Creating and measuring value from Enterprise Performance Management solutions
Author: Mitch Max is a Certified Master Anaplanner with over 10 years’ experience in implementing Anaplan solutions, and 40 years' experience guiding and advising financial services organizations on best practices for Enterprise Performance Management. Currently, Mitch leads the EPM practice in North America for Lionpoint Group, an Anaplan partner.
In today's fast-paced business environment, organizations are constantly seeking ways to drive value and growth. As they navigate through various strategic initiatives such as growth strategies, customer acquisition, service and retention, product development, and operational effectiveness, it becomes crucial to identify where Enterprise Performance Management (EPM) can deliver value and align with these initiatives. Additionally, measuring the value created before and after implementation is essential for assessing the impact of EPM tools such as Anaplan.
EPM involves the use of integrated systems, processes, and methodologies to monitor, manage, and improve the performance of an organization. This includes strategic planning, budgeting, forecasting, financial consolidation, reporting, and analysis. EPM helps organizations align their goals using key performance indicators, track progress, identify areas for improvement, and make data-driven decisions to optimize performance and achieve their objectives.
After studying numerous use cases developed for EPM tools like Anaplan, four main perspectives for value from EPM have consistently emerged:
- Risk and compliance
- Decision and action
These perspectives provide a practical framework for categorizing the value delivered by EPM and how it aligns with organizational initiatives.
Efficiency is often the first area where value becomes evident and describes value from more efficiently producing information.
- Anaplan is frequently leveraged as a tool to replace manual processes, including spreadsheets. Using Anaplan can help organizations automate, allowing analyst teams to shift their efforts from data compilation and transformation to creating analysis and insight.
- Plans and forecasts can be built collaboratively and efficiently, allowing for more frequent forecast update cycles.
- Creating a single source of truth embeds quality and transparency into data, bringing trust to support decisions.
- Doing this quickly, and more frequently, results in more timely information to support those decisions in the volatile environment we are operate within. For example, in an M&A activity, building a valuation quickly and accurately can enable a more robust acquisition (or divestment) process and allow deals to be reached more often.
Effectiveness on the other hand, focuses on deriving value from the information itself. EPM analysis can be leveraged to:
- Identify opportunities to enhance revenue, and to focus resources on achieving revenue targets.
- Identify opportunities to improve productivity and resource capacity utilization, to lower operating unit cost and improve profitability.
- Measure processes and produce KPIs that focus the organization on achieving revenue, cost and profitability targets.
- Identify most/least profitable products, customers, and channels that enable effective resource and strategic decisions.
Risk and compliance
Risk and compliance is gaining stronger attention as markets are increasingly volatile and regulatory oversight continues to increase. The demands for more information, more frequently, from a wide variety of data sources, with integrity seemingly grow by the week. Needs in this category include:
- Reporting on risk scenarios, liquidity and resiliency testing and exposure reporting for a variety of stakeholder groups
- Planning and managing the relationship between risk management and operations
- Creating financial reporting for internal management, regulators, and investors
- Managing stakeholders including investors and partners, including providing access to underlying information in a transparent manner.
Decision and action
Decision and action emphasizes that the value of information lies in its use to support business decisions. In this area, information is used to:
- Manage the financing structure of the organization: risk and capital, debt and equity, financial leverage, liquidity and cash flow.
- Predict future financial outcomes under multiple scenarios.
- Provide a platform to test alternate action strategies.
- Enable the organization to test and simulate outcomes under a variety of strategies, so as to select those which provide optimal expected results.
Value wheel framework
The range of use cases described here is visualized using this “Value Wheel” framework.
This framework, though generic, can be customized to specific industry verticals. For instance, Profitability Analytics in Asset Management differs significantly from that in Consumer Packaged Goods.
The challenge for EPM practitioners is now to begin to measure the value created by each of these various use cases, to support decisions on the initiation of these use cases. Understanding the tangible value achieved — for example, to lower the cost of funds by a few basis points through improved liquidity management — is more impactful and measurable than softer measures like "more reliable information.” These use cases can drive significant returns for organizations once basic efficiency gains are realized.
While a first step is to qualitatively enumerate the various types of value, analysts can use basic financial tools to quantify the gains. These can often be measured as incremental revenue or direct expense reduction (often related to levels of effort in FTEs); changes in financing costs due to risk-related activities which lower the cost of capital, changes in profitability from adjusting product or customer mix shifts, etc. Of course, identifying the opportunity to take action is different than the value that accrues when action truly occurs. Finally, periodic future value can be assessed using appropriately-discounted cash flow techniques to support business case investments.
The framework aims to facilitate categorization of use cases in specific industry verticals and capture EPM value metrics from organizations over time. By doing so, organizations can gain a clearer understanding of the value created by EPM initiatives and make informed decisions about their implementation.
When strategically aligned with organizational initiatives, EPM can deliver significant value across various perspectives. By leveraging a practical framework and measuring the value created, organizations can maximize the impact of their EPM initiatives and drive sustainable growth.