We Have Moved!

Your favorite blogteam has moved to www.cpm-view.com. The people behind this blog decided it was time to start their own business (this was before the worldwide economic slowdown!).

We started CPMview Consulting, a consultancy specializing in corporate performance management, SAP Business Planning & Consolidation (SAP BPC) and Tagetik.

You can read more about our CPM, SAP BPC or Tagetik services on our new website.

The blog will continue, so please feel free to drop in every now and then. Furthermore, we will be upgrading the blog to a fullblown online community focused on corporate performance management. The community will include a community builder, forum, blog and extended commenting. The target group are CPM users, CPM practitioners and CPM decison-makers. Check out the community on our new website.

Exposure Risks

In this turbulent time of exceptional falling down stock markets the whole world is wondering how this could have happened.

Every (financial) subject is already connected to the financial crisis, like the subprime markets, bonuses of bank officers, the trust of banks, the bank crisis of 1929 and today I heared a documentary on the radio which links the financial crisis to the behavior of animals in their animals kingdom and a couple of eminent people carry capitalism to the grave.

The rational causes behind the whole crisis are a little bit unlighted and sometimes even ignored by the media. In this article a closer look on one of the fundamental causes of the crisis: "hidden risks". But first something to laugh in this dark times….



Present Information

Dutch financial Minister Bos said: “The type of information could be better” and “Some posts on the balance sheet were ......... unclear”.

What can we learn of those statements? Why was the market governance not capable to prevent this crash? Why do we exactly collect this information and present it in the way we do?

The world of Corporate Performance Management covers the subject. Never the less it’s often common in our field that we have to deal “how to collect the right information” instead of “what information is right to present”. Sometimes that means that our job is to build in the exact way the reports existing for over twenty years including the formatting, the centre outlining and of course the scaling of the figures.
Maybe it’s a logic result of the fact that we don’t know the requirements of the decisions makers (and their unwillingness to change). The main issue about presenting information in exactly the same way over decades is that developments in the world are not represented by the figures.

Therefore a three steps to present forecast information which is still measurable:

1. Show the Risks.
2. Develop risk scenarios.
3. Classify risks in key-figures/indexes.

Show the Risks
The current financial statements show what happens in the past. Figures of last year are compared with a year before and with a little bit of luck a graph has been added.
It doesn’t explain what it means for the risks the company faces tomorrow. A lot of balance accounts and contingencies carry risks for the near future. You can make this visible by adding the follow items with additional exposures (information) on the balance sheet.










The risks to be measured depends of course on the kind of company.

Develop Risk scenarios
Risk scenarios are the second step to exposure risks. A simple variance analysis like the impact of 10% difference on the dollar exchange rate last year results in a higher/lower income of EUR 1.2 million (incl. translation differences).
This same analysis can be drawn up for all key environment variables, like interest rates, valuate, cost of raw materials (including oil, energy-rates, building materials), house markets and voluntary in the market of turnover (quantity and prices).

Classifies Risks in key-figures and indexes
Maybe it interest some analysts when this risks are included in the annual and Q- reports, although that’s doesn’t automatically influence the people from the street (normal stakeholder) in their behavior on the financial markets. Therefore it’s handsome to translate it in key-figures or indexes.

There are two ways to classify the exposures. First one is to develop some standards as:

• Exposure Dollar (Exp $): 10% variance in the dollar exchange rate against the reporting currency define by EBIDTA.

• Exposure Oil (Exp Oil): 10% variance in the fuel prices present define by EBITDA.

The second way is to classify the Exposures in an one risk-indicator with for example six levels and classify companies with a low- high risk profile.

Of course the new key figures have their own errors and uncertainties. Another objection could be the possibility of window-dressing. Although key-figures have a lower reliability (higher error-margin) in my opion it will still be enough to unmask risks and uncover some causes for a next financial crisis.

I am curious about your opinions on this matter. Please feel free to post your comments!

Controls in Corporate Performance Management

Drive value in Corporate Performance Management with business controls

Wikipedia defines control objectives at the organisational level as: "objectives that relate to the reliability of financial reporting, timely feedback on the achievement of operational or strategic goals, and compliance with laws and regulations".

We know that Corporate Performance Management is about faster and more accurate reporting. We know that CPM relates to the successful execution of strategy linking strategic goals to performance measures. We also know that CPM relates to external stakeholders and accountability bringing compliancy into the game. Hence, controls are an important part of effective Corporate Performance Management!

This blog is about setting up flexible process and application controls in Close, Consolidate and Reporting projects. Flexible in the way that your process and application controls can grow with new requirements and application developments. Findings are based on our real-time experiences as CPM consultants with numerous multinationals over the years. It shows how incorporating the right controls help organisations to improve data integrity, shorten the close cycle and streamline compliance.

Here are some of the key lessons we’ve learned along the way:

1. Start thinking about data integrity from the start

Corporate Performance Management should be about analyzing data for added value and not validating data. Reliable data is the critical success factor for any CPM application. The design of the application should harvest data integrity from the start by categorizing all data input in unique classifications.

Collect data input from source systems in a unique data source. Build in automated or manual controls to validate this input with the source systems. Classify specifications and adjustments in the application in unique data sources. Set up the application to append data and never overwrite data. Build in comment fields to know not only who and when a user made an adjustment, but also why!
A logical audit trail of data enrichments will reduce the amount of time organisations spend trying to identify whether or not their data is reliable.

2. Not only describe, but realize segregation of duties

Segregation of duties is an important requirement of many control frameworks. It is important to distinguish the responsibilities forthcoming from system and functional maintenance of CPM applications from the end users, mostly being employees from Finance departments. The segregation from the IT function (system administrators) is in most organisations not an issue. Issues mostly occur in separating the functional adminstration of the application from the Finance function. This is to be explained firstly by the fact that mostly Finance employees are involved during the implementation of the application, as owners of the business case. After Go-Live these employees are most qualified to fulfill the administrator function while having their Finance responsibilities. Secondly convenience and flexibility has a big part in it. If an incident or change request occurs it is the functional administrator with a Finance background who can most easily combine knowledge of the functional requirement with the application parameters.

Realize from the start that implementing a CPM application requires a unique administrator function. Involve this person(s) from the start in the development of the application and make sure that no conflict of interest can occur along the way. Realize that the administration of a CPM application is not something to do aside, but is an integral part of effective Corporate Performance Management.

3. Set up and manage application- and process controls

Table 3.1 presents an overview of some best - practice application- and process controls in Close, Consolidate and Reporting implementations. Please contact CPMview for more information.



Table 3.1: Application- and Process controls

4. Describe and manage the Change Management Process

In order to ensure the continuous and reliable operation of the CPM application after Go-Live, maintenance processes must be defined and implemented prior to the transition to the business. These processes, combined with appropriate training, must enable organisations to seamlessly take over the responsibility for the maintenance and support of the CPM application and configuration. Moreover, these processes must enable organisations to comply with the accountants’ compliancy and control demands regarding the segregation of duties and management of application changes.

Describe the change management process taking into account change-, incidents-, security-, service level- and configuration management.

5. Think about effective administration

Keep an administration of Request for Changes, Maintenance Orders and Application Users. Make sure that these forms are timely approved by the owner of the application or the Change Advisory Board and enclosed by supporting documentation.

6. Authorize and document duties and responsibilities

Make sure to describe and document all functions and responsibilities regarding the CPM application.

7. Set up an Audit trail

Initiate activity and data audit in your CPM application to record transactions or communications related to a person, period, account or entity.

8. Manage your IT environment

Set up your server park to include a development server, test server, acceptance server and production server. Make sure that decent back up and fallback scenarios are in place. Provide single global web based login capabilities taking into account adequate authorization and security controls.

That "being in control" is not always easy to accomplish is demonstrated in this week’s pick from YouTube. Enjoy and please be sure to give your comments on this blog!

Real Life Issues with respect to Performance Management

I was just relaxing a little bit from another long day at the client site when I saw this movie on YouTube. In my opinion the movie really shows the bottlenecks within an organization with respect to performance management.

Enjoy!

SAP Extends Leadership in Delivering Solutions to the CFO with Acquisition of OutlookSoft Corporation

I just saw this press release. Things are changing in the CPM market. First was the takeover of Hyperion by Oracle and now the takeover of OutlookSoft by SAP.

The press release can also be found at http://www.outlooksoft.com/news_events/press_releases/2007/sap.htm

Walldorf, Germany and Stamford, CT—May 8, 2007
Extending its leadership in delivering complete solutions for the CFO, SAP AG (NYSE: SAP) today announced its intention to acquire OutlookSoft Corporation, a privately held provider of integrated planning, budgeting, forecasting and consolidation software. Today’s announcement marks another milestone in SAP’s multi-year plan to holistically address the increasingly sophisticated requirements of the CFO around driving business performance, managing risk, ensuring compliance and spearheading financial transformation in their organizations. In making the announcement, SAP stated that the acquisition is expected to be completed in June 2007, pending approval from the respective antitrust authorities. Terms of the acquisition were not disclosed.

CFOs today face increasing pressure to meet regulatory requirements and drive efficiencies while at the same time playing a strategic role in driving the growth and profitability of the business. SAP’s build/partner approach, supplemented by strategic “fill in” acquisitions, has enabled CFOs to benefit from the most comprehensive, integrated set of financial business processes. Building upon the market-leading, cross-industry financial applications suite within SAP ERP, CFOs can ensure business compliance and manage risk with integrated governance, risk and compliance management applications (SAP solutions for GRC) and improve their business performance linking strategy to execution with risk-adjusted planning and corporate performance management (SAP solutions for performance management). The transaction with OutlookSoft is continuing evidence of SAP’s strategy to use well-placed acquisitions to complement its broad solution offering by gaining innovative technologies, while maintaining its successful organic growth track record.

“Across industry segments and global markets, CFOs are under tremendous pressure to improve business performance, predictability and stakeholder confidence,” said Doug Merritt, corporate officer and member of the Executive Council, head of Business User Development, SAP AG. “Leading companies are looking to establish unified, easy-to-use best practice business processes that enable a predictive and risk-adjusted approach to performance. OutlookSoft completes another key component of our multi-year strategy to build, partner and acquire unique offerings for CFOs, a strategy based on thorough market analysis and customer input. OutlookSoft brings the people, intellectual property and expertise that will enhance the SAP business user experience and add value for a strong cross-section of our customer base.”
OutlookSoft InnovationRecognizing customers’ needs for an innovative new approach to performance management, OutlookSoft was founded in 1999 to deliver the standard for next-generation solutions based on unprecedented ease-of-use for the business user and unified experience across all performance management processes. OutlookSoft focused on this vision by modernizing solutions for the CFO leveraging Web 2.0 technologies to enable collaboration across the enterprise and delivering real-time, predictive analytics capabilities and finance-ready business process flows, an extensible library of procedures guiding business users through all performance management activities and facilitating collaboration.The company’s vision has been validated by more than 700 customers globally, a record year in 2006 with 25 percent revenue growth and an unprecedented win-rate against its competitors with the latest availability of OutlookSoft 5. OutlookSoft’s singular commitment to the CFO, its deep domain knowledge and its vision for next-generation performance management solutions clearly complements SAP’s core expertise in integrated financial applications and strengthens the company’s strategy to effectively address the increasingly complex requirements of the finance organization.

OutlookSoft’s modern, standards-based solution is built on a service-oriented architecture (SOA), thus enabling customers to take advantage of OutlookSoft 5 and extend the value of their SAP solutions by leveraging integration with SAP’s service-enabled applications via a common technology platform, SAP NetWeaver. In particular, SAP NetWeaver Business Intelligence (SAP NetWeaver BI), with over 14,000 installations, will provide the robust BI infrastructure powering the OutlookSoft 5 application and deliver a common user experience to the business user.“From the beginning, OutlookSoft has focused on helping business users, the executive team and, most importantly, the CFO,” said Phil Wilmington, president and CEO, OutlookSoft. “Our solution unifies organizations, disparate systems and processes through innovative technology and accessibility to information. This is an exciting time for our customers and partners, as we combine the business process expertise and technology platform from SAP with the usability and deep functionality of OutlookSoft’s performance management application.”

About OutlookSoft Headquartered in Stamford, Connecticut, OutlookSoft employs approximately 250 people and has offices in the United States, United Kingdom, France, Switzerland and Italy. For additional recent news about SAP’s solutions for the CFO, please visit: http://www.sap.com/company/press/press.epx?pressid=7596.

About SAPSAP is the world’s leading provider of business software*. Today, more than 39,400 customers in more than 120 countries run SAP® applications—from distinct solutions addressing the needs of small businesses and midsize companies to suite offerings for global organizations. Powered by the SAP NetWeaver® platform to drive innovation and enable business change, SAP software helps enterprises of all sizes around the world improve customer relationships, enhance partner collaboration and create efficiencies across their supply chains and business operations. SAP solution portfolios support the unique business processes of more than 25 industries, including high tech, retail, financial services, healthcare and the public sector. With subsidiaries in more than 50 countries, the company is listed on several exchanges, including the Frankfurt stock exchange and NYSE under the symbol “SAP.” (Additional information at http://www.sap.com).

Underpinnings of Integrated Performance Management - Part III

Integration: “Talking the same language”

Performance management is all about the successful execution of strategy. We identify four guiding principles to translate strategic directives into an effective performance management cycle. In part I and II we discussed focus and alignment. In this post we want to discuss the third principle which is integration: talking the same language.

Integration is about three main ideas:

• Interlinking planning, measuring and intervention processes
• Comprehensive information strategy and supporting technology architecture
• Incentives and rewards for people embedded in the performance management system

To link performance management processes, the first step is to define and describe these processes. This is relatively straight-forward to do. For each process and sub-process, define inputs and outputs, interdependencies among processes and process steps. For each process and process step, responsibility should be assigned to individual employees. To achieve linkage, the planning and reporting process needs to be integrated with people performance management and goal setting in terms of timeline, process steps and content.

The next step in integration is developing the right technology infrastructure. Technology needs to be supportive to the value model, management control structure and processes defined earlier (see part I and II).

To provide a solid foundation, the first step here is to define the enterprise information model based on information requirements to support key decisions across all major business dimensions. The enterprise information model is used to identify and implement an IPM specific toolset (this can be an ERP or best-of-breed solution). IPM tools and requirements need to be integrated into the overall IT strategy & architecture.

The most challenging part in integration is establishing rewards and incentives supportive of the performance management system. It requires establishing a framework for rewarding performance, and ensuring that the framework for rewards and incentives is linked to the planning, measuring and intervention processess.

This starts with establishing a common understanding of "performance" including functional differences and providing a framework to define individual performance expectations to individual employees. Furthermore, managers need to be provided the tools and processes enabling them to appraise performance according to individual performance expectations. Finally, reward must be linked to both achievement of corporate strategic goals and individual performance.

In the last post in this serie we will elaborate on the last remaining guiding principle for successful strategy execution: behaviour.

Underpinnings of Integrated Performance Management - Part II

Alignment: “All pulling in the same direction”

Performance management is all about the successful execution of strategy. We identify four guiding principles to translate strategic directives into an effective performance management cycle. In part I we discussed focus. In this post we want to discuss the second principle which is alignment: all pulling in the same direction.

Alignment is about three main ideas:

1. Cascading targets throughout the organization
2. Clear management control and accountability
3. Project portfolio and initiatives linked to value drivers

To communicate targets, processes must be established for aligning and cascading performance measures. This is typically a combination of both a top-down as well as a bottom-up approach.

A consistent breakdown must be defined and communicated of corporate targets, initiatives and performance measures to subunits- and individual targets, initiatives and performance measures. Targets should be aligned across business dimensions (e.g. function, geography, customer) to facilitate joint value creation and co-operation.

To establish clear management control and accountability, the first step is to define organisational accountability.

Responsibility must then be assigned to business units, functions etc. for each target, initiative and performance measure. Based on this a clear management control and reporting framework can be established. Finally, employee performance targets and objectives are defined and aligned with strategic objectives and value drivers.

Linking projects and initiatives to value drivers is an essential step in achieving alignment.

All projects and initiatives are categorised and prioritised by contribution to strategic objectives. This requires establishing a clear linkage to overall value drivers. Based on the contribution to strategic objectives of current projects, new initiatives might need to be developed.

In future posts we will elaborate on the remaining guiding principles for successful strategy execution: integration and behaviour.