Corporate Performance Management Tools (Part I) — Why bother? When to start?

If you’ve ever searched the internet looking for advice on the most important software tools for an emerging business, you probably didn’t wind up reading much about Corporate Performance Management (CPM) tools. There are at least a few good reasons for this including potential implementation cost and maintenance effort (e.g. over-engineering your financial reporting too early). That said, one should at least be aware of the potential benefits of having a CPM tool in place, to have it on the radar as the company matures.

What is CPM? It’s software that automates an organization’s finance processes which are not covered in (most) ERP or accounting systems. This means that data from ERP or the accounting systems are used as inputs (either manual or automated) into a CPM application — i.e. it is a ‘one up’ on simple accounting information. The typical modules of CPM include: financial consolidation, management reporting (including KPIs or/and dashboards), intercompany reconciliations, budgeting, forecasting and disclosure management. What is important as well, is that most of the solutions offer an audit trail function (very handy for simplifying year end needs for your auditor). More sophisticated tools can support cash management or offer scenario analysis (what if). But it’s important to bear in mind that, as with most things, more sophisticated options mean more heavy lifting at set-up and during running maintenance, yet the final output does not necessarily outperform traditional spreadsheet options in these ‘sophisticated’ areas.

In the last years there has been substantial development of Corporate Performance Management tools, driven at least partially by the push towards SaaS (software as a service) and secure cloud computing options. This has evolved CPM from being a cumbersome consolidation tool for an organization’s senior management into a relatively agile and powerful tool which can support performance management on all levels of an organization. This migration is substantially aided by the proliferation of simpler back-end IT solutions stemming from the cloud, and allowing for instant access to data (historical, actual and future) in a user friendly format. This ability for more users to easily understand and access the system directly can mean less burden for the finance team — and more direct ownership by other areas of the business in satisfying their own data needs.

A lot of organizations in the early stages of development try to avoid the idea of implementation of CPM as long as possible (if it’s considered at all). I believe there are two main reasons for this. First, those coming from larger organizations remember older versions of CPM that were not particularly user friendly (not flexible enough and which require a lot of expert support/maintenance), while others consider a spend of several tens of thousands Euros as an unnecessary use of cash in the early phase of the organization. Both are fair reasons to keep your hands on the reigns.

Spreadsheets can in many respects be considered as the predecessor of CPM. You can consolidate results in Excel, do budgeting/forecasting, prepare KPI reports, etc.. Many organizations take the spreadsheet route, which at first glance looks like a reasonable solution, but can lead to data integrity issues and an overload of work every period end to try to piece together rolling analysis out of various files (budget, actual accounts, HR reports, etc.).

There is no one right answer to the question at which stage of development a company should implement a CPM solution. As a rule of thumb, I would say that you likely shouldn’t bother until your business has both (a) revenues in the double-digit millions, and (b) more than two legal entities requiring consolidation as a start. Once those minimum milestones are hit, it’s high time to start looking at options if you start struggling with any combination of the following issues:

· The spreadsheets used for consolidation/reporting start to be complex and can no longer be properly used/developed by small group of people

· The number of input/output users is increasing

· Reporting feels stale because it takes too long to get all the figures together at period end

· You are finding errors in reporting on a recurring basis (accuracy or consistency problems)

· Manual operations like copying, formatting, and printing are wasting a great deal of your valuable controller’s time

And to summarize, the main benefits of having a sound CPM versus more traditional and basic spreadsheet options are:

1. An improved and simplified consolidation process

2. Faster and more reliable reporting at period end

3. Transparency on goal achievement throughout all levels of the organization

4. Improved data integrity, and better control through access rights

5. Better quality data visualizations (dashboards etc.)

6. Faster access to information by various stakeholders in the organization (reduction of finance’s ‘gate keeper’ function)

All of the above benefits lead to a better understanding of the business which is fundamental for successful decision making and further growth and profitability — the targets of all young and ambitious companies.

Is this something your organization is ready for? Stay tuned for Part II where I will take a look at a check list of relevant points if you are ready to consider implementing a CPM product of any kind, as well as how to start navigating the landscape of possible solutions.