Business Intelligence Network - The Vision for BI and Beyond

Finance managers shopping for corporate performance management (CPM) software applications frequently encounter the “iceberg effect.” And they may not even know it.

The challenge arises from the fact that CPM buyers frequently gear their selection and implementation processes too heavily toward current performance management challenges and needs. Like an iceberg, the primary challenge a CPM software purchase is designed to address typically represents only about 10 percent of the larger and more complex collection of performance management problems submerged throughout a company.

By neglecting 90 percent of the issues the software should help resolve, CPM buyers reduce the likelihood of applying the software to help alleviate additional pain points in the most cost-effective and least disruptive manner possible.

While few finance managers can identify all of the potential performance management problems within their company, savvy CPM buyers ask important questions during the selection and implementation processes. The answers they discover will help ensure that the CPM solution they purchase is the best fit for their company and, as a result, more likely to bear higher returns.

Looking Beneath the Surface

Given the number of financial processes CPM can support (budgeting, forecasting, consolidation, planning and analysis, financial reporting), the software’s application within companies frequently tends to expand after its implementation.

In many cases, that growth occurs organically. For example, the software may help resolve a thorny budgeting problem. That improvement may capture the attention of a manager who then works to apply the same application to addressing issues within the forecasting process.

That need for that sort of natural CPM expansion recently was recognized after an ah-ha moment occurred within a large consumer products conglomerate based in Mexico. The company was shopping for a CPM application. The corporate managers responsible for the selection believed they were looking for a solution to inconsistent (and frequently late) profit forecasts.

Upon closer inspection, however, the problem ran deeper (and larger) than late forecasts. One of the CPM vendor’s professionals asked the buyers where the numbers in the forecasts originated. The buyers made a few calls, figured out who assembled the data and then led the sales people down the hall to another manager’s office. That manager produced seven thick notebooks containing data on production schedules, margins, wage rates and a number of other manufacturing metrics.

The buyers’ eyes widened. Until then, they had not realized how much data collection, thinking, and analysis was required to fuel the profit forecasting process they wanted to strengthen. And they had no idea that so much of the process relied on manual consolidation of spreadsheets and notebook pages. To truly improve the accuracy and timeliness of the enterprise’s profit forecasts, the buyers realized that they needed a CPM software that could store, track, analyze and consolidate a much wider and deeper collection of data from throughout the conglomerate’s numerous lines of business.

Another company, a bank, understood the iceberg effect before it initiated the software selection process. Equipped with an understanding of a broad range of performance management issues it wanted to address during the next several years, the bank’s finance managers evaluated CPM software based in larger part on each application’s flexibility – how easily and cost-effectively the application could be adjusted to help address issues beyond the initial pain point, which happened to be a budgeting problem. That foresight paid dividends after the software was implemented.

Once the inefficient and error-prone budgeting process was corrected, the bank extended the same CPM software to support monthly budgeting vs. actuals reporting so that managers could better understand when and where variances occurred and, with those insights, take corrective actions each month rather than waiting to do so the following quarter. And once that process was established, the bank applied the same CPM tool to develop exception-reporting capabilities.

By understanding challenges beyond their initial budgeting pain point, the bank invested in a single CPM system that could be applied to subsequent pain points without the need to spend more money on an external consulting systems implementation firm to assist with the adjustments.

Looking Ahead

Many purchasers of business software remain understandably wary of expensive enterprise systems that require significant time, effort and cost to implement, maintain and upgrade.

Addressing the iceberg effect does not at all mean that buyers should lean toward larger, more complex CPM systems; rather, it requires buyers to bolster their selection and implementation processes by considering the downstream implications of their decisions.

In that way, the selection of a CPM solution resembles house hunting. When young married couples shops for a home, they typically evaluate how well the house will meet their current needs as well as their future needs. Is the house big enough to handle more children? If not, are the house’s layout and property conducive to an addition? If they decided to add on in the future, the homebuyers want to know roughly how much time, effort and money the construction will cost given the house’s current foundation and structure?

Similarly, asking CPM software vendors the following questions can help companies use the software to address unforeseen performance management needs in an effective and cost-efficient manner in the future:

• How well can the application scale in response to larger numbers of end users, new applications and related changes as our company grows?
  
  
• What impact do those changes have on the ease and cost of administering and maintaining the application?
  
  
• How cost-effectively and efficiently can the tool be applied to new parts of the company and/or to new businesses that are company may acquire or develop?
  
  
• What sort of time, effort and cost is involved if we integrate the CPM software with other transactional or operational applications within our company?

Similar downstream considerations also ought to inform the implementation process. The bulk of those questions should be directed to end users – both current and (potentially) future – of the software:

• Who is likely to use the software today and in the future?
  
  
• What are the business needs and business problems of users and potential users?
  
  
• To what extent can the CPM tool help the entire user community meet those needs and address those problems?

The internal project team guiding the implementation can find out about possible future “additions” by talking to end users and potential future end users and learning about their challenges, needs and problems. If the manufacturing people are not receiving sales projections quickly enough, for example, take note and consider how any actions during the implementation process might ease the process of extending the tool to address manufacturing’s need for more timely forecasts.

Despite the fact that the application’s implementation will be designed to address a pressing pain point, the project team should devote time to understanding the tool’s broader use and value. If the young home-buyers are designing their house, they may not be able to afford a beautiful porch out back right away, but they will make sure that porch can be added on at some future date as cost-efficiently as possible.

Taking time to look deeper into the organization’s needs and ahead to future business needs during selection and implementation activities can help ensure that a CPM tool is extensible, cost-effective and flexible before companies encounter problems that batter their performance or, worse, sink their business.