Best Practices in Implementing and Delivering Value from Your CPM Solutions


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The CFO’s role has evolved from traditional reporting and controlling, to decision support and strategic execution. There is a growing expectation that the CFO will be a trusted adviser to the executive team, and will lead the Finance organization to embrace the role of business partner. This demanding transition has been driven by the desire to raise the bar and deliver value for investors and other key stakeholders.

In this best practice workshop, learn from seasoned Finance experts how best in class finance functions have used corporate performance management (CPM) as a foundation for driving these necessary changes, and for leading the finance organization into a new, value-added role.

In summary, in attending this workshop you will find:

* A roadmap for integrating strategic planning, operational planning, budgeting, and reporting into a complete CPM solution
* Operational readiness: How to tell if your Finance organization is up to the challenge
* How to leverage your existing CPM solution to enhance and improve finance operations processes
* Tips and traps for selecting the right CPM solution for your organization
* Bonus Material: Results of recent survey of 150+ companies experience with Rolling Forecast

Presentation delivered at ProformaTECH 2014 -

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Best Practices in Implementing and Delivering Value from Your CPM Solutions

  1. 1. Implementing and Delivering Value from Corporate Performance Management … The CFO’s Role Tony Bevacqua Partner, KPMG LLP
  2. 2. © 2014 Proformative Introductions 2 • Tony Bevacqua, Principal KPMG • Bo Poulsen, Director KPMG
  3. 3. © 2014 Proformative Workshop Topics • Evolving Role of the CFO • Corporate Performance Management (CPM) • CPM Defined • Leading Practices • Implementing a CPM Solution • A Framework for Implementation • Challenges and Critical Success Factors • Open Discussion /Q&A • Suggested Reading 3
  4. 4. Evolving Role of the CFO 4
  5. 5. © 2014 Proformative Increasing Pressure on the Finance Function 5 Finance Function External pressures Internal pressures Globalization Credit crisis New rules & regulations Shortage of skilled staff Organizational complexity Outdated IT systems Budget constraints
  6. 6. © 2014 Proformative Recent KPMG Research 6 ―62% of the finance executives expect their Finance department to have a larger role in developing and executing business strategy in the next 5 years‖ ―Likewise, 50% say they are already able to contribute well to the company’s long-term business strategy development (up from 33% four years ago)‖ The Goal for Many Finance Organizations: Become a Value Add Business Partner From Scorekeeper to value-adding business partner
  7. 7. © 2014 Proformative As a Result, the Finance Function is Continuing to Evolve Into a Leaner More Strategically Focused Organization… 7 Reporting & Budgeting Measuring & Controlling Financial Risk Shared Services Financial Planning & Analysis Measuring & Controlling Enterprise Risk Business Services Historical Reporting and Transaction Focused Role Forward Looking more Strategically Focused Role FROM: TO: Total Cost of Finance is 1-2%+ of Revenue Total Cost of Finance is .6 - 1% of Revenue
  8. 8. © 2014 Proformative A Model for Driving Value Focusing on 4 Key Roles 8 Decision Support Enhancing the decision making capabilities through effective information delivery… Efficient Operations Providing lean operations through standardized transaction processes… Strategic Growth Providing insight into business performance to shape organizational strategy… Governance Protecting the organization’s assets by maintaining statutory obligations and managing enterprise risk … Value Driven CFO
  9. 9. © 2014 Proformative Priorities of the Value Driven CFO Efficient Operations Governance • Increasing Finance’s relevance in the strategic planning process • Improving the organization’s understanding of the business model and value creation opportunities • Deploying integrated performance management processes Decision SupportStrategic Growth • Standardizing and automating processes • Deploying common global ERP platforms • Achieving a global operating model with high shared services leverage • Simplifying finance data structures • Implementing centralized, automated and preventive business controls • Integrating enterprise risk management capabilities into the business • Optimizing Tax and Treasury functions • Increasing the speed of decision making across the organization • Integrating analytics into the decision making process • Providing greater insight into business performance • Upgrading finance skill sets to be a better business partner
  10. 10. © 2014 Proformative What Does Recent KPMG Research Tell Us? 10 Our research findings show that finance executives are ready to: • Strengthen their strategy, planning, information reporting and analytical capabilities • Empower their finance organization and their C-level peers to make better business decisions • Transform data into intelligence that enables actionable decisions • Refine current technology and take advantage of evolving technology 76% said The quality of financial and performance data and analysis available to management 68% said Management’s access to financial and performance data 66% said Our ability to provide detailed financial and performance data to management 75% said The F&A organization’s data analysis capabilities 68% said The information available to the CFO from across the business (e.g., ‘one version of the truth’) CFOs’ planned improvements… Source: 2012 KPMG/CFO Research survey of over 350 finance executives
  11. 11. © 2014 Proformative So What Does All This Mean to The CFO? 11 • Pressure to keep increasing value add will continue with priority on strengthening their strategy, planning, information reporting and analytical capabilities • More with less will continue through leaner processes and deployment of scalable Finance Operating Models • Role will continue to be further shaped by advancements in technology and data • Transforming data into intelligence that enables actionable decisions will continue to shift toward the CFO’s office • Increasing demand for higher level skill sets
  12. 12. Corporate Performance Management (CPM) 12
  13. 13. © 2014 Proformative Corporate Performance Management (CPM) Defined 13 The business processes, policies and cultural practices an organization utilizes to develop, monitor and evaluate progress toward executing business strategy and creating value • Note; the concepts of CPM are also referred to as Enterprise Performance Management (EPM), Business Performance Management (BPM), Strategic Enterprise Management (SEM), Strategic Performance Management (SPM) and Financial Performance Management (FPM) and there are probably others too!
  14. 14. © 2014 Proformative Common CPM Business Processes • Sales and Operational Plans • Financial Plans • Capital Plans • Budgets Strategic Planning Business Planning Forecasting Performance Reporting • Strategic Plans • Plan Assumptions • Capital Allocation • Business Scenarios • Performance Targets • Monthly/ Quarterly Financial Outlook • Performance ―Gaps‖ versus Targets • Reporting • Variance Analysis CPM requires execution of the following business processes…
  15. 15. © 2014 Proformative Select Leading Practices for Effective CPM 15 1. ―Closed loop‖ performance management cycle 2. Use of top down target setting to link strategy and business performance 3. Adopt ―Driver‖ based models for forecasting, reporting and variance analysis 4. Integrated Reporting Models 5. Scenario analysis through predictive analytics 6. Incentive compensation alignment
  16. 16. © 2014 Proformative Leading Practice Consideration – Deploy ―Closed Loop‖ Planning Cycles 16 What does a ―Closed Loop‖ CPM cycle look like?
  17. 17. © 2014 Proformative What We See in the Marketplace; CPM Process Maturity 17 • Highly manual process often spreadsheet driven with low repeatability • Decision support and scenario analyses is reactive and ad-hoc • Strategy, planning, and reporting function as an integrated closed loop process • Technology enabled process • Focus is on the forecast and gap closure • Analysis is standardized using operational drivers • Process and data standardization achieved although strategic linkage may be lacking • Processes are financially driven with limited focus on operational drivers or long term forecasts Level Two: Mature and Standardized Level Three: Fully Integrated Level One: Ad Hoc and Basic Degree of Strategic Impact Degree of Process Integration
  18. 18. © 2014 Proformative18 0 2 4 6 8 10 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Baseline Rolling Forecast Target Gap Closure through: • Strategic Initiatives • Management of Operational Drivers    Targets established during Strategic Plan Gap Closure Gap Closure Gap Closure Leading Practice Consideration – Top Down Target Setting Setting targets ―top down‖ as an output of the Strategic Planning process focuses the business on closing the ―performance‖ gap!
  19. 19. © 2014 Proformative Common Inputs for Effective Target Setting 19 ―7‖ Key Inputs for effective Target Setting: • Latest Rolling Forecast • Prior 3/5 Year Plan • Current Economic Indicators • Industry Forecasts • Competitive Outlook • External Market Expectations • Strategic Initiatives/Management Stretch Debate is good but avoid iterations and never set unrealistic goals!
  20. 20. © 2014 Proformative How One Organization Applies Top Down Target Setting 20 Group  Region • Group sets targets for each Region based on several factors: Latest Rolling Forecast Prior 3 Year Plan Current Economic Indicators Industry Forecasts Competitive Outlook Management Stretch External Market Expectations • Annual targets include at a Minimum:  Revenue  EBIT  LGO Regions  Markets/Divisions • Region allocates targets to Divisions based on several factors: Maturity of Business Business Size Current Economic Indicators Competitive Outlook Market Growth Expectations • Initiatives focused on key business drivers are developed to close gaps between targets and the latest rolling forecast Markets/Divisions  Units • Divisions allocate targets to units based on several factors: Business Size Growth Expectations Known Events • Review of Targets Necessary to Gain ―Buy-In‖
  21. 21. © 2014 Proformative Leading Practice Consideration – Adopt ―Driver‖ Based Models for Forecasting Reporting and Analysis 21 Strategic Objective Driver Financial Target; Margin Financial Target; Revenue Growth Financial Target; Operating Expense Financial Target; Capital Expense Driver Based Models can be used to effectively align strategic objectives and business performance …
  22. 22. © 2014 Proformative Drivers for Select Industries 22 • New Customer Adds • Average Rate Per Unit (ARPU) • Customer Churn/Churn Rate • Number of Sales Orders • New Customer Conversion Rates • Marketing Spend • Promotional Spend Telecom. • Store size • Days open / hours of operation • Population growth • Program participation rates • Transactions per day Average check size • Pricing strategy • Employee engagement • Weather Retail Consumer Products • Volume/Units Shipped • Price/Pricing Flexibility • Market Growth Rate • Market Size/Market Share • Category / Market Growth • Coupon redemption • Return Rate / Rebates • Promotional Discounts Rate
  23. 23. © 2014 Proformative Driver Based Model Example – Consumer Products Industry 23 Revenue Gross Sales Forecasted Demand/ Volume (Units) Forecasted Market Size (Units) Historical Market Size Market Growth Rate Market Economic Growth Rate Market Population Growth Consumer Usage Rates Cannibalization Product Extensions/ Innovations Other Macroeconomic trends Historical Market Share Forecasted Market Share Change (Pct.) Brand Loyalty Marketing and Promotional Spend Effectiveness New Product Introductions Competitive factors Forecasted Average Unit Price Historical Average per Unit Price Price Change (Pct.) Package Mix
  24. 24. © 2014 Proformative Driver Based Models; Forecast Examples 24 • Deploys a continuous 12 month rolling forecast process • The process relies on key performance indicators to provide ―early warning ― signals • Adopted driver based forecasting model • Forecasts are based on 8 key drivers that have the most impact on performance (e.g. fuel costs) A leading domestic Airline… • Eliminated overly detailed spreadsheet based forecast process • Determined that a select few drivers explain 80% of the financial results (e.g., # of new cards issued, avg. spending per card etc.) required to estimate revenue • Utilizes the driver based model to forecast short, medium and long term performance A global Financial Services company… Source: Beyond Budgeting Roundtable
  25. 25. © 2014 Proformative What Does the Research Tell Us? 25 Which has/would give your organization most benefit in improving the confidence of forecasts?  Recent KPMG Research; ―Forecasting with Confidence‖ surveyed over 500 finance executives leading the forecasting process…  Finance executives in the survey point to five main process areas where improvements need to be made to enable more reliable forecasting
  26. 26. © 2014 Proformative Integrated Reporting Models 26 Outputs Reporting Management Process Scorecard, dashboards, and management reporting outputs should be linked with drill down capabilities Daily Weekly Quarterly Scorecard Dashboards Reports Report Type Time Period Size of Available Information on Specific Metrics Size of Available Information
  27. 27. © 2014 Proformative Integrated Reporting Models – Driver Based Reporting and Variance Analysis 27 Traditional Variance Analysis Units Plan = 100 Actual = 80 Revenue Plan = $10000 Actual = $8000 Net Price Plan = $100 Actual =$100 Driver Based Analysis Conclusion: We held price stable and lost market share, we need to adjust our pricing! Units Plan = 100 Actual = 80 Revenue Plan = $10000 Actual = $8000 Net Price Plan = $100 Actual =$100 Market Share Plan = 10% Actual = 16% Market Size Plan = 1000 Actual = 500 Conclusion: We doubled share in a shrinking market, will this market recover? Revenue Target Missed
  28. 28. © 2014 Proformative Leading Practice Consideration – Scenario Analysis through Predictive Analytics 28 It is about leveraging data to dramatically improve insight and decision making capabilities. The CFO is in a unique position to drive increasing value in this space… CFO of a leading Global Consumer Products Company
  29. 29. © 2014 Proformative Leading Practice Consideration – Alignment of Incentive Compensation 29 Key Considerations… • Decoupling incentives from the annual budget or financial targets • Applying incentive programs based on optimizing company wide performance • Evaluating results for incentive compensation purposes over multiple years • Apply incentive programs in the context of relative performance across the industry and in comparison to peers To Avoid… • Negotiated targets that lead to excessive gaming to meet incentives • Applying incentives that are too heavily weighted toward short term/annual performance • Applying incentives that are too heavily weighted on financial outcomes • Restricting partnering and teaming across the organization
  30. 30. © 2014 Proformative So What is the CFO’s Role? 30 The role of Finance should be to lead the introduction and ongoing execution of a fully integrated Corporate Performance Management process
  31. 31. © 2014 Proformative31 Autonomous Strategic Alignment Governance/ Service Management Localized, onshore structure Integrated Function/ Effective and Efficient Organization Scorekeeper Business Partner/Driver of value People Locally specific Standardized and optimized Process Multiple tools, fragmented data Enterprise Wide data model / systems Technology Global governance structure: KPI-driven Policies and procedure reflect common methods, processes, technologie s, KPIs & reporting Local (Business Unit) FP&A reporting into Local Mgmt / dotted line to CFO Strong alignment with CFO (“hard dotted”) – some centralized some localized Integrated FP&A community – Global Operating Model Low degree of standardization and automation, budgeting and forecasting effort intensive Standardized analysis & transaction monitoring Rolling, business owned, fully integrated with actuals, trending and predictive capability Constructive Challenger, Influencer; global staffing model Commentator / reporter, business acumen and financial knowledge Guardian, rule- based, reactive, ad-hoc analysis performed by local support Standard tools and applications, on single design Fragmented, siloed data, effort spent on extraction, manipulation, and reconciliation. Standard systems, interface layer and recommended data models Distributed; siloed mentality Basic Progressive Leading Key Dimensions of the CPM Operating Model It is About Becoming More Strategic…
  32. 32. Implementing CPM Solutions 32
  33. 33. © 2014 Proformative A Framework for Implementation 33 Governance / Controls Layer Identifies the specific controls that are in place to mitigate operational and financial risks and exposure. People Layer Describes how people are organized. Outlines skills, roles, responsibilities and support activities for each process area. Functional Process Layer Outlines how specific process steps link to functions or departments that perform the process Supporting Technology Layer The applications that are used to enable the processes, policy compliance, internal controls, and reports. Data and Reporting Layer Includes Information requirements to drive key business insight and optimized decision making Service Delivery Model Layer Describes how finance services are delivered. Includes Shared Service Center and outsourcing concepts. Key Framework Aspects
  34. 34. © 2014 Proformative Common Implementation Challenges 34 Strategic Prioritization Organizational Alignment Current State Operations Governance & Compliance Ability to effectively define, prioritize and plan the transformation program Achieving a common vision and commitment across the finance function Lack of a common end-to-end understanding of current state operations Establishing the right governance structure and framework for the organization Information strategy is not aligned for providing the right Key Performance Indicators (KPI’s), metrics, measures Decentralized and autonomous business models Undefined business processes with unique and/or poorly defined business requirements Governance and standardization of data, systems and processes across the organization are not aligned to the information strategy Securing and justifying funding of the transformation program Securing cross-functional support from other organizations such as IT and HR High degree of system proliferation, disparate systems with limited consistency across redundant and shadow systems Ensuring alignment with an increasingly complex regulatory environment Maintaining alignment between the program and on- going business priorities that may change Challenges freeing up the right talent necessary to enable a more strategic finance function Informational and reporting challenges from poor data quality, lack of standards, or understanding of business information requirements Addressing impacts on the tax landscape that may result in unfavorable tax positions
  35. 35. © 2014 Proformative Critical Success Factor – A Business Integration Approach A business integrator approach focuses on overall value delivery versus just technology implementation Technology Implementation becomes Business Enablement Systems Integrator Business Integrator Technology as the driver Business transformation as the driver ■ Technology platform centric ■ Driven by IT ■ Automation focused ■ Success measured by timely deployment of technology ■ Technology is always the answer ■ Poor ROI from many programs ■ Starts with data (report on what I have, not what I need) ■ Target operating model–centric ■ Strategically aligned with business objectives ■ Business led ■ Process focused ■ Value added service delivery ■ Success measured by achieving business value ■ Technology is one enabler of transformation ■ Considers the technology needs within the larger technology portfolio ■ Analytics enabled ■ Reduce time to value
  36. 36. © 2014 Proformative36 &
  37. 37. Suggested Reading 37
  38. 38. © 2014 Proformative KPMG Thought Leadership – Current Series • In late summer and early fall of 2012, CFO Research, in collaboration with KPMG LLP (KPMG), conducted extensive research to find out how CFOs at large companies are planning to use technology to further their strategic initiatives over the next two years. The Intelligent Finance Organization (IFO) series consist of a total of eight briefs, reporting research findings from the joint study. CFO Research deployed an electronic survey to senior finance executives at U.S. companies with more than $1 billion per year in revenue, receiving 358 qualified responses. We also conducted in-depth interviews with 10 additional CFOs. Research Summary: Intelligent Finance Organizations This research summary demonstrates that CFOs are focused on changing the goals of their finance organizations: they look to strengthen their strategy & planning functions, empower their organization with improved data capabilities, and capitalize on evolving technology. IFO Series: The Right Information, in the Right Hands, at the Right Time This brief is the third in a series that reports findings related to the widely differing stages that companies are in when it comes to collecting and processing data quickly, converting it to actionable information in real time, and delivering it promptly to the right people—wherever they may be. IFO Series: The Goal Line is Always Moving This brief is the first in the series that reports findings related to the continuously moving goal line that leaders are faced with when it comes to analytical capabilities, and how technology plays a huge role. Please visit the following site for more information on these articles and more
  39. 39. © 2014 Proformative Additional Links to KPMG Thought Leadership 39 CFO – Intelligent Finance Organizations: Value Driven CFO White paper:
  40. 40. 40 Tony Bevacqua Principal Financial Management KPMG LLP 1601 Market Street Philadelphia, PA 19103 Tel 267-256-2929 Fax 267-285-4299 Cell 610-613-2511 Bo Poulsen Director Financial Management KPMG LLP 303 Peachtree Street N.E Atlanta, GA 30308 Tel 404-650- 9553 Fax 404-601- 9799