By tobyehatch-Oracle on Jul 15, 2016
by Guest Blogger, Bart Stoehr
Practitioners have long been aware that Enterprise Performance Management (EPM)1 consists of a multidisciplinary set of processes. While EPM endeavors to meet multiple corporate objectives for a variety of business consumers, various software vendors have provided a wide array of tools to support the EPM journey. In an attempt to clarify the EPM landscape, Gartner recently announced that it is splitting its Corporate Performance Management (CPM) Magic Quadrant into two major categories. The new magic quadrants distinguish two CPM “recipes”:
+ Financial Corporate Performance Management (FCPM) has a primary focus on the processes for the preparation of external reports 2. It encompasses all the processes around the financial close activities, e.g., financial consolidations including intercompany transactions, reconciliations, disclosure management and regulatory reporting.
+ Strategic Corporate Performance Management (SCPM) is intended to provide management with tools to better manage and plan the organization’s activities3 . The tools include strategy articulation and management, financial and integrated financial planning, profitability modeling and improved performance reporting capabilities.
It is obvious that each CPM category has a different primary audience. FCPM’s processes are intended to gather results for external audiences; the results of the SPCM processes are most useful for internal audiences. But, the categories can also be distinguished by the timing of information that each supports. FCPM tools help organizations better explain past performance, while SCPM tools provide information to help guide the organization’s future performance.
For the most part, specific accounting and finance processes naturally fall into one category or the other. But, Gartner’s CPM categorization shows “cost accounting and profitability analysis” in the FCPM category, and “profitability modeling” in their SCPM category. Obviously, Gartner recognizes that each of its CPM recipes is improved through an understanding the operational causes of financial behavior. I call this universal discipline “operationally-based performance modeling” and it’s the common spice that provides the richness to each CPM recipe. Let me clarify.
Cost accounting and profitability analysis present results that help organizations explain past performance. These processes reveal answers to questions that cannot easily be obtained with traditional information available through the traditional financial close processes, e.g., “Which clients are profitable?”, “Which products are costing the most to produce?”. Most organizations find that these analytic processes are most powerful when used in conjunction with granular data from operational systems (like invoices, billing, customer support/sales/service, etc.) and operationally-based performance modeling techniques.
Similarly, profitability modeling uses operationally-based performance modeling techniques to help in planning and supporting business decisions for future direction. Profitability modeling supports the organization’s strategic planning by helping to answer questions like, “What is the organizational impact of selling more of Product X?”, “How would an improvement in client support processes impact the bottom line?”
Gartner’s new CPM categorizations recognize operationally-based performance modeling as an important spice in its recipes for financial corporate performance management and strategic corporate performance management. Now look at your own enterprise performance management. Is operationally-based performance modeling an important ingredient in your enterprise performance management recipes? If not, is time to add it to your organizational spice cabinet?
To learn more about how Oracle can help you with operationally-based performance modeling and Enterprise Performance Management,click here
1 Corporate Performance Management (CPM) and Enterprise Performance Management (EPM) are synonymous and used interchangeably in this article.
2 A complete description of Gartner’s Financial CPM can be found in Magic Quadrant for Financial Corporate Performance Management Solutions.
3 A complete description of Gartner’s Strategic CPM can be found in Magic Quadrant for Strategic Corporate Performance Management Solutions.