Scott Taylor discusses how to avoid some of the typical traps when creating a business case for an Enterprise Performance Management (EPM) system.
In the ‘Office of the CFO’, the task of preparing a business case/return on investment (ROI) for the acquisition of a new financial system inevitably has to be performed. Determining the ROI for a new ERP, for example, where
we can measure the tangible benefits and savings is somewhat easier than understanding how to quantify the intangible benefits such as the enablement of better decision-making” provided by the implementation of a budgeting/forecasting system or a reporting/analytics solution.
This is a bit of a thorny topic and there is much debate and research over the measurement of tangible and intangible savings. For example, no-one debates that having access to the right information in a more timely manner or being able to manipulate and analyse the right information leads to better decision-making – but what is the measurable benefit of this? Many financial professionals believe that intangible assets are relevant to the understanding of a company’s earnings prospects and future cashflows.
In many, if not most, of the projects we do, one of the key drivers is actual ‘manual time saved’ – that is, if we are replacing a very complex and messy spreadsheet based budgeting or reporting application with a sophisticated multidimensional web-based solution, then we can easily measure the time saved when, for example, producing the end of month report pack – a tangible saving.
Unfortunately the first thing that managers under cost pressure do is translate this saving into headcount. This is, in our opinion, is a dangerous game. Assuming the staff in your finance team are there because they are competent, highly skilled individuals and have an intimate knowledge of the business, a far better approach is to look to where else these skills are better applied. Simply replacing your Financial performance Management (FPM) systems with new technology and not undergoing a business process review to support and take advantage of the new applications will yield limited results at best.
We have a basic business case/return on investment document available at our website: www.nxg.com.au/ businesscase. It’s not exhaustive, but it’s a good start. We also have some comprehensive models and ROI calculators, so contact us if you want to explore a more complex and detailed business case.
Common pitfalls when implementing EPM
After a hundred or so EPM/FPM implementations, we have a few recommendations on what to avoid – here are the most common issues, relating specifically to a new budgeting/reporting system.
1. Better technology doesn’t mean better performance management.
Simply replacing what you have today with a new piece of software won’t yield significant performance improvements. ‘New planning’ is a core driver of Business Performance Management, is totally integrated with other management applications and is no longer an ‘island’. Use the project to review business processes and roles and use the savings in time and manual effort to better analyse information.
2. Don’t forget the strategy.
The finance department and the CFO’s role in the setting and measurement of strategy to execution is greater than ever. Modern applications put the power of alignment from the boardroom to the customer in the hands of the CFO. Use the opportunity to go back and review how your reporting is aligned with the company’s strategy and how you can implement behavioural change. Tools such as distributed and shared scorecards, management and operational dashboards, and scenario modelling, allow the finance department to leverage data into planning and budgeting and to allocate resource to initiatives that support corporate objectives.
3. Don’t do too much at once.
The desperation to break free from ‘spreadsheet hell’ can lead to a ‘want it all’ approach when looking at implementing a new system. In addition, today’s technology allows for quick, rapid start and proof of concept models to be developed with little effort during the functional specification stage.
Giving users, managers and business units the ability to actually see what the finished product and functionality might look is invaluable in sorting out the absolute necessities from the ‘nice to haves’ and to develop a staged approach to the implementation.
4. Look outside the financial world.
The distinction between strategic, operational and financial planning has been blurred forever. One of the major advantages offered by modern performance management software is the ability to seamlessly integrate data from disparate systems – not just from the ERP. Integrating data from other sources such as sales, marketing, HR or production also offers the finance department the ability to move to a more driver-based planning and budgeting regime.
5. Don’t get lost in features and functions
The way you architect and design your new budgeting or reporting system is more about business rules and process than about the technology. The software will do just about anything you want – the question is, what do you want it to do? For example, to what level of consolidation or detail do you distribute to different managers? You don’t want every manager drilling down into every expense transaction if there is a variance – just because they can! Careful planning and design through hands-on workshops and prototyping will ensure you drive behavioural change in line with strategy.
Scott Taylor is director and principal of NXG Business Solutions. The founding principals and owners of NXG have been involved in data warehousing, business intelligence, budgeting and planning, consolidation and BPM systems, with many client relationships spanning almost 20 years. NXG’s management and commercial skills are based on practical, hands-on experience, with each of the principals having come from the business usercommunity and designed and built BI/BPM solutions for some of the world’s largest companies. Email scott.taylor@nxg.com.au or visit www.nxg.com.au.
This article was first published in Inside SAP March/April 2011.
