– As seen on the Host Analytics blog (http://blog.hostanalytics.com/)
There are a number of definitions of enterprise performance management (EPM) available in the market. There are also a number of competing terms that are used by various industry experts and vendors.
These competing terms include BPM (Business Performance Management), CPM (Corporate Performance Management) and FPM (Financial Performance Management. We prefer the term EPM since it signifies enterprise-wide application. We’ve touched on the definition of EPM in a number of other posts, but I thought this would be a good time to define EPM from the Host Analytics perspective. So here goes.
What is EPM?
Enterprise performance management (EPM) is a process and software system designed to help organizations (i.e., companies, government entities, educational institutions, and non-profits) link their strategies to their plans and execution. Sounds easy right? As anyone who has worked in a business enterprise knows, this can be challenging as an organization grows and evolves beyond its roots. To support this, EPM includes the following management processes:
- Goal-setting and defining the business model
- Budgeting, planning, and forecasting
- Consolidating results and closing the books on a periodic basis
- Reporting results to internal and external stakeholders
- Analyzing performance vs. plan, prior years, across divisions or products
- Then modeling again – creating what-if scenarios
Organizations execute these processes in a “management cycle”. This cycle is run at least annually and, in most cases, quarterly or more often. The objective of EPM is to ensure strategic goals and objectives are clearly communicated and understood by managers, and are reflected in their budgets and plans. Getting all of the various departments of an organization aligned around goals and objectives is a critical starting point.
But effective EPM also requires periodic revisiting to ensure the organization remains aligned over time, especially as the business world has become more volatile and unpredictable. This is handled through the periodic reporting and reviewing of results by internal stakeholders (i.e., the management team) and external stakeholders (i.e., board of directors, investors). This typically occurs monthly, quarterly, and annually. But some organizations do this more frequently, such as weekly in retail or CPG manufacturing. The EPM process is even run daily in fast-paced industries, such as financial services and transportation.
The EPM process also typically includes the monitoring and managing of key performance indicators (KPIs) that let managers in various departments and divisions of an organization understand key market and business trends on a regular basis (i.e., hourly, daily, weekly, monthly, quarterly). Ultimately, this allows manager to respond quickly when the business or department is not performing to plan and to make adjustments to ensure they meet business objectives.
The Evolution of EPM Software
The concept of EPM and the management cycle has been around for many years, going back to the early days of the industrial revolution. In the early years, EPM processes were managed manually, via paper, in meetings, and via presentations and discussion. In the 1970s, as commercial software applications began to take hold in many organizations, accounting packages began to support the collection of budgets and financial results for reporting purposes.
In the 1980s, the availability of spreadsheet software such as VisiCalc and Lotus 123 allowed accounting and finance teams to automate the creation of budgets and reports, and replace manual worksheets. This was further enhanced through the availability of email in the 1990s, which made it easier to share spreadsheets and support collaboration across departments in the collection and dissemination of budgeting and reporting data.