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    Corporate Performance Management Corporate Performance Management Document Transcript

    • Corporate Performance Management Essential Building Blocks for the High-Performance Institution
    • Table of Contents The Basics: What is Corporate Performance Management? ......................................................... 5 How CPM Works: The Process of Planning to Performance .......................................................... 6 Building the High-Performance Institution: The Benefits of CPM.................................................. 7 The Building Blocks of CPM for the High-Performance Institution............................................... 10 Assembling the Building Blocks ................................................................................................ 17 Making CPM Happen ............................................................................................................... 21 How to Know If You Were Successful ........................................................................................ 21 Putting the "E" in CPM ............................................................................................................ 22
    •  Corporate Performance Management: Essential Building Blocks for the High-Performance Institution The adoption of a Corporate Performance Management Executing your institution’s business strategy has become discipline can provide tangible, measurable benefits for more difficult over time. Managing credit, interest rate, those financial institutions that choose to do so. The liquidity and operating risks is a major challenge on payoff is better decisions and greater certainty in the a good day. Legal, regulatory and compliance issues execution of business strategy. The key to achieving further compound this challenge, and that’s before these objectives is an understanding of what Corporate consideration of other factors like industry consolidation, Performance Management is, and the order in which new competition, and keeping customers happy. The the essential building blocks of Corporate Performance information you need to support decisions likely comes Management must be assembled. Read this paper to from a multitude of places, may not be consistent, and learn how. doesn’t arrive at the “right” time. The approach for combining the outputs from your business planning and measurement activities is probably fragmented and Donald J. Shaurette unsynchronized. In addition, more effort is probably spent Product Marketing Manager assembling the information than analyzing it. Corporate Performance Management How do you ensure delivery of financial returns to IPS-Sendero your stakeholders? How do you get from planning to performance? Corporate Performance Management (CPM) is the answer.
    • Corporate Performance Management: Essential Building Blocks for the High-Performance Institution  The Basics: What is Corporate common set of data and assumptions about the business. Performance Management? If the managers of an institution don’t have the same understanding or interpretation of what drives the CPM is a management discipline that frames the business, or of the data used to describe results, the condition, prospects and risks of an institution. The information upon which decisions will be based will never intent of CPM is to improve overall corporate (institution) be viewed consistently and comparably. performance by providing the insights required to make timely, informed, proactive decisions. A discipline such as Be clear on what CPM isn't: this relies on a framework that links together the elements • It's not a technology, but technology is certainly a needed to plan, monitor and manage the business component of CPM's deployment. strategy of the institution, including the performance • It's not a "scorecard" or "dashboard". These are tools measurements (the metrics), and the supporting to structure, report and convey performance measures technologies that can bring it all together. and their degree and manner of attainment, and can be used in that capacity as a part of CPM. In The Strategy-Focused Organization, Robert Kaplan and • It's not a "reporting" system. Reporting is a component David Norton of the Harvard Business School suggest of CPM, not an end unto itself. failure to meet business objectives doesn’t result from bad strategy; it results from bad strategy execution. CPM, Implementing a CPM discipline is a multi-faceted exercise when properly orchestrated, creates the opportunity to that will involve the management of organizational culture link business strategy to business execution, helping to and change, not just the processes and technology that ensure attainment of goals. can link business strategy to business execution. A key assumption underlying CPM is that all participants leveraging the CPM discipline are working from a 1 Robert Kaplan and David Norton, The Strategy-Focused Organization, 2001, p. 1.
    •  Corporate Performance Management: Essential Building Blocks for the High-Performance Institution How CPM Works: The Process of The process takes advantage of enabling technologies that Planning to Performance provide for rapid delivery of business critical information. In addition, these technologies provide capability to include all Planning activities and goals linked to actual performance participants in the process that can impact plan outcomes, measurement and reporting create a "planning-to- fostering collaboration and the alignment of goals. performance" business process. Simply linking the activities is not enough. CPM requires that the processes be Having all planning-to-performance activities working executed in a fashion that is both adaptive and iterative. within the closed-loop helps maintain focus, limits distractions and inconsistencies, and reduces potential Figure 1 illustrates this process. As the institution executes points of failure. Without a closed-loop process, planning, its business plans, a feedback mechanism is employed budgeting, profitability and risk measurement, analysis and to compare actual business results with those projected reporting are at risk of being executed as disconnected, in the plans, allowing the institution to react to and standalone activities. When these activities are conducted anticipate situations or opportunities that vary from planned on a disconnected, standalone basis, the stage is set for objectives. These steps occur on a continuous, "closed- strategy execution to fall between the cracks. loop" basis, allowing the institution to adjust and change its plans, if needed, along with changing business conditions. Figure 1. Diagram of Planning to Performance Process
    • Corporate Performance Management: Essential Building Blocks for the High-Performance Institution  Building the High-Performance plan, monitor and measure business performance, the Institution: The Benefits of CPM CPM discipline lays the groundwork for reliable decisions to be made on the basis of interdependent management So why undertake a CPM initiative? If the strategic processes supported by identical, comparable source data. and tactical issues you face in running your institution's The question of "which view of the business is correct?" is business aren't daunting enough, consider how Gartner no longer a consideration. sums up the need to adopt CPM: 1) to avoid the risks associated with failing to comply with government A Business System Optimized for regulations for reporting, 2) the competitive disadvantage Planning-to-Performance to late adopters as CPM becomes more widely used, and Cobbled-together approaches for planning-to- 3) the pressure to maximize current resource efficiency.2 performance can't possibly work as efficiently and These precepts are underscored by the complicated nature effectively as integrated systems and tools built specifically of financial services in the 21st century. for the task. Understanding that all financial institutions are not Take the case of spreadsheets. They are tremendous created equal, it might be difficult to accept the "broad productivity tools that have become a mainstay for brush" premise of value that CPM can provide. In fact, many institutions in terms of their execution of planning, there are many common benefits, in addition to the budgeting, reporting and analysis activities. However, overarching value of better, faster decisions and improved they are less than optimal as a "system" upon which certainty of plan execution, to be realized by financial to base CPM given their inherent shortcomings...they institutions of all types: are cumbersome, difficult to control, and are frequently One Version of the "Truth" inaccurate. For example, consider what can happen when spreadsheets are used to support the budgeting process... By establishing linkages between all components of inadvertent data entry mistakes occur, formulas get erased the planning-to-performance cycle, and by relying on a or overwritten, whole worksheets get reformatted and common set of information through which to continuously critical elements are deleted, in addition to the many 2 Gartner, Avoid the Fatal Flaws of Business Intelligence and Corporate Performance Management, June 2005, p. 3.
    •  Corporate Performance Management: Essential Building Blocks for the High-Performance Institution other error-creating events that can compromise budget Historical results can be consistently analyzed, and the assembly, analysis and decision making. A well-designed future can be planned using multiple assumptions and CPM system addresses these risks with embedded tools scenarios. Common data and tools, which in turn drive that overcome them, while simultaneously leveraging common processes and methods, eliminate the ability for spreadsheet utilization and familiarity by system users. managers to hide behind the reports they would ordinarily create outside of such a system, and their analysis Because CPM employs a systems approach intended to and interpretations of that data. Besides, there is no optimize the planning-to-performance cycle, you should expect organizational learning created when business insight is meaningful enhancement to underlying business processes: captured and catalogued in an "outside" system. • They should become more accurate because of the "controlled" nature of the system. Better Governance and Regulatory Compliance • Process cycle times should become shorter. Tasks can The increasing demands of a diverse group of stakeholders, be completed more rapidly, and decision making (both each requiring greater accountability around the management reactive and proactive) should be accelerated because of the institution's business activities, drives a need for greater information is available at the "right" time. focus in this area. A management discipline that is linked and • Process costs should decline because of system efficiencies. overarching, and supported by appropriate systems and tools, can provide the basis for the detailed oversight necessary to Imagine the business transformation that can occur when address the many mandates for disclosure and compliance. certain activities that now take days can be accomplished An attribute of CPM is that it is a framework, by definition, in minutes. that requires the existence of effective internal control Of great importance is that fact that a CPM system mechanisms to provide the deep business insight needed to can foster accountability for planning assumptions enhance business performance. Processes and policies are and business results through its architecture. A CPM defined and documented as the CPM framework is assembled. system is designed as a common platform possessing the capability to both "look back" and "plan forward".
    • Corporate Performance Management: Essential Building Blocks for the High-Performance Institution  Activities around external reporting and compliance can Communication, Collaboration and "Buy In" no longer be managed as an adjunct to the business... Because CPM has the ability to define common goals they need to be considered as integral components. and objectives for the institution as a whole, it can The closed-loop, iterative cycle of CPM acts as an early communicate the corporate plan and make it relevant warning system, allowing the institution to work ahead to the lowest levels of the organization responsible for of examinations and reporting deadlines to address planning and strategy execution. This creates alignment weaknesses before they become real problems, further from top to bottom. laying the groundwork for the execution of strategy. It also creates fertile ground for collaboration and plan Improved Transparency into Business Activity "buy in". The planning-to-performance process is an Rarely can data that is inconsistent, incomplete, ideal feedback loop as plans are executed, results are insufficient in terms of its detail, or presented at monitored, and business strategies are adapted to aggregated levels adequate for providing the level changing conditions. Consider the value that enhanced, of understanding necessary to manage business bottom-up planning would provide in terms of precision performance. Further, data of poor integrity is probably and accuracy in managing balance sheet and net interest not auditable, nor will it provide directional benefit margin in such a collaborative environment. regarding the risks facing the institution. Michael Coveney outlines the downside of not creating CPM's integrated approach, based on well defined uses for a collaborative planning process that provides such a its supporting information, establishes capabilities that can feedback mechanism and "buy in" opportunity in The expose the relationships that exist between results, the data Strategy Gap: Leveraging Technology to Execute Winning that underlies them, and related scenarios and assumptions. Business Strategies. Specifically, employees require an opportunity to provide input regarding their ability to implement strategy. Failure to secure support for plans will result in them not being executed.3 3 Michael Coveney, The Strategy Gap: Leveraging Technology to Execute Winning Strategies, 2003, p. 6.
    • 10 Corporate Performance Management: Essential Building Blocks for the High-Performance Institution The Building Blocks of CPM for the that are desired that will improve decision making. So High-Performance Institution what are these building blocks? For most Institutions, they'll be the following: "Rome was not built in a day", and you shouldn't expect your CPM framework to be either. Building a CPM Consolidated, "Unified" Data framework is a multi-phase process. There are practical Without data, there is no information. Without limits in most Institutions as to how rapidly new systems information, there is no insight. and management processes can be implemented in a given period of time. This might suggest that the value The data that supports a CPM discipline will be evaluated created by CPM could be a long time in the making, but historically, and prospectively. It must draw attention to this is far from true. causes and effects, as well as support decisions based on expected outcomes. The degree of insight that a Realization of the value that CPM can provide does not well deployed CPM initiative can provide will require have to be deferred until all data, processes and systems deep, transaction level detail. For data to be valuable, are linked. It can be attained incrementally as the it must be "fresh". It must also be relevant to the "building blocks" are assembled. The key to speeding different user audiences that will attempt to leverage along the realization of value is in understanding what it. Most importantly, it must be consistent. There must value each building block provides in the context of an be no variation in how of all data that describes a given overarching CPM discipline, and the order in which they dimension of the business can be interpreted...it must be should be assembled. the only version of the truth. The building blocks of CPM can be defined as the specific The availability of the "right" data to support your management processes of the financial institution that are institution's unique performance measurement criteria engaged throughout the planning-to-performance cycle, (see the Definition of Key Business Drivers below) is a the tools needed to support them, and the key insights fundamental building block of CPM. The key linkage for
    • Corporate Performance Management: Essential Building Blocks for the High-Performance Institution 11 this building block is its correlation with the decisions Asset/Liability Management Models CPM is intended to support, and the fact that it must be Net interest margin accounts for a significant portion of optimized for that purpose. overall profitability, exceeding 60 to 80 percent of revenue Unfortunately, the needed data this comprehensive in many institutions. Planning for and managing how definition often resides in different places, is structured an institution's net interest margin reacts to unexpected differently, and needs to be cleansed and transformed changes in interest rates is integral to the task of asset/ before it is of use. liability management. Data Management and Normalization Tool(s) Asset/liability management is tightly coupled with an Making the data integrated, consistent and common is the institution's execution of its strategic plan (including role of this building block. decisions around pricing, product mix, size, growth and structure of the balance sheet). Given these correlations Considering the diverse nature of information needed to institutional performance, it is to be expected that to support the planning-to-performance process, the the tools and processes of asset/liability management disparate systems data may reside in, and the multiple would be a key building block of an effective CPM formats in which it may be created and stored, the system. The native ability of these models to benchmark existence of management focus and a mechanism to make current positions and to "simulate" or model alternative, the data useable is required. forward-looking scenarios (e.g., balance sheet and income CPM takes advantage of tools optimized for integration forecasting) based on changes in the business (and the with the internal IT infrastructure, or with the technology environment in which it operates) solidifies their place in platforms delivered by external providers. Tools such as the closed-loop cycle of CPM. these may be standalone and take the form of an ETL Asset/liability management models further solidify their (extract-transform-load) tool, or may exist as an integrated position in the CPM framework given their value as tools component of another building block of the CPM system through which to measure risks inherent in the balance in the form of a data import tool.
    • 12 Corporate Performance Management: Essential Building Blocks for the High-Performance Institution sheet, both current and planned. Potential variability of margin based on a defined scenario for the future. This financial results (particularly for market and liquidity risks) typically involves the modeling of scenarios (based on can be quantified under differing scenarios. The measures varying management assumptions for the business) as a generated by this process provide support for regulatory precursor to the establishment of the budget itself. compliance and internal risk management activities. Building the budget for the institution requires the Most institutions already use an asset/liability model in use of systems and tools optimized for the purpose. some form, but they may not have considered their use as Because the plan (and associated budget) should be part of a larger, overarching process connected to other in meaningful levels of detail to manage and monitor parts of the Institution and their decision processes. business performance, budgeting and planning tools Budgeting and Planning Capabilities must support the design of the institution and its chart (Systems and Processes) of accounts (with planning units down to the center level, if appropriate), with the budgeting structure of the Budgeting and planning capabilities, and the systems operating plan consistent with the reporting structure in and processes that define them, perform a vital role in the operating units. Whether created from a "top down" CPM where forward looking plans are quantified. This (where "global" assumptions are distributed to the building block is critical to establishing management planning unit level) or "bottom up" (where budget details action, tactical execution, and identifying the need for any are prepared at the planning unit level and consolidated mid-course plan corrections as the closed-loop cycle of at the institution level) perspective, budget and planning CPM is iterated. The comparison of operating plans, and information is developed at business unit and center levels their corresponding budgets, with actual results, is the to provide needed accuracy and to establish accountability essential "milestone check" to assess whether business for the managers of individual budgets and plans. performance is occurring as planned. A unique attribute of this building block is that it has A key focus for this building block relates to the the potential to involve many participants in the creation enumeration of a short-term operating plan for the of the plans and budgets themselves. Accordingly, an institution, including the calculation of net operating
    • Corporate Performance Management: Essential Building Blocks for the High-Performance Institution 13 element of this building block involves aspects of the This building block should be designed with capabilities management of the process...process control, cycle time, that support the relevant linkages between strategy and accuracy...owing to budget inputs, submission and and execution, with reporting definition becoming a approval, and adjustment activities spread across the by-product of the way the institution needs to look at many participants. its business (both internally and externally)...i.e., that which will serve it best in terms of providing the visibility Within CPM, planning and budgeting can become to be able to assess and enhance performance. Actual dynamic and adaptive. As the assumptions underlying the and proforma financial statements, cash flow projections, budget change, and outside of the timing of traditional liquidity reports, economic value reports, gap reports, budget cycles, the ability to re-forecast potential outcomes duration and maturity reports, and variance reports, as well through the manipulation and input of key variables or as audit and regulatory reports, could all be considered business drivers (e.g., volumes and margins) is another "standards" of the CPM management reporting mix. element of this building block. This element supports the Custom report writing and multidimensional reporting using trend towards rolling forecasts as a management tool, techniques such as on-line analytical processing (OLAP) may and allows an institution to rapidly respond to changing also be deemed a necessity, based on the complexity of the business conditions through more proactive, higher- institution's business. frequency planning cycles. Management Reporting Capabilities The capacity of the CPM infrastructure to provide reporting based on a single view of the institution's Integrated management reporting capabilities should be financial position across complex organizational, considered another fundamental building block of CPM. legal, regulatory and geographical boundaries and These are the management processes and tools through structures is also a desired element of this building which insight into business performance is communicated. block. Consolidation tools can automate the repeatable This building block relies heavily on its "tool" component. processes of rolling up subsidiary units, reducing manual effort and the potential for clerical error, thereby
    • 1 Corporate Performance Management: Essential Building Blocks for the High-Performance Institution strengthening internal controls. Information translation for quick reaction to changing business conditions and and remeasurement (e.g., valuation of foreign currency help ensure execution of strategic initiatives. Insight positions) can also be accommodated with needs to be acquired and acted upon at the "speed of these tools. business", and not according to an artificially imposed timeframe or constraint. Accelerated financial reporting that complies with regulatory and accounting standards is a goal of this Profitability Measurement Capability building block. In addition, the use of appropriate This building block provides the institution with the management reporting tools can actually improve ability to gain insights about the business from a corporate governance because expanded disclosures can variety of cross-sectional views and dimensions. These be made available, and internal controls can be made views and dimensions will be defined by the nature auditable and certifiable. of the institution's business, and will generally include measurements for things such as lines of business and A key tenet of this building block is that reporting responsibility centers, products and product lines, markets capabilities should be evaluated relative to their ability to and market segments, distribution channels, customers meet the needs of diverse users and stakeholders, and in and relationships, activities, etc. Looking at the business terms of their ability to deliver information that is relevant, through this type of lens is important to the CPM exception oriented, predictive and at an adequate level of discipline because it can provide visibility into the relative detail. Tools that take advantage of enabling technologies contribution to profit accruing from various segments of in order to ensure dissemination of information on timely, the business based on insights about a diverse group of flexible and reliable terms are another requisite of the variables such as product pricing, delivery costs, customer CPM foundation. value, resource utilization, as well as many others. An aim of CPM should be to move from reporting and The dimensions of the business for which profitability analysis cycles that are reporting system or accounting measurement is desired must first be defined in a context cycle driven to one that is continuous in nature... that considers the revenues, expenses and capital that can capabilities that provide expedited reporting set the stage
    • Corporate Performance Management: Essential Building Blocks for the High-Performance Institution 1 logically be attributed to them. Business rules define how Definition of Key Business Drivers and Measurements revenue, costs and capital are allocated and assigned to There is no CPM without this building block. You must the dimensions. For example, measurement of a branch determine what should be measured and why. office's profit contribution would require the assignment of a portion of net interest margin based on the branch's Key business drivers are external or internal influences sources and uses of funds (facilitated by the use of a that significantly impact or set direction for the attainment Funds Transfer Pricing tool). Non-interest items, that are of the institution's strategic plan. They must be clearly not specifically attributable to the branch, would rely on defined in the context of strategic objectives, and their allocation rules to assign such things as product costs impact must provide for the ability to be measured in based on some methodology (standard costs, activity financial terms. Proper definition will enable institution based costs, etc.). Capital assignment to the branch management to focus efforts on those factors critical to for the measurement of "returns" might contemplate their success. Additionally, application of these concepts required fixed asset levels, growth assumptions, and an is appropriate for each the various business dimensions adjustment for risk. Collectively, these business rules (lines of business, branches, products, etc) for which would frame "how" the branch's profit contribution is performance is to be managed. to be interpreted. These rules must be concisely defined Measurements of business drivers are commonly referred and consistently applied for the institution to gain the to as key performance indicators (KPI's). KPI's should benefits of the insights that cross-sectional profitability be supplemented with measurements of performance measurement offers. benchmarked to material plan targets. Industry standards A well designed CPM framework provides for historical and benchmarks (including competitor data) should be analysis of profitability as well as for the ability to simulate considered essential comparative measures. future profitability for the dimensions of interest. An important distinction must be made between "what" must be measured, versus "how", and "how much". Just like the familiar 80/20 rule, it's likely that a fewer 4 Answerthink, Best Practices in Planning and Budgeting, 2003, p. 2.
    • 1 Corporate Performance Management: Essential Building Blocks for the High-Performance Institution rather than larger number of business drivers account for measurements, and bring focus to management processes real business impact. The key is in tracking the right ones. by calling attention to specific situations that can impact Answerthink indicates that leading companies plan and business success based on their causes and effects. They measure 40 line items, while world-class companies track as are particularly useful when tolerance ranges around few as 15 items...key measures can get lost in sheer volume business driver outcomes can be established, creating a when more line items are tracked with a negative impact framework for exception management and analysis of on the speed and quality of decision-making. In addition, the KPI's. Of course, these are merely tools to convey more line items translate into time wasting analysis that has performance status. The hard work of defining what little business value, and more detail does not necessarily should be measured must precede the implementation of translate into more precision given the greater chance that the dashboard. that the numbers will be incorrect.4 Each of the building blocks described above have the In addition to the management reporting capabilities potential for some or all of their elements to be deployed described above to facilitate performance measurement, during the process of being assembled as a part of an the CPM framework can maximize opportunities for incremental, value-adding CPM framework. The options performance reporting through the use of technology in will be the result of management preference (typically the form of "dashboards". Dashboards are tools that some point of "pain"), or specific organizational need. provide a visual representation (graphs are an example) However, there are practical guidelines that form the basic and simplification of the status of KPI's and other critical CPM blueprint, and specify the order of assembly. 4 Answerthink, Best Practices in Planning and Budgeting, 2003, p. 2.
    • Corporate Performance Management: Essential Building Blocks for the High-Performance Institution 1 Assembling the Building Blocks in the planning-to-performance cycle, and sell them on What really contributes to business performance in the “art of the possible”. Also, don’t forget to consider your institution? The answer to this question ultimately the needs of external stakeholders (e.g., shareholders and will drive the way the building blocks are assembled, regulators). and the speed at which CPM business value will be realized. At the end of the day, it’s all about strategy Assembling the building blocks boils down to a execution…people, processes, systems…and decisions. five-step process: Each building block contributes to execution differently, 1. Define the Strategy/Decision Framework for your and co-dependencies do exist. While priorities, resources, institution organizational design, product offerings, customer 2. Define the data needed to support the Strategy/ markets, etc. will vary from institution to institution, there Decision Framework are immutable truths with respect to assembling the 3. Implement capabilities to support primary profit and blocks. risk drivers in the context of planning-to-performance 4. Implement planning-to-performance capabilities to Always keep in mind that a key assumption of CPM is support the remaining profit structure an integrated, unified view of the business performance. 5. Consider other cross-sectional views and value-adding The goal of the assembly process, therefore, is continued insights and add based on business priorities progress towards this unified view, and the build out of a “complete”, closed-loop planning-to-performance Why this order of assembly? Simply put, some of the business process. steps (and the building blocks used in those steps) are "foundational"...they need to be laid first. Subsequent The introduction of change, as well as cultural obstacles, assembly steps prioritize and accelerate the acquisition of can act as inhibitors to the assembly process. Different value intrinsic to each of the blocks employed. functional perspectives (e.g., treasury, control, lines of business, etc.) and priorities can slow progress. The work- around for this is to engage stakeholders and participants
    • 1 Corporate Performance Management: Essential Building Blocks for the High-Performance Institution Step 1: Define the Strategy/Decision Framework for The tools that can be used to communicate the status of Your Institution performance (e.g., dashboards, analytics and reporting Do you define strategic success through traditional financial systems) are deployed in subsequent steps. measures such as ROA (return on assets) and ROE (return on Step 2: Define the Data Needed to Support the equity) only? Do you take an expanded view and employ a Strategy/Decision Framework performance measurement methodology such as RAROC (risk- This step addresses the following questions: adjusted return on capital)? Or is a holistic view such as the • What data do I need to support the activities of the Balanced Scorecard your basis for measuring execution of your planning-to-performance process? institution's business strategy? • How does the data relate to the Strategy/Decision Defining the framework through which you will measure Framework? strategy execution and make decisions is the essential first step • How will data be reported and analyzed, and by whom? in assembling the building blocks. The choice here defines the • What needs to happen to transform the data into parameters around the deployment of the building block that "information"? identifies key business drivers and their measurements. Two building blocks get deployed in this step: 1) the The value associated with this building block's use at this "data", and 2) data management and normalization stage of CPM's evolution in your institution will be the clarity tools. The value associated with the deployment of these and direction that it brings to the planning-to-performance two building blocks is, respectively, movement towards process...what will be measured, how it will be measured, and a single, unified set of data through which to plan and when it will be measured...with a definition of the linkage measure results, and the ability to bring disparate data back to business strategy and plans. sources together to support that aim both initially, and on an ongoing basis. It is useful to define KPI's in the context of acceptable ranges, exception levels and tolerances as part of this step.
    • Corporate Performance Management: Essential Building Blocks for the High-Performance Institution 1 Step 3: Implement Capabilities to Support Primary Capabilities to Support the Remaining Profit Structure Profit and Risk Drivers in the Context of Planning-to- Whereas the previous step closed the planning-to- Performance performance loop, this step is intended to refine the With the components of the balance sheet responsible capabilities of those building blocks previously utilized. for a significant portion of institutional profitability and With balance sheet planning and reporting well risk, it is only logical that deployment of the asset-liability addressed, attention is turned to the remaining profit management model building block comes next. In structure, with an emphasis on the remaining elements of conjunction with this building block, including the building the income statement (primarily the components of net blocks that facilitate management reporting and analysis, non-interest income). and high-level planning and budgets set the stage for planning-to-performance to be administered on at least Opportunities to distribute planning and budgeting a macro, institutional level. The CPM value that this step activities, as well as to apply greater focus on provides, along with these building blocks collectively, is the organizational profitability become the priorities of this institutional-level view of operational planning and results on step. The "drill down" into individual organizational an integrated basis, with a simultaneous leveraging of a single, and responsibility center plans and budgets adds more unified view of data. precision, accuracy and predictability than could be attained at the macro level, identifies resource needs, This step sets the stage for operational planning and and creates accountability for the execution of plans. performance measurement to be executed continuously, Most importantly, individual plans can now be aligned and for the adaptation of business plans based on the with strategic objectives. Participants in the planning-to- insights gained. It is also appropriate at this step to performance process are now coordinated. take advantage of tools such as graphs and charts, and dashboards, as a way of improving insights into business An added value is the setting of the stage for true two- performance through the visual analysis of data. way, collaboration in planning and reporting, and for the "buy-in" of those individuals responsible for delivering Step 4: Implement Planning-to-Performance business results.
    • 20 Corporate Performance Management: Essential Building Blocks for the High-Performance Institution Step 5: Consider Other Cross-Sectional Views and Value-Adding Insights and Add Based On Business Priorities Profitability/"Multi-Dimension" Tools There are certainly other views and dimensions of the business that are worthwhile evaluating in addition to those that are organizationally defined. This step Planning/Budgets/ A/LM Models leverages the components of all the building blocks and Analysis Tools the tools of profitability measurement specifically, to do just that. Management Reporting Tools As financial services organizations have organized themselves around lines of business, each with different products, customers, delivery channels and geographic dimensions, the opportunity exists to take a cross-sectional Unified and Normalized Data view of these dimensions as a means of enhancing business performance as a by-product of enhanced management insight. This step will need to consider allocations (of costs, for example) to the dimensions being Strategy/Decision Framework analyzed, and require specific capabilities (such as an FTP tool) to assign value for assets or liabilities originated. Figure 2. The Building Blocks of CPM The value of this cross-sectional analysis of activities Figure 2 summarizes the building block assembly process is greater understanding of what drives business for CPM. performance. This, in turn, leads to better decisions about resource allocation, resolution of strategic conflicts, and ultimately better business strategy.
    • Corporate Performance Management: Essential Building Blocks for the High-Performance Institution 21 Making CPM Happen How to Know If You Were Admittedly, implementing CPM can be a broad undertaking. Successful There are a few things that you can do to move things As you undertake a CPM discipline in your institution, along, and insure your success at the same time: there are questions you should ask yourself to see if you • Get multi-level organizational commitment around are making progress and being successful: CPM and its use in daily operations. • Are better decisions being made? Are decisions more • As you evaluate solution offerings from CPM vendors, proactive? If they are still reactive, has your reaction give strong consideration to the purchase of an time been accelerated? application from a provider who focuses solely on the • Have your "predictive" abilities improved? Has there financial services industry and its uniqueness. Financial been a reduction in "surprises"? services is not healthcare or manufacturing. • Has previously unidentified profit potential been • Consider ways that you can "future proof" your realized, costs been avoided, or risk(s) been mitigated? investment in CPM right from the start. Choose a vendor • Is information being shared more broadly? that can support your growth plan and changing needs. • Are the right people sharing the right information? Make sure they have a product vision that supports a • Are cycle times for the planning-to-performance process unified view of CPM and the supporting tools (not just shorter? Is the process more accurate? Is it more point solutions). Make sure that the technologies to be productive? Are fewer elements of the process left open deployed are current, scaleable and can interoperate with to error, or to chance? your institution's technology strategy. • Is the interpretation of information consistent across all • Choose a vendor that can assist with implementation users of the information? Are they drawing the same and integration...with appropriate domain (financial conclusions? services) expertise. • Has decision making become more "two-way"? • Can your institution more readily make mid-course Depending on your situation, it may make sense not to corrections in their plans if business conditions so do this alone. Taking advantage of resources skilled in dictate? the needs of financial institutions and their performance management activities is a best practice.
    • 22 Corporate Performance Management: Essential Building Blocks for the High-Performance Institution • Are you seeing perspectives of your business that were Putting the "E" in CPM missing in the past? Has it become easier to identify the Acronyms are useful tools. They allow us to take linkage between business performance measurement wordy, important and sometimes complex concepts and strategy execution? and communicate them in an abbreviated, self- • Is your business performance improving? describing manner. CPM is a great example. However, These questions are excellent benchmarks to determine when properly orchestrated, Corporate Performance if you are on the right track. Remember, CPM is much Management's acronym should be amended to "CPM-E". more of a journey than an event. The iterative, adaptive The "E" is for execution. Strategy execution and superior underpinnings of the planning-to-performance process will performance are the big payoffs of CPM. The planning- always lend themselves to continuous improvement. to-performance cycle can be accomplished more quickly, accurately and at less cost, and provide better insights and decisions when your institution adopts a CPM framework. You don't need to wait. The benefits of CPM can progressively add value to your institution if you assemble the framework "block by block".
    • Corporate Performance Management: Essential Building Blocks for the High-Performance Institution 23 About IPS-Sendero IPS-Sendero is a business unit of Fiserv, Inc. and a provider of technology solutions and education for corporate performance management, including asset/liability management, profitability measurement and financial management and planning. Financial institutions of all types use IPS-Sendero products and services to help manage balance sheet risk, measure and manage profitability, develop budgets and forecasts, and produce information needed for sound decisionmaking. More than 3,400 organizations in 56 countries have licensed 7,800 IPS-Sendero products through the company's headquarters in Atlanta and its global offices.
    • 2 230 Scientific Drive Suite 800 Norcross, GA 30092-2904 USA Toll Free: 800-879-1996 Phone: 770-409-0047 Fax: 770-409-1735 www.ips-sendero.com Global Solution Centers: Africa Asia Australia Europe North America South America