Bart Stoehr, Sr. Director for Product Management, Oracle
Practitioners have long been aware that Enterprise Performance Management (EPM) consists of a multidisciplinary set of processes. While EPM endeavors 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”:
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 SCPM 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 of 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.
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?” or “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?” or “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 and strategic corporate performance management. Now look at your own enterprise performance management. Is operationally-based performance modeling an important ingredient in your EPM recipes? If not, is it 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.
For more details on the Gartner Reports, read:
For more insights, view the Infographic: Is Your Enterprise Truly Focused on Profit?