Effective enterprise performance management (EPM) is the key to business success.
Having a great business strategy is only the first step to growing a sustainable business. You also need clearly defined objectives and effective processes that provide structure and direction in achieving those goals.
But, perhaps even more importantly, you need a system for tracking and measuring performance so you can continue to improve performance.
To paraphrase management guru Peter Drucker, you can’t manage what you don’t measure.
A big challenge for any business is balancing the long-term strategic priorities of the business with short-term operational priorities. Failing to balance strategic and operational needs leads to organizations underperforming.
If too much focus is given to immediate operational concerns, strategic objectives fall by the wayside. Similarly, if all the focus is on the big goals, critical operational issues often aren’t recognized and addressed in time. This can result in delays, under-resourcing, and high employee turnover.
This balancing act is part of the job for execs and managers. It’s made easier with the right management system.
In this article, we’ll explore how an enterprise performance management system enables managers to translate strategic priorities into operational actions and to measure—and improve—the effectiveness of both.
What is enterprise performance management (EPM)?
Enterprise performance management (EPM) refers to the systems and processes involved in setting strategic business goals, translating these goals into measurable objectives, planning operations and allocating resources, and tracking enterprise performance against these goals.
EPM involves actively collecting and analyzing data to report on past performance, forecast future success and failure scenarios, and plan and implement strategic interventions to continuously improve performance.
On a strategic level, EPM is the domain of decision-making executives—CFOs in particular. It is used for operational planning, budgeting, and KPI tracking and reporting by units or departments throughout the organization. This includes human resources, I.T., product, marketing, sales, customer service, and finance teams.
Enterprise performance management is also sometimes referred to as business performance management (BPM), corporate performance management (CPM), and financial planning and analysis (FP&A).
EPM vs enterprise resource planning (ERP)
While EPM is often in conjunction with ERP, they are not interchangeable.
ERP, enabled through ERP systems, covers the day-to-day transactional activities involved in managing operations. EPM analysis goes beyond operational data to provide an extra layer of managerial insights to help inform strategy decisions.
Benefits of enterprise performance management
At its core, the function of enterprise performance management is to improve organizational efficiency by balancing high-level business strategy with operational performance.
Here are some of the benefits of EPM:
Better strategic alignment
Having clear goals and concrete plans that detail how to execute them (and measure progress) translates into a clearer organizational structure and prioritized objectives.
This clarity of purpose offers employees throughout the organization increased stability and a greater sense of direction and unity—which in turn translates into better strategic alignment across departments.
Improved business intelligence
By setting clear goals and actively tracking performance against key performance indicators (KPIs) across the organization, managers and teams have a cohesive view of the current status of the business.
This data empowers management to run projections, identify opportunities and threats, and make informed decisions to improve efficiency and profitability.
By continuously monitoring the business’s financial performance and tracking margins, EPM can help business leaders to predict the profitability of future initiatives and scenarios.
This enables them to adjust their strategy to take advantage of opportunities and avoid pitfalls, removing inefficiencies and maximizing returns.
Greater regulatory oversight and compliance
Accurate, real-time data from touchpoints throughout the business makes it easier to ensure regulatory compliance.
Many modern EPM systems offer features that assist companies to generate detailed reports. This makes financial close easier by automating corporate financial reporting and tax reporting.
Streamlined financial processes
By promoting detailed expenditure projections, EPM facilitates better financial planning and analysis, resulting in more accurate budgets.
With process automation and continuous tracking, EPM streamlines financial consolidation by removing a lot of the time-consuming admin. It also reduces errors from the process of reconciling the books for financial close.
The enterprise performance management process
Here’s how the EPM process typically looks:
1. Consult data from all business units
Detailed, up-to-date data enables businesses to make strategic planning decisions based on past performance and informed projections. The more of your business processes that are digitized and automated, the easier it will be to consolidate this data. EPM software with decent data analytics capabilities will help you create realistic forecasting models based on past performance data.
2. Develop a strategy
After analyzing the data, identify new strategic performance goals that will improve the organization’s performance and profitability. The more specific you can be about the desired outcomes and the actions needed to achieve them, the better. Create clear objectives and define metrics or KPIs with which to track them.
3. Budget and resource
Create a detailed plan (with some flexibility built-in) describing the capital and resources required to execute the initiatives described in your strategy. Once again, data from previous years will help inform this process. However, be sure to consult key unit stakeholders to collaboratively establish accurate costing estimates, especially for new (previously unseen) projects.
4. Execute, track, and report
Continuously track performance across all units of your organization using pre-defined metrics that measure whether initiatives are in alignment with the company’s strategic goals. Prepare scorecards and reports that make it easy to identify successes, shortfalls, bottlenecks, and other key information that can help determine whether (and where) strategy or workflow adjustments are needed.
5. Analyze and assess
Review your reports to see how well the company’s performance aligned with its strategic goals. Identify opportunities for improvement and investigate the root causes of underperforming areas. Use this business intelligence to drive and inform your strategy for the next cycle.
Enterprise performance management is an iterative process, meaning it is likely to take a few cycles to get it right.
One of the common pitfalls many companies fall into is failing to translate their ambitious goals into specific targets and actions that managers can understand, execute, and measure effectively.
To help with this, Liz Lockhart’s article on cascading goals is a great place to start.
If you’d like to dive into enterprise performance management in more detail, have a look at the closed-loop management system developed by Robert S. Kaplan and David P. Norton.
Published in HBR in 2008, it’s slightly dated now (i.e. it doesn’t take into account the data analytics capabilities of the software available today), but it’s still a compelling read and the strategic insights it contains are solid.
EPM software is what underpins enterprise performance management in today’s organizations.
These solutions make it easier for businesses to track, manage, and improve performance by consolidating data from a multitude of sources across business units.
Managers can monitor operational efficiency by tracking KPIs, measuring financial data against projections and goals, and applying analytics to identify trends and model future outcomes.
Instead of relying on old-school spreadsheets in Excel—which require a lot of manual data entry and are prone to errors—managers and executives can access real-time data via visual dashboards. These automatically pull data from other key business planning tools like your accounting software, CRM, ERP, supply chain tracking software, project management tools, and more.
There are many EPM software solutions on the market at various pricing points, including on-premises, cloud-based, and hybrid systems. Popular SaaS options include Oracle and SAP.
How do you manage business performance?
Businesses across all industries benefit from implementing proper enterprise performance management. Of course, needs will vary and organizations will enter at different starting points.
Business leaders today have the distinct advantage of technologies that use machine learning help to automate much of the heavy lifting when it comes to reporting, data analysis, and forecasting.
It’s just a matter of selecting the right EPM solution for the job.
To see what options are available, and choose the right solution for your business, check out our pick of the best enterprise performance management software on the market today.
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