Enterprise Performance Management: Why It’s Important for Business Performance

In every sphere of life, better-informed decisions come from insights, not gut feels.

Today’s complex and faster-changing business world is no exception. This means c-suite leaders are constantly on the lookout for powerful insights to increase efficiency, reduce risk, and minimise the cost of operations. This is especially true for chief financial officers (CFOs) who must correlate finance metrics with business performance metrics for aligning finances in the right direction. 

Enterprise performance management (EPM) tools play a key role in this entire process of measuring operational results and predicting outcomes with insights. Starting from strategic planning to modelling to consolidating, and analysing performance, EPM software can help businesses remain agile and make better decisions in different business scenarios. If you want to know more about why EPM is so important and how it can help your business drive business performance, this article is for you.

What is Enterprise Performance Management?

Enterprise performance management or EPM software is often interchangeably used with corporate performance management (CPM) and business performance management (BPM). The ultimate goal of an EPM system is to help an organisation evaluate business performance, boost efficiency, and reach goals. In this process, EPM tools deal with four key areas: planning, budgeting, forecasting, and reporting. They are used primarily by CFOs and also in other functional areas such as HR, sales, IT, and marketing. CFOs leverage EPM systems’ analytical capability to gauge performance gaps, identify root causes, facilitate strategic collaborations, and execute timely planning. 

Four popular kinds of enterprise management software are:

• Executive Information Systems (EIS): Helps the senior leadership make crucial business performance decisions with key performance indices.
• Packaged EPM Software: Offers a complete view of operational areas with the aim of improving accountability and business performance.
• On-premise EPM Software: Easily customisable EPM software located on-premises and designed to consume organisational computer resources.
• Cloud-based EPM Software: Cloud-hosted EPM software available in the SaaS model. Ideal for reducing operational costs. 

Today’s on-premises and cloud-based EPM systems can be traced back to the era of the Industrial Revolution. They were developed out of the need for maximising efficiency and increasing bottom-line performance. The first rudimentary EPM software wasn’t implemented till the ‘70s. 

A core component of enterprise performance management is managing the financial close, consolidating reports, and streamlining the reporting process. The ultimate goal of an EPM tool is to leverage a bottom-up and top-down methodology to connect the annual organizational budget with a strategic plan and make a periodic forecast. EPM systems complementing transactional ERP modules often enable organisations to create aspirational and connected planning for organisation-wide implementation.

Most of the EPM software available today come with different core capabilities such as:

• Budgeting & Planning: Plan and budget for the various goals or projects that need to be implemented
• Scenario Analysis: Determine business outcomes based on different assumptions and input drivers
• Variance Analysis: Compare actuals Vs. forecasts for particular time periods
• Forecasting: Predict performance across business areas based on historical data or by utilising machine learning, and AI 
• Financial Modelling: Get in-depth modelling of specific business areas such as costs, capital expenditure, sales and operating plan, financial statements etc.
• Consolidation: Facilitate currency translation and intercompany elimination whilst consolidating numbers across different entities
• Collaboration: Facilitates collaboration across departments
• Visualisation: Get a 360-degree view of business performance
• Reporting: In-depth reporting for easing the decision-making process
• Data Analysis: For hierarchical and dimensional analysis of financial data
• Dashboards: Custom dashboards for quick access to reports and important metrics
• Document Lifecycle Management: For centralised maintenance of data and documents

What are the core components of EPM?

Organisations often suffer from disconnected financial plans and performance measurements. This means there are no reflections of decision-making at both cost and profit centres. Enterprise management systems are designed to address this disconnect and dynamically driven performance with three core elements. These elements are:

• Planning, Budgeting, and Forecasting (PBF): Planning, budgeting, and forecasting is basically a three-step process for mapping and predicting the financial goals of an organisation. They play an extremely important role in helping the finance team understand their current situation, desired goals, and steps to be taken to reach those goals. Here’s what each of these three elements means:
   
  1. Planning involves creating a framework for financial objectives or goals that a business wants to achieve. These objectives are usually set for a time period of three to five years.
      
  2. Budgeting outlines how these objectives will be achieved. For example, a budget takes different factors i.e. expenses, potential cash flow, debt reduction, and revenue into account. Budgets are usually set up at the beginning of a fiscal year and adjusted with growing or declining revenue.
      
  3. Forecasting refers to predicting data points such as revenue expenses etc. for a fiscal year or a stipulated time frame. It considers market conditions and historical performance data to predict performance. Unlike budgeting, forecasting doesn’t consider the variance between actual and predicted performance.

Source: AttributeX

• Performance Reporting: Performance reporting refers to data-driven insights generated by analysing project expenses, project progress, resource utilisation, project risks, ongoing issues, and project forecasts across departments. Performance reports play a crucial role in helping business leaders make fact-based decisions. Some of the popular types of performance reports are status reports, rolling forecast reports, progress reports, trend reports, earned value reports, and variance reports.
   
• Profitability & Cost Analysis: To drive true performance, businesses need to measure performance (cost, income, and profit etc.) across different business attributes. This process of using cost allocation to measure performance is known as profitability and cost analysis. For example, a detailed profitability and cost analysis helps an organisation to understand whether to discontinue an existing product, operate in a new market, invest in a new asset, and so on. 

What Business Values Can EPM Software Deliver?

The business landscape today is experiencing more disruption than ever. Be it new emerging players, cutting-edge tech, or global events like the pandemic, your business must be prepared to survive this disruption. A modern EPM solution or enterprise management software is crucial for understanding how to navigate these disruptions. Here are some of the crucial business values you can expect from your EPM software.

• Better Investment Decisions: Surviving uncertain times requires you to manage profitability better. That’s where EPM comes in. With data-driven insights on cost and profitability dimensions, you can easily understand where to invest more and which costs to cut down. This in turn streamlines your investment decisions and increases business profitability.
   
• Streamline Financial Close: Adapting to ever-changing regulatory environments is key to achieving business performance. With enterprise management software, you have access to accurate insights that help you realise such requirements faster. In addition, you can make the financial close happen much faster and with more confidence. 
   
• Improve Account Reconciliation Capabilities: A siloed account reconciliation process is often responsible for unnecessary delays in the financial close process. With enterprise management software, you can easily automate the account reconciliation process for global accounts. This helps you to minimise risks and avoid non-data-related delays.
   
• Align Company-wide Planning: If you have been managing finances with excel sheets, you are going to need more planning department-oriented processes. Enterprise performance management software allows you to seamlessly run agile integrated plans throughout the organisation and offer agile forecasts for all business lines. 
   
• Manage Tax Reporting Better: Changing tax laws require companies across the globe to adopt newer systems quickly and efficiently. Most of the EPM solutions out there allow you to connect processes with finance and tax, meaning you can easily manage tax reporting without the hassle. 
   
• Accurate Reporting and Efficient Change Management: If you are working with multiple reporting systems to gain insights into data, EPM solutions can help you be sure about the data accuracy and have a single source of truth (SSOT). An enterprise data management platform also makes it easier for you to spearhead major business transformations without worrying about data and master data alignment.

How Do Enterprise Management Solutions Work?

From Windows-based clients to internet-enabled cloud-based solutions, enterprise performance management software has come a long path. Today, most of the EPM solutions are available as software as a service (SaaS). Now that you have a fair idea of how EPM Solutions can help you gain insights and drive performance, let’s take a quick look at how they work.

• Planning or Strategic Modelling: The first step of implementing EPM solutions is to set goals and how you plan to achieve them. At this stage, you will be using the EPM software for resource allocation, based on historical performance data or newly defined goals. For efficient operations, these goals should be tied to the EPM cycle and must be SMART (specific, measurable, attainable, relevant, and timely).
   
• Budgeting: During this step, you will be using your EPM system to create budgets suitable for achieving the goals that you have planned earlier. You may also want to automate progress tracking and reporting for different departments during budgeting. 
   
• Tracking and Reporting: At this stage, you will be tracking key performance indicators to gauge the performance of different teams and have an overall understanding of business performance. You should continue doing this even if you plan to run a full EPM cycle every quarter. 
   
• Performance Assessment and Analysis: Now it’s time to measure performance on the basis of budgets assigned to teams. This will help you gauge how each department is contributing towards the financial goals that you have set. With the insights available at this stage, you’ll also have a fair understanding of which teams can do better. You can use this input for strategic planning during the next EPM cycle.
   
• Consolidation and Closing: Now that goals and budgets are set, it’s time to start collecting data for business performance analysis and improvement. This data collection happens across different business entities so that the leadership team can gain accurate insights after considering aspects such as intercompany eliminations, currency translations, joint venture accounting, etc. If you are about to deploy an enterprise performance management solution for the first time, it may make sense to start with financial consolidation for understanding how your business is doing.

How to Select the Best EPM Solution?

Choosing the best EPM solution or EPM software isn’t easy, especially with so many EPM platforms available today. Here are a few things that you should look for while choosing the ERP system for your organisation:

• Complete EPM Functionality: While the immediate organisational need may be limited to one area, you should always look for complete EPM functionality in your EPM solution. This will help you to adapt faster and use the platform across various departments as the business grows. For example, you should look for capabilities such as budgeting, planning, forecasting, modelling, management reporting, financial consolidation, and reporting.
   
• Scalability and Cloud-based: More and more users will need to access the EPM solution as your business grows. That’s why you should be choosing software that can be quickly scaled. Starting your EPM journey with such a cloud-based and scalable tool will eliminate the need for migrating to another EPM solution. 
   
• Powerful Yet User-friendly: Depending on the size, organisations need different needs that they seek to meet with EPM solutions. For example, your finance team may want to perform ad-hoc analysis whereas your senior team is looking for simple and graphical dashboards. Choosing an EPM system with varied capabilities will help you to complete the entire EPM cycle with one tool. 

Top 4 Enterprise Performance Management Tools

Choosing the right EPM tool is crucial for monitoring business performance, predicting business outcomes, and building a thriving business. Here are four enterprise performance management tools that have a great user interface, are usable, offer integrations, and are true value for money.

1. Workday Cloud EPM Software

Workday’s enterprise planning software is easy to use and comes with capabilities to handle tasks related to scenario planning, budgeting, forecasting, analytics, and reporting. Its modelling platform is powered by Elastic Hypercube Technology and can easily create flexible scenario models without IT support. Other features include real-time insights, effortless reports, and insights on finances & operations.

2. Oracle Cloud EPM

Oracle Fusion Cloud enterprise performance management is one of the top cloud-based EPM solutions available for streamlining cross-departmental operations. Some of the features that it comes with includes planning, financial consolidation, profitability & cost management, account reconciliation, tax reporting, narrative reporting, and enterprise data management. Whether you want to leverage AI and machine learning for data-driven insights or seamlessly connect data across functions, this should be your go-to choice. 

3. Anaplan

Anaplan lets you confidently forecast decisions by analysing current performance. Besides being flexible, scalable, and collaborative, this EPM software comes with capabilities required for connected planning, AI-driven decision making, multi-dimensional modelling, and staying compliant.

4.  OneStream

OneStream is known for being the intelligent finance platform for modern enterprises. It helps you to unify finance processes by managing all crucial processes like financial consolidation, reporting, planning, and analytics from a single platform. Some of the business functions that OneStream can seamlessly handle include account reconciliations, transaction matching, task management, people planning, capital planning, and predictive analytics. 

Frequently Asked Enterprise Performance Management Questions & Answers

1. What is an enterprise performance management system?

An enterprise performance management system is also known as corporate performance management (CPM) or business performance management (BPM). It helps organisations to improve business performance with planning, budgeting, forecasting, consolidation, and reporting. 

2. What is the use of EPM?

EPM or enterprise performance management solutions are used by chief finance officers (CFOs) or finance teams for operational planning, budgeting, and reporting. It helps businesses to measure performance improvement and make accurate forecasts as well. 

3. What are the key elements of EPM?

Four key elements of an enterprise performance management system are:

• Planning, budgeting, and forecasting (PBF)
• Performance reporting
• Profitability and cost analysis
• Financial Consolidation

4. Is EPM part of ERP?

Enterprise performance management (EPM) tools help you streamline management processes whereas enterprise resource planning (ERP) tools tackle operational processes. They complement each other as EPM systems often work as the front-end while ERP tools often work as the underlying transactional systems.