Even smaller companies need EPM

Start as you aim to finish. This is one of the best pieces of advice that can be given to any entrepreneur or start-up businessman.

It talks to the need to create structures today that will endure for the ages. It says that while today you might be small, tomorrow you will have grown to be a market leader.

No one ever got anywhere by thinking small; and no small company ever got anywhere without the processes to sustain growth.

Processes are either tacit or explicit; subsumed or taught; either the domain of a few subject experts or made available to others in an organization. Whatever the case, processes are the way many people can work on a particular task, tackle a project or deliver against a customer requirement, with predictable results.

Every small to medium enterprise is faced with the same issue: how to deliver goods and services in a predictable fashion.

Adrian van der Merwe is MD of 8th Man Consulting.

An example of an explicit process that always returns the same results, McDonalds has managed to deliver a level of predictability in its systems, which is unrivalled in any industry. Customers know what to expect, shareholders have a clear guideline as to earnings, new outlets are opened in record time, new territories quickly entered, and all with 100% standardised outcomes, whether you like McDonalds or not: no matter who applies the process, the result is the same.

Every small to medium enterprise (SME) is faced with the same issue: how to deliver goods and services in a predictable fashion. (When I refer to SMEs, I set the baseline at 100 employees, and the ceiling at R250 million in sales.)

On the other hand is the need for SME management to have a high level of predictability in budgeting, planning and performance against targets.

There needs to be rapid reporting on and analysis against events in the business, soon enough to be able to have an impact while it still matters.

Most start-ups, along with most SMEs, use Microsoft's Excel to manage, analyse and report on their business. They set their budgets, perform their planning, analyse the business and report on actual performance relative to budget, along with variance.

There are some serious problems with this approach. Often, each manager will have his own spreadsheet; there will be inevitable data capture errors, biases and misinterpretations. Executives in the boardroom arrive at wildly varying conclusions, even though they seem to be working off the same data.

In addition, budgeting can take up to three months, with no ability to review or alter the spreadsheet to reflect the new reality. (In theory, the spreadsheet can be altered, but it takes so long and requires the input and review of so many people to create it in the first place that in practice it is undoable.)

This is the phenomenon known as Excel Hell, and it is totally pervasive in even the largest organisations, which have invested heavily in alternative approaches, such as enterprise performance management, or EPM.

EPM provides a different way of looking at the corporate business life cycle. It starts off by defining key business data and siphoning this off into a separate, high-performance database, typically called a data mart or cube. It is the single, unquestioned view of the truth as it is derived from corporate transactional systems. Because it is unquestioned and reliable, all executives can agree as to the veracity of the reports they are working on, and the conclusions drawn from those reports.

EPM involves all critical corporate activities:

* Planning (including strategic planning);

* Forecasting, a critical and often neglected aspect of business;

* Budgeting, quickly and iteratively, with the ability to amend as monthly, quarterly and half-year figures are returned;

* Reporting against target and on actual performance, along with variance - and all early enough to gain an insight into potential problems, and to rectify them;

* Analysis of figures, so that management can do what-if scenarios, troubleshoot specific areas, and drill down to a low level of granularity;

* The ability to consolidate various financial statements with little trouble;

* The ability to gain insight into key human capital factors; and

* The automation of the Balanced Scorecard as a logical adjunct.

With business a little slower nowadays, there's never been a better occasion to take a little time out and invest time and money in software to enhance the processes of planning, budgeting, forecasting and reporting and analysis.

When the economy turns, as it always does, it will allow management to grow off a sounder base, freeing them to focus on strategic and operational issues.

* Adrian van der Merwe is MD of 8th Man Consulting.