FPM - turning businesses into world-class organisations

Businesses have, over the last two decades, spent considerable time and money on refining processes to achieve better efficiencies. However, although efficiencies have improved, many of these projects have resulted in no real competitive advantage. Business optimisation is now delivering that competitive advantage and Financial Performance Management (FPM) is providing the vehicle to reach this destination, allowing businesses to become world-class organisations.

This is according to Geoff Cooper, executive of the FPM team at Cognos, an IBM company, speaking at a presentation at Cognos' annual Financial Performance Management event that was held in August 2008.

The growth in adoption of business optimisation is twice as fast as the uptake of business automation. This is an indication of the shift from an application agenda where the implementation of ERP, financial, contact centre, CRM applications and supply chain management solutions took centre stage to a focus on optimising business to drive a more sustainable competitive advantage in the market.

Says Cooper: "FPM is a key component that enables business optimisation through its niche focus within Performance Management (PM). PM answers the three fundamental business performance questions of: How are we doing? Why? And, what should we be doing? These three questions are answered through FPM with financial analytics (that analyses and optimises performance), enterprise planning (that delivers planning, forecasting and controlling enterprise resources), financial consolidation (that tells a business how they are doing) and reporting to external stakeholders on what the business should be doing and why. FPM too plays a key role in compliance."

This highlights the fact that the finance professional plays a vital role and is key to initiating and sustaining improved performance management and translating operational plans and forecasts into business results.

There are three primary steps necessary to become a world-class organisation through FPM: making the FPM impact real, making the FPM transformation real and making the FPM business case real.

According to research from the Hackett Group, world-class organisations have access to open reports, are enabled by common analytic systems and measures, and invest significantly in more resources and talent management. This research also indicated that 83% of firms are unable to provide an accurate earnings forecast. This is largely due to inaccurate information and/or 'dirty' data. However, 71% of world-class organisations that are able to achieve this have common data definitions and a 'single version of the truth' that allow them to be more efficient in business analysis.

In addition, recently completed Hackett research shows that organisations with an integrated planning environment typically spend 15.4% less on overall finance - and are more effective.

Says David McWilliam, managing director at Cognos South Africa, an IBM company: "We have identified the key challenges that face finance professionals and hinder organisations in their quest to become world-class businesses. These include the use of multiple spreadsheets, disparate systems and the inability to identify and manage business risk. FPM solutions can address these issues by providing data integrity, unifying information to deliver a single version of the truth and thus mitigate risk. This makes the FPM impact real."

A FPM roadmap is essential to making FPM transformation real and helping organisations realise maximum business value from their investments in people, processes and technology.

This is done through enterprise planning, budgeting and forecasting; financial consolidation and corporate reporting; financial analytics; reporting and profitability management; scorecarding; and strategy management.

There are three steps in the FPM transformation:

Structuring and automating the key financial PM processes - ie, moving beyond spreadsheets, adopting best practices, and extending the solution in an enterprise approach - ie, connecting financial and operational reports, analysis, metrics and plans, and connecting processes.

The goal for becoming a world-class organisation and actually achieving it is the driver that makes the business case real. Organisations need to be efficient and effective in order to achieve this. However, it is really effectiveness that drives the breakthrough performance.

David Axon, president of the Sonax Group, in an article titled 'True drivers of PM value', recently highlighted the fact that successful businesses take risks and that successful risk management and mitigation must be a key element in effective performance management practice. He suggests this goes beyond traditional compliance and financial risk and believes the real test of performance management process and practice is the quality of resulting decisions. And it highlights that failed execution means failed performance management.

"Improved effectiveness is the reason for investing in FPM technology and improving efficiency justifies this investment," concludes McWilliam.