Posted by Thomas Antunez on Thu, Dec 03, 2009
I've spent the better part of 8 years working with CFO's, VP's of Finance, Corporate Controllers, FP&A Managers, etc on Enterprise Performance Management (EPM) related initiatives. Spanning verticals ranging from metals and mining to retail to medical devices, the keys to success from a CFO's perspective remain the same, in my opinion. Initially, there is a tendency to "over think" what needs to be done, coupled with a deep admiration for the technical sophistication EPM tools have acquired over the years. And although my clients differ in their core businesses, the keys to success, as well as the levers of failure, remain relatively constant.
One key point to keep in mind about this blog, it will not be focused on tips and tricks for administrators or how to build a better calculation (there are plenty of blogs about this). Instead, this is a blog meant for Executives contemplating an EPM solution or managing an existing EPM solution. This blog will be business focused because that is where the true value of these systems lies.
So here is a quick primer, admittedly based on both my successes and failures, that will assist CFO's considering EPM solutions or CFO's with existing EPM/Budgeting, Planning, and Forecasting deployments that have not met expectations.
Top 5 Keys to Success for CFO's Considering EPM Solutions and Software
1. The most important investment you will make is not in EPM software.
Perhaps this is the consultant bias in me but there is no question that an accurate diagnosis of where you want to go is required. Sometimes referred to as "visioning" or "diagnosis", CFO's should expect to spend anywhere between $50,000 to $500,000 (depending on the size of the contemplated deployment) analyzing the basics. As rudimentary as this sounds, it is rarely done. More often than not, there is a race to buy the "technology", ostensibly fueled by demonstrations that cause even the most seasoned of CFO's to superimpose their organization into a prebuilt software demo. My preliminary estimates conclude that companies which do not conduct a thorough up front analysis typically spend a factor of 2 to 3 times the original financial estimate. Lastly, be extremely wary of consulting firms that provide you with a fixed bid or "rock solid" estimate of implementation costs without going thru an initial diagnosis phase. Most EPM firms will skip the initial step because they are more attuned to dealing with the technical components of an implementation.
2. Your data is probably not as good as you think.
I know what you are doing to say: "I've spent all of this money on ERP systems and consulting and my data is probably not right?". Well, it's a bit more complex than that but suffice it to say that most companies have actually increased the amount of manual excel data manipulation that occurs outside of the ERP system post-ERP implementation. The reason for this is simple, ERP systems are great at processing millions of transactions quickly but are not made for business analysis. Good financial analysts get around this by dumping data into Excel and creating robust models. Many clients struggle with getting clean financial data (actual data and metadata - think cost centers, product categories, etc) into their financial planning or consolidation systems. And the stakes are high. Bringing a EPM system into a production environment is difficult enough, but to bring a system online with actual data that is incorrect is the single quickest way to lose end user confidence and acceptance. So, think about your data before embarking on an EPM implementation. A good firm will never overlook this critical point.
3. Face the reinvestment realization and manage it.
Over the course of nearly a decade, I have seen that the reinvestment realization component of EPM is often ignored by Senior Executives primarily because of the incremental financial cost. Here's the harsh truth, two things are sure to change over time: the way a company reviews/analyzes/plans for the business and the underlying technology. For most companies, these changes occur within a 3 to 5 year period but there are companies that are inherently so dynamic that they will fundamentally change their forecasting/budgeting methodologies annually. These business changes will lead to material changes in the EPM deployment, which of course will lead to incremental costs in time and money. Similarly, expect newer and enhanced versions of the software to surface every 1 to 2 years. EPM technology is constantly changing and I strongly advise my clients to seriously consider upgrades every 1 to 2 years. Although this might sound like overkill it really saves clients a great deal of pain in the long run. The longer you postpone an upgrade, the more difficult it will become to upgrade from technical and business perspective. These are sophisticated tools and should be treated as such. I have seen upgrades postponed for 5 years, which ultimately led to a much more difficult upgrade path for the client.
4. Projects tend to have challenges at the beginning...and definitely at the end (Change Management/Deploy).
I briefly addressed the challenges faced at the beginning of project in point 1: lack of investment in diagnosis. Clients are probably tired of hearing me say this but I believe that is a singular truth. In the middle of a project there is a "heads down" mentality increases the difficulty required to identify problem areas. To be sure, the "build", or middle portion of the project, is creating true value that end users can utilize to manage the business. However, EPM projects have historically had a rough track record with respect to Change Management. Why? Too much focus on technology. Plain and simple. Make sure you spend, at a minimum, as much time and money on the final stage (Deploy - testing/training/documentation, etc) of the project as you do on the initial stages (Diagnosis and Design) of a project. Do not make the mistake of rolling a system that has been partially tested and give end users every opportunity to receive proper training sessions. I know this sounds simple, but again, much like the diagnosis phase of a project, it is often overlooked because so much effort is spent on the build phase.
5. Focus on three key themes: Simplification, Standardization, and Communication.
The best EPM projects are "about" something. In my opinion, if project team members, at the highest and lowest levels, cannot explain what the project will achieve in one sentence, you probably have a problem. After numerous engagements across various industries, I have found that simplification, standardization, and communication are three key themes that really drive to the heart of a truly world class EPM project. A quick chat on each:
- Simplification - Simplification does not mean your EPM solution will not be sophisticated, and in fact, I would strongly argue the contrary. Over engineered EPM systems, and believe me there are many of these, represent a fundamental lack of understanding. It is much easier to compensate for this lack of understanding with high powered calculations or fancy dashboards than it is to truly ask the right questions of Executives and end users. Within your EPM project, look to simplify the most critical business points: create simple models that accurately reflect the business, design a system that is intuitive, remove manual data entry and use driver based planning, eliminate useless reports, etc. For every part of the system, you must always ask "how can this be made simpler?" because a process can typically be made simpler, but discovering how this can be done is more difficult than it sounds.
- Standardization - To really have an impact with EPM you must standardize. The efficiency gains reaped from standardization are, by most studies, within the 15% to 35% range depending on the circumstances. Standardization takes many forms but the most basic are data definitions/naming conventions, look and feel, modeling techniques, global business drivers, etc. Again, you are probably surprised that I am stressing this point but, in my experience, even the best of companies forget this point for a number of reasons.
- Communication - So much of EPM is centered on communication. Focus on process for just a second: if you are a corporate department managing the budgeting/forecasting process across the enterprise, consider how much time you spend communicating dates, submission rules, guidelines, etc to your end users. I spent a few years as an FP&A Manager at Toshiba Semiconductor and can fully appreciate how much time is spent on such tasks. With EPM, you can eliminate a great deal of the overlapping and repetitious communication that occurs on a daily basis with your end users. Stress to your team the importance of using the system as a communication tool.