cultures that link employee incentives directly to good cash and working capital management practices.

• Consistency of focus. The best performing organisations make cash and working capital management a cornerstone of their operational strategy. They do this by ensuring that cash collection and management strategies are communicated throughout the organisation. They also secure executive sponsorship for these programmes and put reporting processes in place that ensure that working capital management is closely monitored and managed during daily business operations.

Corporate performance management and working capital.

Corporate Performance Management (CPM) solutions are an important part of many organisations’ IT strategies. Industry analyst Gartner defines CPM as “an umbrella term that describes the methodologies, metrics, processes and systems used to monitor and manage the business performance of an enterprise.” Indeed, CPM solutions provide a platform that integrates and streamlines all corporate operational and strategic planning and reporting processes.

CASH-FLOW AND CPM: CAPITAL PUNISHMENT? 24

Implementation of such a solution, therefore, enables an organisation to address working capital management in the following ways:

• Strategic planning and target setting. Using a CPM system high-level goals for cash collection and working capital can be cascaded to all parts of the business. Working capital metrics can be defined and targets agreed upon that will act as key drivers for the budget cycle and management incentive plans.

• Budgeting and forecasting. CPM solutions provide a centralised platform that supports the budgeting and forecasting processes. Such systems are integrated both vertically and horizontally so that the strategic plan drives budget targets as well as ensuring full cross-functional communication and buy-in of the resulting budget. Detailed submission and approval controls and integrated predictive analytics help to monitor and improve the accuracy of the cash forecasting process. Additionally, CPM systems provide scenario modelling facilities that enable managers to understand how different courses of action will impact working capital.

• Reporting and analysis. All CPM systems provide features which manage the financial close as well as providing detailed analytics and easy-to-use score-carding facilities. These features enable the business to “close the loop” and feedback actual results into the budgeting, forecasting and strategic planning processes. These results provide a single version of the truth that allow executives to have complete

visibility of the current and future state of cash and working capital.

CPM: Making cash a key component of all business decisions.

The current economic climate is problematic for many organisations, however, it also presents an opportunity to those finance functions that put working capital best-practices in place. Such measures will not only enable businesses to outperform their competitors, but will provide an excellent platform for additional growth once the economic climate normalises and lines of credit become more plentiful and less costly.

CPM solutions can play a major role in initiatives that aim to improve the efficiency of working capital management. They provide “closed-loop” financial reporting and planning, foster cross-functional dialogue and enable detailed what-if scenario modelling. As a consequence they ensure that decision-makers throughout the organisation are able to evaluate the detailed cash-flow impact of every major business decision.

CASH-FLOW AND CPM: CAPITAL PUNISHMENT? 25

FINANCIAL CONSOLIDATION: BUY AN EXTRA WEEK EACH MONTH

A recent survey by BPM International indicates that the majority of the top 25 best performing finance departments use financial consolidation and reporting applications to manage their corporate reporting cycle. Since this is the first link in a chain that connects the daily activities of the business to the execution of its strategy such an approach has significant benefits. For example, the same survey showed that while the average finance team took around two weeks to close the books, top performing finance teams completed it in just one week or less.

The spreadsheet solution versus enterprise resource planning

Given this fact, it’s odd to note that many enterprises continue to tackle the quarterly reporting cycle using their enterprise resource planning platform (ERP) or with a spreadsheet solution. As we shall see, each of these approaches is problematic. In a spreadsheet solution, collecting statements from operating units requires the preparation of a data collection pack which must be mailed out to remote operations, something that often results in version control issues. Once end users have the correct submission pack, numbers need to be keyed into it from the local ledger, a procedure that is not only time consuming, but error prone. Finally, when the submissions have been returned to corporate finance, they are consolidated using complex spreadsheet macros. Putting aside for one moment the numerous

errors that can sneak into such macros, the development and maintenance of them often falls to ‘technical gurus’ within the corporate finance team. Making this key step in the corporate reporting cycle dependant on the expertise of one or two individuals is a risky strategy.

At first glance, ERPs may seem to offer a better solution from the point of view of data capture. After all they are by definition enterprise wide and provide a reliable, auditable financial platform. However, unless all operating units share the same ledger system the ERP will need to be loaded with submission data from remote operations. This may rely, yet again, on error-prone re-keying of data or upon collection of submission data files. While it’s true that such files offer a more reliable route to data collection, often there are version control issues, the files can become corrupted or there are problems mapping entities in the source ledger to the target ledger.

It’s more than just adding up

However, data collection is merely the first part of the reporting cycle. Just as challenging is the preparation of the statutory and management reporting packs. From a statutory reporting perspective, these days it is not uncommon for organisations to present their numbers using multiple recognition methods and reporting formats such as FASB, UK GAAP, IFRS, and IAS. Moreover, this list continues to evolve to include emerging standards such as extensible business reporting language (XBRL). That said, statutory reporting is really only half the story. In order to run the business on a day to day basis executives rely on internal management reports. These can come in all shapes and sizes and

will go into more detail than the statutory reporting pack. Typical management reports might focus upon aspects of compensation or analyse sales volumes by multiple regional and product perspectives.

Attempting to meet these multiple reporting requirements using spreadsheets is fraught with problems. From a statutory reporting perspective managing complex accounting structures like minority interests, intercompany eliminations and adjustments is time-consuming, inefficient and error prone in a spreadsheet. Similarly, for a management reporting most spreadsheets offer little more than basic pivot tables for analysis and since each user owns their own copy of the data there are constant concerns about who has the “real numbers”. The sad fact is that running the corporate reporting cycle with a spreadsheet solution is like trying to win the Grand Prix in a flat bed truck.

In a similar manner, although most ERPs provide excellent ledger facilities they are very much focused on managing the flow of daily business transactions. This means that they tend not to be good at restating information into different formats, coping with different methods of revenue recognition or providing a detailed and multidimensional view of the business. Moreover, the ERP is typically the domain of the IT department. As a consequence, the finance team must use IT resources to alter hierarchies, build reports or develop analytics. This lack of direct ownership combined with poor overall flexibility mean that the ERP is rarely the most suitable technology for the preparation of the statutory or management reporting packs.

FINANCIAL CONSOLIDATION: BUY AN EXTRA WEEK EACH MONTH 26

Financial consolidation and reporting applications

To avoid these issues best practice companies use third party financial consolidation and management reporting applications. These purpose built software solutions form the cornerstone of the corporate reporting cycle and provide the following features:

• Advanced web-enabled data collection. This allows users in operating units to prepare and initiate submissions from their ledger systems. They also enable automated mapping and reconciliation of entities from source ledgers, increasing reliability and speed and reducing the data collation workload on corporate finance team.

• Automatic handling of complex accounting structures and concepts such as minority interest relationships, inter/intracompany eliminations and journaling. These enable the system to be rapidly deployed as well as ensuring that the it models the business accurately.

• Support for multiple recognition standards and reporting formats such as IAS, UKGAAP, FASB, IFRS and XBRL. These greatly reduce the amount of time the finance team have to spend managing conversion and restatement.

• English-like business modelling rules to simplify deployment and maintenance of the system and allow the application to be owned by finance.

• Support for a multidimensional view of the business. This enables users it slice and dice data and drill-down into the numbers to

gain real insight from the reporting process.

• Advanced analytics that allow users in corporate finance and operating units to view their data graphically in innovative ways, enabling them to determine the fundamental drivers of business.

• A full audit trail. Given today’s regulatory requirements the application should enable auditors to trace the full path of every adjustment.

Transform the reporting into a competitive advantage

Research has shown that a rapid quarterly close is valued as a sign of good governance by investors. Consequently, companies with the ability to rapidly meet their reporting requirements have higher valuations than their competitors on global bourses, but the benefits of implementing a financial consolidation and management reporting application do not end there. In addition to a faster month end process, they provide more detailed insight into the underlying drivers of the business while ensuring that the numbers are rock solid and 100% compliant. As a result senior executives have more time to evaluate problems, spot opportunities and determine the most appropriate course of action, making the reporting cycle a key aspect of competitive performance.

“Organisations must deal with ever shortening reporting deadlines, changing accounting standards and increasing complex compliance regulations. For a finance function to add significant value to an organisation it is vital that the financial reporting process is completed accurately and expeditiously via a robust, controlled process.Organisations that close with the support of a robust financial consolidation system often reap the benefits of quicker access to information and value-added analysis, improved control systems and faster reporting and statutory compliance. Attempting to report via disparate systems or indeed, via Excel, represents an unnecessary and short-sighted risk.”

Ian Baxter Group Financial Controller

FINANCIAL CONSOLIDATION: BUY AN EXTRA WEEK EACH MONTH 27

THE LAST MILE OF FINANCE

Today's corporate environment is a demanding road race where only the leanest and the fittest enterprises reach the highest level of performance, and where the current legislative climate and economic climate appears to combine all the elements of both a gruelling marathon coupled together with a punishing obstacle course. In particular, the process of publishing financial results to the market and to statutory bodies is one that is becoming increasingly complex and where the significant logistical challenges of corporate disclosure are complicated by emerging regulatory challenges such as the recent requirement for UK companies to report to the HMRC using iXBRL.

While most organisations use automated systems and processes to manage their daily business transactions and some have developed business intelligence platforms or corporate performance management (CPM) applications for management reporting, few have automated processes and systems in place to shepherd them though "the last mile” of the financial reporting process. As Deloitte point out, this “can be a problematic area for some organizations ... as ... management reporting and governance issues - including financial and internal control failures - often occur ... These factors result not only in significant inefficiencies, but also financial errors and internal control failures.”

Typically, this is because the processes that combine the vital bridge between internal business reports and those that are intended for public or legislative consumption

are built around the know-how of key personnel, informal processes and disparate systems. A typical last mile process will involve numerous stages of data extraction, analysis, reformatting and rekeying and will involve data being handed off from one department to another. These processes and specifically, their handover points, often represent areas where key data may be lost or corrupted through lack of documentation or poor communication.

Short-termism and repeatability

Deadlines for completing the information processing stages of “the last mile” have a very real impact on the approach that many organisations adopt and it is probably fair to say that in response many enterprises adopt a short-term, “quick-fix” approach to the job of delivering financials to regulatory bodies during periods where requirements are changing or new. This means that often there is little in the way of formal process management or audit points, roles may not be clearly defined and “the last mile” itself is viewed as a one-off job with little or no emphasis on sustainability and repeatability.

This lack of a clear strategic view of how to tackle the problem also impacts the systems that are in place. CPM and BI systems may abound, but few organisations will have robust, integrated systems and processes to take internal information and present it in multiple of regulatory formats. As a consequence, the presentation steps in the “the last mile” often cause real data integrity issues.

Furthermore, treating disclosure management as a one-off “necessary evil” ignores the fact that it is rapidly

becoming a key business process, one that involves an ever-multiplying number of differing information-consumers and formats. For example, it is not uncommon for international organisations to have to prepare data for federal agencies and SEC filings, external reports (which may require figures to be restated in statutory and CSR formats), press releases, annual reports, statutory filings, proxy statements and (more recently) HMRC submissions in iXBRL. Faced with this plethora of taxonomies and formats it is troubling that many enterprises continue to use separate manual processes and discrete intermediate data sources for each of these reporting cycles.

XBRL: a distraction, not a solution

Extensible Business Reporting language has gained more prominence over the last decade as a way of resolving the challenges posed by the need for organisations to exchange information sets of standard taxonomies. Indeed, those companies that file results with the Securities and Exchange Commission in the United States (SEC) are already legally required to report 10K and 10Q submissions in XBRL and this is a trend that will only accelerate in the coming years as other agencies and statutory bodies attempt to streamline the process of data exchange and regulatory reporting.

Put simply, XBRL allows organisations with differing internal representations of corporate indicators to exchange information using a common business reporting language. To make use of XBRL organisations take their existing books of reports and manually map their existing chart of accounts onto one of the standard taxonomies

THE LAST MILE OF FINANCE 28

provided. Most often this is achieved by extracting data from source systems and copying it into a specialised XBRL mapping tool. This process, referred to as “tagging”, is a resource intensive, and essentially manual, process.

While this provides some benefits in the area of data exchange its biggest drawbacks are the disparate data sources involved and the fact that the outputs from an XBRL mapping process are not in a "human readable" format. Consequently, its latest iteration, Inline-XBRL (iXBRL) enhances the standard, by allowing users to interact with xBRL tags “in-line” within existing reports, making the whole tagging activity less of a technical process. That said, the adoption of iXBRL is a relatively recent development, which in itself does little to address the real problems that lie at the heart of the disclosure process, and in many cases it merely adds an extra layer of technical complexity to an already broken process.

Disclosure Management: a broken process?

In summary then, in many organisations the last mile is characterised by a number of specific difficulties:

• Inaccuracy and data integrity

Because the toolsets in use are not integrated and disclosure processes may sometimes be informal and poorly managed, data integrity is an issue. Spreadsheets and data files are passed from one participant to another and data rekeying is common. Without a single approved version of the truth figures may become distorted and inaccurate.

• Inefficient use of resources

Poor communication and definition of roles can lead to redundancy, repetition and error in key steps of the processes involved.

• No audit trail

Since processes are often not formally defined, there is little in the way of a formal audit trail for hand-off and approval.

• No measurable total cost of ownership

Since most disclosure processes are not designed with repeatability and sustainability in mind it is difficult to measure their exact cost. Similarly, without formal enterprise-wide process design and systems in place it is likely that many data manipulation steps will be repeated in separate parallel disclosure processes.

• Disparate tools sets (Word, Excel)

The most common tools used throughout the last mile are Microsoft Word and Excel. Data may also be extracted from corporate data-stores such as Enterprise Resource Planning (ERP) or Corporate Performance Management (CPM) systems, but this will most often be loaded into a spreadsheet or a third-party iXBRL tool in order for those numbers to be reformatted and reclassified prior to delivery to other resources or steps in the disclosure process, resulting in duplication of data, rekeying and the usual associated integrity issues.

• Unpredictable delivery time and resource consumption

The disconnected and disjointed nature of disclosure processes mean that it is often hard to predict exactly how long they will take to complete. Similarly, their reliance on manual processing and rekeying also means valuable and expensive finance team resources are diverted away from high value-add activities.

• Standalone iXBRL tagging tools

While iXBRL submissions are an increasingly required by regulatory bodies, the process of extracting data, loading it into dedicated third-party tools and mapping is a costly process. Moreover, the data duplication it entails increases the likelihood of downstream data integrity problems.

Collaborative Disclosure Management: a new class of enterprise application

These problems combined with increased global regulatory pressure and the innate costliness of standalone iXBRL tagging has led to the emergence of a set of packaged applications that are designed expressly to resolve the issues inherent in corporate disclosure processes. Thus, Collaborative Disclosure Management (CDM) tools exhibit the following key features:

• Centralised database

This allows stored data to be “blessed” and then distributed into taxonomies from a central hub, eliminating discussions

THE LAST MILE OF FINANCE 29

around data integrity and errors caused by the rekeying.

• Integrated technology platform

A single integrated platform for disclosure management ensures the free-flow of data throughout all steps of the disclosure process, reducing the elapsed time for each stage as well as reducing process redundancy and increasing accuracy. Best of breed applications also provide seamless integration with existing back-office systems such as Corporate Performance Management (CPM) platforms.

• Leveraging MS-Word and Excel capabilities

Despite the obvious benefits of a single integrated technology platform for back-office reporting functions, most organisations have made significant investments in rolling out Excel and Word, and spreadsheets in particular are the backbone of many finance processes. CDM applications leverage the advantages of these personal productivity tools while minimising those aspects that make them less than ideal for process management by coupling them with a central database and robust workflow management.

• Full audit trail

CDM applications enable auditors and approvers to track changes to each of the data items that make up the reports within their purview, resulting in 100% confidence in the

outputs of the disclosure process.

• iXBRL dragging and tagging

CDM applications incorporate full iXBRL reporting facilities and enable users to import taxonomies from authorised sources and mark up existing reports using a “drag and tag” approach, thereby reducing data duplication and reliance on third-party iXBRL tools while enhancing accuracy and usability.

• Workflow and version control for each report

Similarly, CDM applications provide centralised process and workflow features that enable authorised stakeholders to ascertain the status of each report in the disclosure process as well as ensuring that only approved information makes its way into the public domain. Similarly this built-in workflow ensures that processes are measureable and repeatable.

Collaborative Disclosure Management: making the last mile as easy as the first

CDM applications offer many benefits to those organisations that adopt them. They allow financial data to be stored centrally and enable users to make use of their existing productivity tools in a more robust and controlled environment. They provide detailed workflow management and the application of authorisation controls to ensure that reported numbers are correct and have been approved prior to their release.

Moreover, the implementation of an enterprise-wide CDM platform also

ensures that the steps in each disclosure process are well defined and have been assigned to the appropriate resources internally. In this way they make each part of the last mile more sustainable, repeatable and predictable. They ensure that the cost of the disclosure processes are visible, and since they automate many of the most repetitive and manual tasks involved, they also work to reduce the total cost of the last mile.

While streamlining disclosure processes and adopting an integrated CDM platform may never make the last mile of finance an easy path to negotiate, organisations that do so should be able to transform what has traditionally been an obstacle course into a down-hill sprint.

THE LAST MILE OF FINANCE 30

BUSINESS INTELLIGENCE: MAKE YOUR BIGGEST ASSET IMPACT YOUR BOTTOM LINE

These days the terms corporate performance management (CPM) and business intelligence (BI) are often used interchangeably. However, most analysts agree that they refer to two distinct, if related, categories of solution. Business intelligence describes a broad category of software applications that enable users to access corporate data for the purposes of analysis and reporting. BI solutions comprise a wide variety of tools from query and reporting applications, slice and dice analyzers to dashboards and scorecards.

By contrast, CPM solutions incorporate BI-style reporting and analysis as a technology platform, but focus additionally on the business planning processes, metrics and methodologies used to manage the enterprise. BI technologies then, form an integral part of a CPM solution.

Analysis Paralysis

That said reporting and analysis is a challenge for many organisations. Research has shown that only 1 in 5 managers believe they have the right information to perform their job effectively. This is ironic given the fact that more business data is being collected than ever before. The problem then, is not so much that organisations do not have the data their managers need, rather it’s that their managers cannot access it. This is confirmed by a recent survey that showed that on average most executives spend around 15-35% of

their time trying to collate the information that they need to support their decision making processes.

The problem today is often two fold. Information is locked up inside proprietary systems with antiquated interfaces that rely upon IT skills for query and retrieval. When managers do get access to the data there is simply too much of it to make sense of. It’s no surprise then, that given this situation a recent survey by the Hackett Group showed that only 1 in 10 of finance executives felt that they had received a full return on their investment in information technology.

However, giving managers direct access to the data stored within ERP, CRM, CPM and other enterprise systems is not the answer. A user id and a two day course on structured query language are unlikely to help reveal any underlying challenges or opportunities facing the business. If anything, unstructured access typically causes more problems than it solves. In this situation it is typical for management to suffer from “analysis paralysis” as they are swamped beneath a mass of unorganised data.

The most common alternative to this is to provide management with static report packs. Indeed, research shows around 80% of business intelligence requests are satisfied in this way. However, the biggest problem with such reports is in their unchanging nature. Let’s say, a manager notices an issue with the sales margin in one particular region and wants to look at the figures for individual stores or see if the problem is associated with one particular product range? The only way to obtain this additional information is to go to IT and ask for

another report to be created. This not only consumes more time and resources but results in a report that is more than likely to be out-of-date by the time it is delivered.

At the other end of this spectrum is the scenario where each department uses spreadsheets to monitor and manage their own set of indicators. In these kinds of situations it’s not uncommon for group meetings to devolve into a referendum on who has the correct numbers rather than a meaningful discussion about performance. Another symptom of this type of approach is a lack of prioritisation as managers merely focus on the problems that they are able to find rather than those that are most pressing. If the first sign that a project is in trouble is when the legal team become involved then managers do not have the tools they need to spot early danger signs.

Business intelligence solutions

The best practice solution to these types of problems is the adoption of a corporate business intelligence (BI) platform. Such a system enables all primary decision makers within an organisation to monitor and analyse the key indicators that they need to make the best decisions possible.

A BI system will provide the following key features:

• The ability to source data from multiple environments. Being locked into a single proprietary data store is a sure way to deliver a skewed and incomplete picture of what is happening. BI solutions allow data to be loaded from multiple sources, both internal and external, financial and non-financial providing, a 360 degree view of performance.

BUSINESS INTELLIGENCE: MAKE YOUR BIGGEST ASSET IMPACT YOUR BOTTOM LINE 31

• One version of the truth. The information stored in the business intelligence system becomes the primary source of data for all business related discussions. This means that managers can focus on the implications of the information rather than its veracity.

• “Speed of thought” response times. In order for a BI system to add the maximum amount of value to the business it should enable managers to interact with the data and request new analyses or drill down into lower levels of detail for themselves, allowing them to follow their intuition.

• Automated reporting of exceptions and outliers. If a fuel gauge only indicated a low tank after the event it would be of limited use, likewise merely being able to analyse historical indicators is not enough. To avoid this, the best BI solutions provide forward-looking indications of potential problems and opportunities by highlighting exceptions and outliers within the information. They also provide predictive analysis of key indicators enabling management teams to take timely and appropriate action.

• What-if scenario building. Finding the relevant information is only half of the process. Once an opportunity has been identified a BI solution will allow the management team to simulate the impact of different decisions, enabling them to select the best course of action.

• Data visualisations and dashboarding. Support for different ways of visualising data is a vital part of any business intelligence system. For example,

a graphical view of customer and product information can reveal previously unseen buying relationships.

Business Intelligence: using your biggest asset to drive bottom line performance

Investing in a business intelligence solution has a multiplier effect on existing investments in CRM and ERP systems by taking the data stored in them and delivering it to a wider audience in an easily accessible format. Moreover, a better understanding of business drivers enables management to do a better job of retaining customers and winning new ones.

Similarly, a clearer internal view of all aspects of the business allows the executive team to see which business units and products are performing best and why, enabling them to identify “best-of-breed” practices and apply them to under-performing parts of the organisation.

Moreover, getting the right data to the right person at the right time means that management teams are able to execute the corporate strategy coherently and consistently and respond appropriately to the daily tactical challenges of their business environment. Likewise, a clear flow of relevant information up the management chain guarantees that senior executives have a clear sense of how strategy is being executed on a day-to-day basis.

All of this means that organisations that make use of business intelligence solutions are able to ensure that their management teams make better decisions on a regular basis, transforming one of the business's biggest assets, the data it gathers, into a resource that positively impacts the bottom line.

"After implementing the core processes for Performance Management, the BI platform has enabled us to extend the system reach to facilitate detailed analysis, more ownership at a cluster level and ultimately a better alignment between Group and cluster level budgets and forecasts."

Preyesh Mestry Head: Financial Systems Nedbank

BUSINESS INTELLIGENCE: MAKE YOUR BIGGEST ASSET IMPACT YOUR BOTTOM LINE 32

BUILDING A BI SYSTEM BEFORE IMPLEMENTING CPM: A CASE OF PUTTING THE CART BEFORE THE HORSE?

Conventional wisdom suggests that Corporate Performance Management (CPM) applications should be built upon an all-pervading Business Intelligence (BI) technology platform, but does such a strategy really make sense? The following discussion examines the prevalent CPM conceptual models, explores the similarities and differences between BI and CPM applications and examines the advantages there may be in implementing a CPM application without a full scale BI data tier to support it.

What is Corporate Performance Management?

CPM applications are a class of software tool that allow organisations to monitor and manage the processes of forecasting and reporting by integrating all aspects of strategic and tactical planning into a single closed loop process. The result is a completely integrated planning process, connecting corporate strategy directly to the daily operations of core business processes and ensuring that the overall goals of the enterprise inform the activities of each employee.

It is no surprise then that enterprises of all sizes are currently in the process of planning and/or implementing CPM initiatives and there are many vendors and analysts eager to promote their products,

services and visions of CPM. Indeed, as one can see from the example in Figure 1, while different vendors have distinct terminologies for the elements that they believe comprise a CPM system, each system tends to share a similar multi-tiered conceptual model in which data flows upwards through the organisational hierarchy, becoming increasingly summarised as it does so. Its ultimate destination being the strategic and tactical planning process, where it is surfaced through presentation technologies such as scorecards, dashboards and KPI reports.

Figure 1

Indeed, a brief examination of the features of these models reveals a common hierarchical structure:

Transactional systems / Operational systems / ERP

These tiers are the bedrock of the CPM system and contain transactional data that is generated and collected by the enterprise's core business activities. This data is usually stored and processed within an ERP system, ledger package or combination of the two and can contain financial and non-financial

data, customer details and even geographical information. Typically the focus in this technology layer is upon standardisation, reproducibility and automation with a view to creating consistent customer experiences and coherent integrated back-office processes.

Business Intelligence / Data Warehouse / Reporting

This tier sits above transactional data and draws upon it, summarising it through consolidation extraction and translation (ETL) processes to prepare it for analytic consumption.

These summarisations will typically be by time, customer, geography and product or any other significant dimension of the source data with a view to creating consolidated data sets that are able to feed a wide variety of analytical applications.

This data may be surfaced in any number of different ways, perhaps providing the source for localised or departmental data-marts or as part of a more generalised business intelligence platform, providing reports, charts and graphical

BUILDING A BI SYSTEM BEFORE IMPLEMENTING CPM: A CASE OF PUTTING THE CART BEFORE THE HORSE? 33

analyses that feed into corporate decision making processes.

CPM: the executive icing on the organisational cake

Seen in this way the final technology tier, CPM applications, might be regarded as the icing on the BI cake; transactional data flows up into them from a business intelligence platform, while a reciprocal flow of control activities, plans and assumptions run down from management processes into operational activities. Indeed, Gartner has stated that any CPM initiative should be built upon the foundation of an enterprise wide business intelligence platform and this convention is reflected in the offerings of many vendors such as SAPs BusinessObjects suite, where a SAP BW OLAP application server tier feeds consolidated data to its planning Figure 2.

Trouble in paradise

However, there are problems with this model. Firstly, and perhaps most significantly the pre-requisite of an enterprise wide BI platform means that any CPM implementation requires a mammoth investment in time, money and human capital: ERPs need to be standardised and implemented (where necessary) across the disparate parts of the organisation, a data warehouse and associated data-marts need to be constructed, and finally each planning process needs to be re-engineered, streamlined and appropriately staffed.

Secondly, this view does not take into account the significant differences between BI and CPM. While it is certainly true to say that the two types of application are related, it is a vast simplification to say that CPM merely exists as an

additional level of abstraction and summarisation on top of a BI data tier. Indeed, while one might concede that the two types of application share one goal, that of providing summarised business information, they are intended for fundamentally different purposes:

Business Intelligence

Is read-only: business intelligence applications are intended primarily as reporting systems. While some provide the capability for data capture most are designed for point data input, rather than the collection and processing of entire planning data sets, nor do they provide the facilities for spreading, locking and phasing which planning processes require.

Is free-form: the classic BI application is designed with the notion of free form navigation in mind. In this model the analyst has the ability to follow their intuition through a large data set looking for problems or opportunities, slicing, dicing, rotating and drilling-down without any pre-defined destination or methodology in place.

Is typically data warehouse centric: business intelligence applications are promoted as a window onto the corporate data warehouse. Users can analyse any piece of data provided that it has been pre-staged in the information store.

Corporate Performance Management

Is read-write: while CPM applications provide read-only access to data inside corporate

data warehouses they are designed to capture large-scale planning data sets from users, typically via web forms or spreadsheet add-in technologies. These data sets can comprise financial and non-financial items and can incorporate measures that are not represented in the data warehouse.

Is process oriented / structured: CPM applications are intended to formalise the enterprise's planning and reporting procedures, consequently they provide workflow facilities which allow these processes to be completed in an efficient and effective way.

Utilises heterogeneous data sources: as well as incorporating data from the data warehouse, CPM applications are not limited to reporting on items within the corporate data store. They provide facilities for the collection of narrative from documents, measures from manual scorecards, figures from planning spreadsheets and macro-economic assumptions, enabling the creation of plans that reflect the full spectrum analysis of business activity. Similarly, CPM systems provide ETL tools for cleansing and summarising transactional data, so they may perform these tasks independent of the data warehouse/BI tier.

BI then CPM: the cart before the horse?

Taking these differences into account then, one might conclude that rather than being a prerequisite for CPM, BI is in fact a subset of CPM. Moreover, since both CPM and BI applications provide presentation

BUILDING A BI SYSTEM BEFORE IMPLEMENTING CPM: A CASE OF PUTTING THE CART BEFORE THE HORSE? 34

layers onto differing or partially overlapping data sets, there maybe little or no point in postponing a CPM implementation simply in order to roll out a business intelligence solution.

Similarly, despite the fact that this may contradict the current orthodoxy there are many compelling reasons why implementing a CPM solution, before an enterprise wide BI platform may provide benefits to an organisation:

Lower cost of entry: since a CPM solution will typically have a smaller target audience than a BI platform, it will have a smaller footprint in terms of software licence fees and implementation costs. Similarly, once implemented it will consume fewer IT resources and require less human capital to support it.

No need to fix everything: one issue with the "best practice" approach is the need to revise all of the business planning processes; a procedure that in a worst-case scenario can even result in new processes which it is impossible to support in any technology. Even if such pitfalls are avoided, totalising approaches can result in deadlocks about the order of precedence (do we fix all the processes first and then implement a solution or vice-versa?) A more focused approach avoids these issues by picking a subset of the overall planning process and delivering a solution that fits these needs.

Reduced risk: the costs and scope of building a business intelligence platform and a CPM solution can be prohibitive. With

a less ambitious "standalone" CPM implementation project the risks of failure are commensurately lower.

Quick wins: an initial implementation, focusing on automating the budget process for example, can be used as a pilot for a larger, more enterprise wide solution. Once this initial project has been implemented it will provide a launch platform for further phases of implementation and allow the project to build on success. Moreover, the lessons learnt from these initial stages can be fed back into the CPM/BI strategy as a whole.

Agility: one of the downsides of an enterprise wide business intelligence platform implementation is sheer investment in time required to complete it. A targeted CPM solution can begin to generate efficiencies, insight and better quality decisions in a shorter time frame, improving business agility while laying the foundations for a larger and longer term investments.

Probably the most common misconception that exists is that a fully fledged data warehouse must exist and thus is a pre-requisite for a CPM system. Summarised data can be loaded / linked directly from the general ledger source systems into the CPM system.

In summary then, while it would be wrong to underestimate the long term value of a comprehensive business intelligence technology strategy; given the difference between CPM and BI application suites, their differing investment

profiles and the fact that strategic benefits accrue from even small-scale CPM implementations there is no compelling argument for viewing an enterprise wide business intelligence platform as a prerequisite for corporate performance management implementations.

You can perhaps think of the implementation of a CPM system as the glue that can help bind the other processes and technology together.

BUILDING A BI SYSTEM BEFORE IMPLEMENTING CPM: A CASE OF PUTTING THE CART BEFORE THE HORSE? 35

Illustrated below is a typical systems landscape:

BUILDING A BI SYSTEM BEFORE IMPLEMENTING CPM: A CASE OF PUTTING THE CART BEFORE THE HORSE? 36

CPM DELIVERY: RISE TO THE CHALLENGE

One of the first questions you as an organisation need to ask yourself is: why do you feel that you need a Corporate Performance Management (CPM) solution? Admittedly, CPM has been identified as the next big thing in terms of the enhancement of organisational performance, though, opinion alone is never a good rationale for commencing a CPM project. So the question remains: why do you feel that you need a CPM solution? CPM - a definition

To answer this question satisfactorily, you need to understand the definition of CPM; what it is, what it does, and what it can deliver to your organisation. In simple terms, CPM is all about the efficient and effective management of business processes. It can be driven by a strategic approach - a top-down perspective - or by initiatives that have been identified at the operational level. Whichever approach you take, the purpose will be exactly the same; trying to make business processes better - just as Total Quality Management (TQM) and Business Process Reengineering (BPR) attempted to do in their heyday!

Focus on processes and people.

The key to understanding the capabilities of CPM is to focus on the processes and the people involved. A common process many organisations seek to improve as part of a CPM initiative is the monthly management reporting process. It is imperative that organisations step outside this process and see it for precisely what it is. Such an objective approach creates an unbiased view of how the process operates - plus it allows for a review of improvement opportunities before designing the improved process. Purists would argue that the project team should adhere to best practice guidelines when reviewing processes, although in reality, organisations should define the process as: what

would be best for them and the people running the process? Follow clear steps Does focusing on one single process, such as monthly management reporting, constitute a CPM initiative? In our opinion, CPM is as simple or complex as you want to make, though there is no merit in trying to solve all process issues at the first attempt. A far better approach is to undertake a series of concise steps: • Start with a relatively easy process • Complete the CPM initiative • Learn from your mistakes

• Move on to the next project armed with more knowledge than you started with

Choosing a methodology for implementation

So what methodology should an organisation adopt when implementing a CPM solution? Rinedata recommend adopting a spiral methodology, a process employed in many CPM programs. This methodology does not assume that the client knows exactly what they want at the outset, especially if they haven’t had exposure wide range of technology available with CPM solutions. Instead, our initial focus is on delivering the process improvements for the project phase in question, using as little or as much of the available functionality as required. Once the project phase is complete, the project team is able to iteratively develop and embellish the application, thus introducing more advanced functionality.

Deploying advanced functionality

Using experience gained during the application development phase, users are in a much better position to deploy advanced functionality to their business needs. They can also identify how the new functionality could be used to improve other processes - and

thus the scope of the CPM initiative could change to reflect an evolving user base. And whilst the normal application development methodology still applies, a spiral methodology allows for far better knowledge transfer; it relies on the user to take the project forward, providing that the user is equipped to utilse the functionality available.

Avoiding project failure - securing success

It’s a harsh fact that CPM projects commonly fail. So how does this happen? And what can be done to avoid the pitfalls? I. Scope limitations

The temptation is to scope a project of such magntitude that covers every process that requires improvement. If this method is adopted, the organisation is likely to remain in the analysis phase for the entire project duration. Traditionally, the project scope includes a specification for each phase of development, accompanied by a Requirements Document specifying precise requirements for each phase. A better approach is to focus on the main objectives and simplify the scope to include the key process you seek to improve, such as monthly management reporting. Instead of defining requirements for every conceivable future phase, it’s easier to focus on the core process and the functionality required to deliver process improvement. II. The Team Choose a project team with a balance of technical skill and business knowledge. Usually, a CPM project team will comprise external and internal resources, though it is clear from numerous projects that the internal element is essential for the success of the CPM deployment. The internal team should be available for the entire project, and be involved during each stage of the development lifecycle. If possible, they should be relieved of normal operational duties,

CPM DELIVERY: RISE TO THE CHALLENGE 37

with alternative resources available to replace them during the project lifecycle. The project team needs:

i) A strong sponsor who understands the business problem and has the authority to call upon various resources when required. The sponsor must be especially good at quashing politics and empire-building tactics, whilst maintaining an atmosphere conducive to collaborative effort and development.

ii) A good solution architect, often a highly seasoned senior technocrat who takes responsibility in designing and defining the solution, as well as developing or overseeing application development. The solution architect should also work closely with the technical architecture team to ensure delivery of a stable technical environment for the application, with consistent interfaces across the user base.

III. Flexible Methodologies Allow your project team the flexibility to go from requirements to development, then back to requirements, if the need arises. One method we have adopted involved running through several iterations of the development lifecycle on a particular task (cash flow development). This method ensured that the project team validated newly developed functionality - and each iteration unearthed additional requirements which were missed during the business requirements phase. IV. Testing

Many projects fail simply because the project team have not allocated enough time for testing, and invariably plan for testing at the end of the project. Testing is always compromised, especially during a time frame when the core functionality has not been developed within the time allocated.

Using the iterative process highlighted above, the project team can run tests during the earlier phases of the project - in fact, there’s no reason why each aspect of development cannot be tested during the application development phase, using the iterative process of i) define, ii) develop, iii) review, iv) test for each development task. In a more conventional development environment, it is essential that testing is not compromised if development overruns. Testing is as critical as implementation and it is better to push out the delivery date rather than truncate the testing time available.

Key factors of deployment

In conclusion, it appears that a number of key factors should be considered when deploying a CPM solution: • Define an implementation strategy

matching individual needs, rather than the converse situation in which an organisation tries to mould itself around an unsuitable methodology

• Secure organisational CPM buy-in,

via : - A tried and tested

methodology - Internal constraints - Sympathy to the inherent

culture • Be pragmatic; there is no gain to be

made by going for the ‘big bang’ approach. A consecutive series of quick wins will gain far more organisational confidence in the chosen solution than a protracted implementation cycle.

• Don’t underestimate the

importance of the ‘softer’ elements of an implementation - regular communiqués and other non-technical sessions can contribute to a successful implementation and will create a willingness to embrace the system

• Use a partner with solid CPM

references - and, importantly, has wider skills than simply knowledge

of your chosen solution. An experienced partner has probably dealt with your organisational issues on numerous occasions, is likely to be sensitive to your culture and familiar with your existing systems. When interviewing solution partners, it is important to quiz them on their ancillary skills. How well did they integrate into the project team? How did they go about understanding the client processes? In essence, your solution partner should be a business partner and not simply a short-term product specialist.

Our implementation strategy - allowing for a robust methodology

Rinedata’s implementation strategy allows for a robust and risk-free scalable methodology that is still flexible in scope and approach. We also acknowledge the need to be pragmatic, since each project constitutes a balancing act between time, budget, quality, risk and project team resources. Furthermore, we recognise that successful implementations are always a joint venture – enabling us to maintain our collaborative consulting approach and deliver Quality in Partnership. This philosophy ensures that you have project input and visibility throughout its duration; it also facilitates the generation of a sustainable long-term value solution.

A finely tuned implementation methodology

Rinedata’s best practice implementation methodology has been finely tuned over twenty successful years of deploying projects of different sizes and complexities for a large and diverse CPM client base. Our breadth of experience and broad expertise allows for a clear understanding of an initial implementation’s scope; this reliably sets expectations and enables efficient progression through all the many challenging stages of implementation.

CPM DELIVERY: RISE TO THE CHALLENGE 38

SUPERCHARGE YOUR FINANCE FUNCTION 39

SUPERCHARGE YOUR FINANCE FUNCTION

The explosion in corporate data volumes commonly referred to as Big Data along with the steady increase in the power and cost effectiveness of high performance information technology platforms has resulted in a raft of new technologies which are all vying for corporate information technology budgets.

However, innovations such as In-Memory Machines, Distributed Processing (Hadoop), Predictive Analytics and Cloud Computing are not only often poorly understood within the non-technical business community, but there is little comprehension of how these technologies function as part of an integrated Business Intelligence (BI) or Corporate Performance Management (CPM) framework.

Similarly, there is confusion as to whether they must be pursued "en masse" or whether an organisation can "cherry-pick" those most likely to offer immediate tactical business benefits, deferring the implementation of those tools which might be more profitably phased in as part of a longer term strategic implementation.

The following piece seeks to define each of these terms and suggest ways in which they may directly be applied to improve the efficiency and effectiveness of analytical operations within the finance function.

The challenges of Big Data

Big Data is a term used to refer to the large-scale datasets routinely generated by organisations as part of their day-to-day business operations and/or interactions with their customers. As Gartner defines it:

"Big data is high volume, high velocity, and/or high variety information assets that require new forms of processing to enable enhanced decision making, insight discovery and process optimization."

Of course organisations have been generating high volumes of operational data since the beginning of the computer age, however, the challenges in storing and processing Big Data are determined not only by its volume, but also by its provenance. Since much of it is generated by external sources the resulting datasets are not only large, but also heterogeneous and unstructured. This makes them difficult to process using the centralised tools of the IT function, which traditionally require data to be rigidly formatted and homogenised before it can be queried.

Considered from this perspective then, the challenge of Big Data becomes less about how to manage its sheer volume and more about how it can be transformed to provide an effective input into the collation, analysis and forecasting processes of finance. These transformation processes need to ensure a high signal to noise ratio so that no important detail is missed, while simultaneously avoiding the "analysis-paralysis" that ensues from exposing users to every single data point in a large dataset.

In-Memory Machines: scaling up

One technology which is increasingly being seen as a solution for such challenges is the In-Memory Machine. Traditionally, data of all varieties has been stored on large-scale mechanical hard drives which are connected to servers via high-performance network architecture. While these drives are able to store enormous volumes of data, they cause bottlenecks when processing large datasets as each data point needs to be located, read and transmitted back to the processing job.

One tangible impact of these abstract hardware constraints is on the scope of reporting and business intelligence applications, since queries that require source data to be retrieved, calculated and consolidated across even a few large-scale dimensions can run into performance issues. This is regardless of whether results are calculated at query-time or overnight via a batch update cycle.

In-Memory technologies, such as the SAP's HANA platform, alleviate such bottlenecks by doing away with disk storage in favour of storing datasets in RAM. The single most impressive benefit of this approach is a massive improvement in processing performance, with many vendors claiming decreases in querying and consolidation times of anywhere between 25 to 100,000 times depending upon the technology and the task at hand.

Hadoop and noSQL: scaling out

If the notion of the In-Memory Machine can be seen as the traditional vertical "scale-up" approach to the aforementioned processing challenges, then technologies such as Hadoop and noSQL are tools which adopt the complementary horizontal notion of "scaling out".

Hadoop, for example, incorporates an infrastructure which forgoes the notion of deploying ever larger and more costly centralised "super-servers" to manage the exigencies of Big Data, eschewing them in favour of clusters of highly networked and highly redundant commodity servers.

Similarly, "noSQL" database technologies attempt to unlock the business value hidden within large unstructured datasets, by avoiding the rigidities imposed by centralised RDBMs in favour of schema-less data storage which takes advantage of the speed, scalability and increased capacity of modern day commodity servers to allow fast distributed processing of unstructured data.

The impact on back office processes

As a result of both of these vertical and horizontal scaling strategies, it is now feasible to greatly increase the breadth and depth of reporting and BI applications, enabling the development of analytic suites with multiple large dimensions, storing data down to the level of the individual day (where appropriate). Thus, it is possible to finally realise that holy-grail of analytics: the total top-to-bottom drill-down, where a user can navigate from total company level right down into

SUPERCHARGE YOUR FINANCE FUNCTION 40

the individual transactions which comprise a given figure.

Similarly, the ability to apply this increased horse power to the period-close reporting processes will see end-to-end cycle-times drop significantly as consolidation and collation processes, which used to take hours to complete, to be run in real time. Equally, when applied to planning functions, such increased scalability will enable the preparation of more accurate and detailed forecasts. For example, the storage and processing of data at a more granular level will enable Finance to perform cost assignments by deriving accurate drivers from large volumes of processed historical data rather than simply using rule-of-thumb assumptions and averages.

Predictive Analytics: multiple versions of the truth?

Traditional BI implementations collect, process and distribute existing business data to enable an insight into past performance. The ‘single version of the truth’ is then used to support decision-making at both strategic and operational levels of the business.

Predictive analytics, however, takes this notion of a backward-looking, lagging, indicator-driven notion of BI and turns it on its head. Instead, using vast volumes of historical data and the patterns in the data to accurately model what is most likely to happen next.

In the past such tools have required costly human resources or expensive specialised technology solutions. However, applications like SAP's Infinite Insight eschew complex interfaces and specialised statistical knowledge to enable business users to model likely outcomes as part of the standard BI dashboard. This allows the user to produce meaningful predictions which can then be applied to both short and long-term business opportunities or problems.

When these technologies are combined with the data harnessed by SAP HANA Machines or Hadoop arrays

it becomes possible to radically alter the way which finance approaches planning and forecasting processes. Rather than applying ‘educated guesswork’ to statistically small samples of data it becomes possible to apply best-fit mathematical models to very large historical data volumes, enabling real-time prediction of the most likely outcomes using historical patterns. This has the potential to provide enormous competitive advantage to those finance functions which are able to feed these insights into their corporate decision-making processes.

Cloud Computing

Compared to the other technologies explored in this paper, Cloud Computing is a much broader and more far reaching concept. It refers to a hosted approach to IT resourcing which enables organisations to lease technology, infrastructure, applications, platforms and even business processes as services, which are then delivered over the internet or by high-speed custom networks.

As a consequence the resources that an organisation can bring to bear on a given business problem are no longer bounded by the capital it possesses, and can be scaled up or down as needed.

This potentially disruptive development has successfully been adopted as a leveraging tactic by SMEs, allowing them to level the playing field and compete with larger organisations. However, larger organisations are now beginning to understand the benefits such an approach can offer.

The immediate benefits are two-fold:

1. An organisation can convert many fixed IT costs into variable costs, allowing for these IT costs to be planned as a percentage - accord to business activities.

2. It can scale-up or down to meet business demand and/or constraints in real-time, empowering innovation and

removing IT constraints on growth or other business objectives.

As such, it is deceptive to view this as purely an IT cost-cutting exercise. A recent survey by the London School of Economics showed that over half of executives surveyed felt that the primary appeal of cloud computing lay in its potential for wide spread business transformation. That is, by incorporating common back-office processes into the Cloud it is possible to drive out costs and increase efficiency across the business.

Caveat emptor

Assessing the value of any of these technologies is difficult in a world where vendor claims can be contradictory, misleading, and ultimately confusing. In the case of Cloud Computing, for example, there is considerable pressure from vendors to adopt their entire technology stack in a "one-size fits all" approach. Indeed, while this may provide a superficial measure of comfort, businesses should tread carefully in adopting it as a strategy since vendors are unlikely to highlight missing key-business processes or the lack of interoperability across components within a given offering.

Bear in mind also that most of these technologies are relatively new, and consequently experienced implementation resources may be limited, expensive or practically non-existent. Moreover, being locked in to an inappropriate platform can be an expensive mistake to rectify.

Supercharging your finance function Our experience suggests that it's rare for a business to come to the market with a need for all of these technologies simultaneously. So where to start?

SUPERCHARGE YOUR FINANCE FUNCTION 41

Technology CPM or BI

Business

Processes

Features Limitations Business

Benefits

Indicators

In-Memory

Machines (SAP

HANA)

Group Reporting

"Big" Business

Intelligence

CPM

Vastly decreased

data collation

and

consolidation

times. Increased

Scalability &

depth & breadth

High cost of entry.

Not all technologies

optimised/available

for these

environments. Levels

of interoperability

Faster Period End

Close. More time

for analysis.

Competitive

advantage. Full

360 view of

business.

Current

BI/CPM/Group

Reporting

applications do

not hold the

depth and

breadth of

information

required

Hadoop/noSQL "Big" Business

Intelligence

Decentralised

data storage.

Optimised for

large

unstructured

datasets.

Robustness.

Best suited to storage

and query of large

unstructured

customer/operational

datasets.

As above. Low

unit cost to

increase

computing

power. Reduced

downtimes.

Current

applications do

not hold the

depth and

breadth of

information

required.

Predictive

Analytics

Business

Intelligence

CPM

Best fit

algorithmic

modelling of

future

performance/tre

nds/problems

Need large

unstructured

customer data for

maximum value

More accurate

forecasts. Ability

to see problems

and

opportunities

before

competition.

Better decisions

Data volumes so

large or inflexible

that business

opportunities or

problems are

regularly missed.

Cloud

Computing

Potentially all of

the above

Scalable

commodity-

based approach

to IT provision.

Access to

technologies

beyond reach of

capital spend.

Not all finance

technologies

supported equally.

Disruptive to

implement. One size

fits all approach can

be risky. Vendor lock-

in. Cost of resources.

Fixed IT costs

become variable

costs. Increased

Scalability.

Potentially

Disruptive

performance

multiplier for

SMEs. Lower

TCO.

Existing

infrastructure

outstripped by

business

demands.

Table1

SUPERCHARGE YOUR FINANCE FUNCTION 42

In the same way that a business traveller faced with a daily commute might decide to use a bus to get to work, buy a car or equip a pre-existing one with SatNav, each organisation will have different goals and target areas for the application of these technologies depending on its financial circumstances, needs and business context.

As a consequence it is advisable to develop an integrated technology and implementation strategy by answering the following key questions:

What technology services does your business need? Consider current business problems that need to be resolved and assess potential solutions from the standpoint of how completely they resolve the issue rather than simply opting for the most feature rich solution. Table 1 gives a list of the business processes areas which each technology can benefit along with indicators that these technologies are ripe for consideration.

What are the quick wins? Once you have isolated potential business needs, look which areas are the most likely to readily yield positive results in a relatively short time-frame. Moreover, an initially successful small-scale deployment will build confidence and provide a bridgehead from which to deploy other modules or technologies.

What are the risks? With a likely initial project area selected assess (and if possible quantify) the risks of implementation failure and develop mitigation plans.

What are the technology and skills requirements? Each solution has specific technology prerequisites and skills requirements. Bear in mind that since many of these technologies are in their infancy

not only may they be expensive, but the skills (both internal and external) required to support them may be in short supply or need to be developed in-house.

Who are you buying from? There is obviously the temptation to buy the off-the-shelf packages from a pre-existing preferential vendor, but consider that particularly in the case of Cloud Computing that the relationship is likely to be a long one and that you will effectively be "locked-In" to that vendor’s solution for a considerable period.

In summary then, there is no strict reason to deploy all of these technologies in any given business context at the same time. Moreover, since these technologies each offer discrete solutions to specific business problems, it is recommended to develop a roadmap comprising separate, interlocking tactical implementations as part of a broader strategy.

The deployment of discrete focused modules with clearly defined business benefits not only reduces the total level of risk involved with the deployment strategy as a whole, but helps to foster acceptance and buy-in throughout the organisation as one successful implementation provides the launch pad for the next phase of roll-out.

Customer Testimonials

Morgan Advanced Materials is one of the largest UK manufacturers of carbon and ceramic products. FY12 Approx. 1.1bn t/o “Rinedata were the natural choice. They were equipped to help us and our relationship was already strong and trustworthy. It seemed that the majority of vendors had a solution to our problems, but Rinedata made sure that we focused on the important things. With a project as big as this you need to set priorities and adhere to them and Rinedata helped us to achieve this.” Group Systems Accountant Ultra Electronics Holdings is a British company serving the defence, security, transport and energy industries. FY12 Approx. 761m t/o "Rinedata’s relationship with Ultra goes back a number of years. When we require help, their staff are both professional and responsive. Their knowledge and expertise of our group reporting system combined with their pro-active approach and ‘can do’ attitude means we wouldn’t think twice before using them to assist with future implementations or software upgrades.” Group Systems Accountant Senior is an international manufacturing group. Senior operates through two Divisions: Aerospace & Flexonics. FY12 Approx. £712m t/o "Senior's relationship with Rinedata dates back to 1996 and is a testament to their reputation for excellence arising from having lasting relationships with their clients. Their consultants are very knowledgeable and professional, but are also able to communicate with us in a language we understand and take a vested interest in ensuring knowledge transfers across to enable us to maintain our own system." Group Financial Controller Fitness First is an International chain of health and fitness clubs. FY12 Approx. 580m t/o “Fitness First Rinedata to give an assessment of the current status of the group consolidation platform, which is built on BPC from SAP. The engagement was excellent from start to finish, and will extend into an on-going support and development partnership. Rinedata are some of the best service partners I have ever worked with in my whole career. They have excellent subject knowledge, great integrity and true customer focus. I would strongly recommend them to any company looking for expert advice in planning & consolidation applications.” Interim CIO e2v is a British manufacturer that designs, develops and manufactures technology systems and components. FY12 Approx. 236m t/o "Rinedata was an excellent partner to work with. They provided the project with the perfect mix of technical and business skills. Rinedata also made sure that we focused on knowledge transfer, so that by the end of that initial period we were proficient in maintaining and updating the system." Group Systems Accountant

CUSTOMER TESTIMONIALS 43

Notes

Notes 44

Established in 1996, Rinedata is dedicated to providing full project life cycle services across Financial Consolidation, Budgeting, Forecasting and Business Intelligence initiatives. Since our inception we have solely focused on delivering improved performance management systems across a wide range of businesses and in a multitude of differing infrastructure landscapes. We can demonstrably help our clients unlock the value of their IT investment, no matter where they may be in their financial systems evolution.

Rinedata Limited 2nd Floor Berkeley Square House Berkeley Square London WIJ 6BD T: +44 (0) 207 969 1876 F: +44 (0) 207 887 6001 E: info@rinedata.com W: www.rinedata.com Copyright © 2015