Are Exceptional EPM Systems the Exception?

By Gary Cokins, Founder of Analytics-Based Performance Management LLC

Last time out I set a challenge for readers of this blog to question the performance management strategies and practices of their own organizations and executive teams. I hope you found this to be a useful and interesting exercise.

Quite naturally, many organizations over-rate the quality of their enterprise and corporate performance management (EPM / CPM) practices and systems. In reality they lack in in terms of how comprehensive and how integrated they are. For example, when you ask executives how well they measure and report either costs or non-financial performance measures, most proudly boast that they are very good. Again, this is inconsistent and conflicts with surveys where anonymous replies from mid-level managers candidly score them as “needs much improvement.”

Every organization cannot be above average!

What makes exceptionally good EPM systems exceptional?

Let’s not attempt to be a sociologist or psychologist and explain the incongruities between executives boasting superiority while anonymously answered surveys reveal inferiority. Rather let’s simply describe the full vision of an effective EPM system that organizations should aspire to.

First, we need to clarify some terminology and related confusion. EPM is neither solely a system nor solely a process. It is instead the integration of multiple managerial methods – and most of them have been around for decades arguably even before there were computers. EPM is also not just a CFO initiative with a bunch of scorecard and dashboard dials. It is much broader. Its purpose is not about monitoring the dials but rather moving the dials.

What makes for exceptionally good EPM is when multiple managerial methods are not only individually effective but also are seamlessly integrated and enhanced through embedded analytics of all flavors. Examples for using analytics to enhance EPM are to perform data segmentation, clustering, regression, and correlation analysis.

Winds section in orchestra

EPM is like musical instruments in an orchestra

I like to think of the various EPM methods as an analogy of musical instruments in an orchestra. An orchestra’s conductor does not raise their baton to the strings, woodwinds, percussion, and brass and say, “Now everyone play loud.” They seek balance and guide the symphony composer’s fluctuations in harmony, rhythm and tone.

Here are my six main groupings of the EPM methods – its musical instrument sections:

  1. Strategic planning and execution – This is where a strategy map and its associated balanced scorecard fits in. Together they serve to translate the executive team’s strategy into navigation aids necessary for the organization to fulfill its vision and mission. The executives’ role is to set the strategic direction to answer the question “Where do we want to go?” Through use of correctly defined key performance indicators (KPIs) with targets, then the employees’ priorities, actions, projects, and processes are aligned with the executives’ formulated strategy.
  2. Cost visibility and driver behavior – For commercial companies this is where profitability analysis fits in for products, standard services, channels, and customers. For public sector government organizations this is where understanding how processes consume resource expense in the delivery of services and report the costs, including the per-unit cost, of their services. Activity-based costing (ABC) principles model cause-and-effect relationships based on business and cost drivers. This involves progressive, not traditional, managerial accounting, such as ABC rather than broadly averaged cost factors applied without consideration of any causal relationships.
  3. Customer Performance – This is where powerful marketing and sales methods are applied to retain, grow, win-back, and acquire profitable, not unprofitable, customers. The tools are often referenced as customer relationship management (CRM) software applications. But the CRM data is merely a foundation. Analytical tools supported by software, that leverage CRM data can further identify actions that will create more profit lift from customers. These actions simultaneously shift customers from not only being satisfied to being loyal supporters.
  4. Forecasting, planning, and predictive analytics – Data mining typically examines historical data “through the rear-view mirror.” Then using hindsight directs attention forward to look “through the windshield”. The benefit of more accurate forecasts is to reduce uncertainty. Forecasted sales volume and mix of products and service are core independent variables. Based on these forecasts, process costs can be calculated from the required resource usage. CFOs increasingly look to driver-based budgeting and rolling financial forecasts grounded in ABC principles to determine future requirements of other dependent variables such as headcount and related spending.
  5. Enterprise risk management (ERM) – This cannot be overlooked when discussing EPM. ERM serves as a brake to the potentially unbridled gas pedal that EPM methods are designed to step on. Risk mitigation projects and insurance requires spending, therefore somewhat reducing resources that could otherwise be directed towards revenue generating activities. Many executives are resistant to anything that impacts profits – and bonuses. So it takes discipline to ensure adequate attention is placed on appropriate risk management practices.
  6. Process improvement – This is where lean management and Six Sigma quality initiatives fit in. Their purpose is to remove waste and streamline processes to accelerate and reduce cycle-times. They create productivity and efficiency improvements.

EPM as integrated suite of improvement methods

CFOs often view financial planning and analysis (FP&A) as synonymous with EPM. It is better to view FP&A as a subset. And although better cost management and process improvements are noble goals, an organization cannot reduce its costs forever to achieve long term prosperity.

The important message here is that EPM is not just about the CFO’s organization; but it is also the integration of all the often silo-ed functions like marketing, operations, sales, and strategy. Look again at the six main EPM groups I listed above. Imagine if the information produced and analyzed in each of them were to be seamlessly integrated. Imagine if they are each embedded with analytics – especially predictive analytics. Then powerful decision support is provided for insight, foresight, and actions. That is the full vision of EPM to which we should aim to aspire in order to achieve the best possible performance.

Today exceptional EPM systems are an exception despite what many executives proclaim. If we all work hard and are smart enough, in the future they will be standard practices. Then what would be next? Automated decision management systems relying on business rules and algorithms? But that is an article I will write about some other day.

In my next blog I shall change focus slightly, to look a little more deeply at the budgeting process, the challenges many organizations face in producing budgets and the possibilities for taking different approaches.


About the Author: Gary Cokins, CPIM


Gary Cokins (Cornell University BS IE/OR, 1971; Northwestern University Kellogg MBA 1974) is an internationally recognized expert, speaker, and author in enterprise and corporate performance management (EPM/CPM) systems. He is the founder of Analytics-Based Performance Management LLC . He began his career in industry with a Fortune 100 company in CFO and operations roles. Then 15 years in consulting with Deloitte, KPMG, and EDS (now part of HP). From 1997 until 2013 Gary was a Principal Consultant with SAS, a business analytics software vendor. His most recent books are Performance Management: Integrating Strategy Execution, Methodologies, Risk, and Analytics and Predictive Business Analytics.; phone +919 720 2718 contact:

Hear Gary share some of his thoughts concerning EPM innovations and best practices at the SAP Conference for EPM in Chicago, October 13/14, 2014

Is Risk Management Technology the Key to Sustainability?

Coffee-break with GameChangers

Today’s risk managers are between a rock and a hard place. They have to identify and implement the right risk management practices in order to prove that they’re adding value to the organization, comply with regulatory requirements, and sustain the business. But, with so many innovative technology options, it can be difficult to determine which risk management solutions they can use, if any, to ensure success.

In a recent SAP Game-Changers radiocast, panelists Saret van Loggerenberg, manager of risk and compliance for Exxaro Resources Limited; Scott Mitchell, chair of OCEG; and Bruce McCuaig, director of solution marketing for GRC solutions at SAP, share their thoughts on risk management trends, technology, and the human factor.

Defining the role of risk management

Risk management carries a different meaning for each organization, based on its needs, challenges, and goals. For Loggerenberg, governance, risk, and compliance (GRC) is not about ticking boxes for the sake of compliance; it’s about wanting to exist in the future. “It’s about how the company is directed and controlled, how to ensure that we make decisions effectively…and about remaining sustainable,” she says.

McCuaig agrees with Loggerenberg, adding that it isn’t enough to manage risk; organizations have to understand what causes risk in the first place. To illustrate his point, he shares some advice a fire inspector once gave him. “It does not matter how many fire extinguishers you have or what kind they are or how big they are, fire extinguishers don’t prevent fire,” he was told. “So just sitting here and trying to figure out how to control the fire does not really count. We need to understand what causes the fires.” The key is to manage risk before you even have to put a control in place, says McCuaig, and organizations are using technology to do just that.

Leveraging technology and the human factor to drive value

For risk management organizations, innovative technologies can “provide data, analysis, and information that informs us more about the world we don’t understand today…but we are going to have to play in tomorrow,” says Loggerenberg. The problem, she points out, is that “sometimes people implement technology because they think they are going to solve the problem with that, or that the technology is going to serve the purpose of what human behavior should actually do.”

Citing a recent risk management report, Loggerenberg says that, while 80 percent of risks have external root causes, 60 percent of them are people related. For this reason, “you cannot manage risk…without dealing with the human factor,” says McCuaig. “In fact, if all you did was deal with the human factor, you will probably be very, very successful at risk management.”

Mitchell concurs, and goes on to predict that the future of risk management lies in “a whole new wave of technology that is intended to help people in the enterprise get paired together for better decision making.” He expects that, instead of automating the human factor out of risk management, we need to look at collaborative technologies that will bring people together for decision making.

Navigating the path ahead

All panelists agree that the future of risk management is in technology. This includes everything from monitoring customer and employee sentiment on social media to using Big Data to identify trends and link cause-and-effect relationships. And, McCuaig says, “We have to do the right thing wrong a little bit and finally figure out how to make it work.”

For even more insights into risk management trends, technology, and the human factor, listen to the full radiocast.

Are Predictive Analytics the Best Weapon in Fighting Fraud?

Coffee-break with GameChangers

Fraud is as old as crime itself. Patterns emerge, are cracked, and then overhauled by crafty schemers. Methods become more sophisticated and evolve with technological innovations. In turn, companies must remain vigilant and adapt strategies against new types of attacks. Such strategies were the topic of a recent financial excellence radiocast for SAP Game-Changers, discussed by three expert panelists.

A sobering stat

If you think fraud is something that only happens to other companies, Derek Snaidauf, senior manager of advanced analytics with Deloitte, offers a startling wake-up call: “By some estimates, the typical organization loses five percent of its revenues to fraud each year, which translates to a potential projected global fraud loss of over $3.5 trillion.”

That number is not easy to dismiss, Snaidauf offers a few reasons for the growing fraud problem:

  • Further advances in technology
  • Improved coordination
  • Lower barriers to entry
  • Turbulent economic conditions

Fraud isn’t just on the rise in one area, but pervasive across all industries. Snaidauf says that the time for reactionary behavior and chasing lost payments is over. You need to prevent the dollars from going out the door in the first place.

A case for predictive analytics

President of the Cangemi Company, Michael P. Cangemi, believes most companies don’t leverage predictive analytics enough in disbursement areas, instead using a contingency firm to avoid double payments. This doesn’t fix the system – and then companies give half of the recovery money to a contingency firm. It’s not a sustainable model as the threat of fraud grows stronger.

“If you don’t think it’s happening, you’re just naïve,” Cangemi challenges. “The question is how much it is and then the cost benefit of implementing some kind of controls.”

Jérôme Pugnet, director of solution marketing for SAP solutions for governance, risk, and compliance, takes issue with the “predictive” label, because you cannot predict a specific event. Instead, he specifies, “It [software] helps you predict where it could happen, most likely, and how it could happen so you can be prepared.”

According to Snaidauf, a leading practice is having an enterprise fraud management office, the size of which varies based on the severity of your fraud problem. The trick is to break free from silos to centralize fraud applications throughout an organization, boosting their value. Institute a set of pillars to lead a successful fraud prevention program with:

  • Data scientists to build the rules and models
  • Investigators to pursue leads
  • Processes in place to treat and deal with fraud in the most effective manner with comprehensive analytics

A future of cooperation instead of competition

In the coming years, the panelists envision a climate where fraud detection approaches are far more open and shared across companies and industries. Big Data and social data will also play a large part in enhancing predictive models.

Pugnet takes this one step further, positing a theory that enhanced predictive capabilities will uncover trends that revolutionize the way employers treat their workforce. Motivating employees and treating them well could do a world of good in abating fraud. Instead of disgruntled employees with motives to commit fraud, there will be a team of workers invested in protecting the company from such actions.

Is your business ready to adopt predictive analytics in the fight against fraud? Get more information from the full radiocast.

Reimagine the Role of Internal Auditors

Coffee-break with GameChangers

If there’s any business group that could use a PR makeover, it’s the internal audit. Once a team that inspired dread and fear, it’s now undergoing a dramatic transformation, as discussed during a recent SAP Game-Changers radiocast, part of the Financial Excellence series. According to panel moderator Bonnie Graham, there are three reasons the role of internal auditors is changing:

1. Stakeholders are challenging internal auditors to up their game.
2. Boards are demanding better assurance of the value that internal auditors provide.
3. Management requires clearer insights.

Move from compliance police to strategic advisor

One of the panel guests, Malte Globig of the Flint Group, offers the idea that the internal audit group must act like external service providers, developing a better understanding of what’s important to their customers. If the company can more clearly understand the value their internal auditors are providing, it will be more willing to pay for their services, instead of looking to an external vendor. “We must never forget who our customers are,” Globig cautions.

Michael O’Leary of Ernst & Young goes a step further, saying, “What we are actually seeing is…the need for internal audit to innovate in order to keep up with such a fluid business environment.” He details three key principles for effective audit delivery:

1. People: Compile the right skill sets, the right talent, and the culture and geography that serve the needs of your company.
2. Processes: Streamline complex processes companywide to support the changing risk environment. Make sure that an internal audit function has the right people and processes for the company’s historical strategy, but also for the risks that lie ahead.
3. Technology: Deliver as much value as possible to stakeholders by adopting the most innovative technology. The percentage of spend that most internal audit groups dedicate to technology shows an upward trend that bodes well for internal auditors and the services they provide.

Take the audit mobile

Building on the discussion of advanced technology, moderator Bonnie Graham wonders whether introducing tablets to the audit process would enhance professionalism, ease evidence capture, grant instant data availability, and improve paper management.

Bruce Carpenter of SAP posits that, since we have all grown accustomed to using our mobile devices, providing auditors with tools like tablets is of paramount importance. He challenges internal audit groups to demonstrate innovation in each audit. Carpenter believes the increased sophistication of databases, and their ability to store structured and unstructured data, offer new opportunities to internal auditors; the enhanced insight that can be gained from such analysis raises the game of internal auditors’ work.

But the biggest and most welcome shift, Carpenter suggests, is that “the auditor is increasingly going to become a collaborator in business progress and that evolution is already starting to happen.” Rather than being seen as a numbers cop or a distraction, the auditor can be integrated more seamlessly into business processes.

Is your company ready to embrace this new role of the auditor? Listen to the full radiocast to find out more.

What Defines the CFO of the Future?

Coffee-break with GameChangers

It’s no secret that the financial world is dealing with a period of rapid change. Effectively managing these fluctuations is ultimately the job of the CFO – but what does the role of CFO look like now? A recent SAP Game-Changers radiocast explored this question with three panelists. Here are their opinions.

Diversify your duties

“Remain constructively discontent” might be the most useful advice to current CFOs and other financial leaders. This quote from Coca-Cola CEO Muhtar Kent was invoked by Kyleen Wissell, Corporate Director of Internal Controls within the office of the CFO at the Coca-Cola Company. She believes in a culture of innovation and growth – and that starts with strong entrepreneurial mentality at the top levels. Contentedness can lead to complacence, especially in a time of rapid advancement. A watchful eye on possible improvements inherently enables progress.

Elena Shishkina, CFO of SAP UK and Ireland, agrees. She multitasks in as many areas of the company as possible, because, as she says, “I don’t know how my role will look tomorrow. I strongly believe you can only achieve the best outcome for the team and for the organization if you lead with excellence.” Shishkina views herself not just as a leader in finance but a leader in overall business transformation.

Many CFOs now realize that their position is defined by more than a collection of numbers. Richard Sernyak, principle at PricewaterhouseCoopers responsible for the SAP finance transformation practice, concurs that statistics don’t paint a full picture of an organization’s financial health. Greater focus should be placed on unstructured data such as social media. He explains, “What’s important is that not everything that can be counted counts…you need to look beyond the data and really understand what’s important.”

Take control of a new role

The paradigm is shifting as CFOs need to keep up with their traditional, spreadsheet-intensive responsibilities while creating more value for the business. Some of the unique responsibilities now require CFOs to:

1. Act as the lynchpin across the company for presenting actionable information in a dynamic way.
2. Enable proactive, predictive modelling in real time on mobile devices.
3. Enhance performance by spending less time on tasks that don’t provide added value.
4. Look past the numbers to see their context.
5. Take a more holistic view of the business by adopting innovative technologies (which we discussed in another recent radiocast).

Leading a top-notch finance department requires more soft skills than ever before, according to Wissell. CFOs must draw upon emotional intelligence, considering their internal customers, external customers, and opportunities to introduce a pure model that touts more of a specialist view.

As the transformation marches on, all panelists agree that championing technology will become paramount for the CFO. Sernyak sees the role becoming more intertwined with that of CIO as more millennials flood the marketplace and eventually move into leadership positions. Beyond an affinity for fast-paced innovation, Shishkina asserts that CFOs of the future must be culturally aware and sensitive to different aspects of diversity.

That’s quite a list of attributes! So are you a CFO of the future? Listen to the full radiocast.

The Expanding Role of the CFO

From Steve Player, North America Program Director for the Beyond Budgeting Round Table (BBRT)

In my continuing interviews of chief financial officers, I am amazed at the breadth of their job responsibilities. In his excellent 2006 book Reinventing the CFO, my late colleague Jeremy Hope described seven keys roles that CFOs were playing. If he were writing an update today, he would likely find twice as many roles.

CFOs face a key challenge in selecting and focusing on a few strategic and tactical roles that provide true advantage for their firm. Examples of these roles include analysts and advisor such as providing customer profitability analysis, regulator of risk in effectively managing their firm’s risk, and warrior against waste in reducing non-value added costs. As the basics of accounting and cash flow are mastered, your team is freed to apply finance skills to areas of greater impact.

One of the most discussed technologies transforming the finance function is in-memory computing. With expected market growth of 43 percent per year, it’s fueling both business mobile applications and predictive computing.[i] The following three examples illustrate how in memory computing is being used to harness big data:

Businessman analyzing pie chart on digital tablet

CFOs are becoming deluxe dashboard designers – Many traditional finance organizations assist the operating units by providing key performance indicators (KPIs). While this role started out as all about the numbers, organizations have learned they need a balanced set of measures that are both physical and financial. This greatly expands potential KPIs but requires sharp design skills to avoid being overwhelmed by data volumes.

In-memory computing is helping Lenovo, the world’s second largest PC vendor meet this challenge using SAP HANA.[ii] This resulted in significantly faster processing as time to process 1.8 million contract records dropped to a few seconds. KPIs no longer exist only in the data warehouse— they can be changed on the fly and made available in multiple formats and geographies immediately. Lenovo also deployed self-serve reporting to the business – reducing the time to produce reports based on tens of thousands of rows to about 10 minutes, compared to 3 hours before.

CFOs are becoming collaborative customer advocates – Using HANA, Lenovo has shifted its KPIs to take a more customer focused approach. The old approach focused on internal measures. The new approach provides greater order visibility. It measures what customers are interested in such as requested receipt date rather than promised date. Using KPIs that better capture the voice of the customer provides a more effective collaborative improvement approach. Analysis can is also enhanced by overlaying customer profitability information (which will be discussed in a future blog).

CFOs are becoming innovative information integrators – In-memory computing is helping CFOs find more innovative ways to integrate information. For example:

  • Risk management is being improved by quickly analyzing large sets of social data. One insurance company uses a blend of structured and unstructured data to assess the validity of a claim. Are the witnesses to the claim also claimants in other cases? How well do the parties know each other? Are they connected on social networks? An integrated view of these connections can be the key to truly understanding fraud risk even as fraud tactics change frequently.
  • Supply chain coordination runs smoother when information is shared across the entire chain rather than just within a single organization. Sensors are providing far more data inputs to the supply chain. In-memory processing is required to handle these rapidly expanding data points.
  • Sales forecasting information is greatly enhanced by overlaying both multiple viewpoints of projected outcomes. These integrated views provide both consensus and outliers perspectives. Other external measures are also being compared to identify correlations to improve future projections.
  • Expense management can be expanded to an enterprise-wide basis regardless of enterprise size. With in-memory computing even as organization as large as Hewlett-Packard can improve the value provided by their financial analysts and enhanced decisions making (see here for a deeper look at their recent implementation of SAP HANA).
  • Integration of business planning is also enhanced by in-memory computing as it enables multiple types of data to be integrated (see also my earlier blog on the topic of business planning). Physical data can be combined with financial data to build predictive logic diagrams. Statistics can be applied to better understand cause-and-effect relationships. The ability to quickly and easily combine this information enables planning managers to more deeply understand where the organization is headed and what activities can shape the ultimate results.

This blog just begins to scratch the surface of what is coming. More uses are being added daily. CFOs with a solid understanding of in-memory computing will ensure their finance function can act with greater awareness, insight and agility.

Next week, I shall look at how these tools are enabling finance to become much more predictive and how that can improve your business.


[i] For more detail see the “Global In-Memory Computing Market 2014-2018” published by Research and Markets in Nov. 2013 at

[ii] For more on Lenovo’s implementation of HANA see











AkzoNobel win ‘Treasury Team of the Year’ with SAP

At a time when treasurers are demanding more from their treasury management systems to provide an accurate, instant and global view of their cash and liquidity, it’s good to hear that our customer, the global paint and coating manufacturer,  AkzoNobel has won awards for the “Treasury Technology Implementation Project of the Year” and “Treasury Team of the Year” at the inaugural gtnews Global Corporate Treasury Awards.

The company was recognized for transforming its treasury operation from a reaction-oriented organization to a highly dynamic and strategic business unit. They chose the SAP® Treasury and Risk Management application to support its treasury transformation project; optimizing its global transaction banking infrastructure, redesigning treasury policies and integrating, automating and standardizing its treasury systems and processes.

Well done to all – time to paint the town red?