Improving outdated budgeting-and-planning processes is a critical starting point, and pre-requisite, for BPMbut it's not the endgame.
Over time, a carefully conceived and well-implemented business performance management strategy can help a company better execute its strategic plan, increase profitability, and strengthen its balance sheet. Yet many companies initially set off down the path toward BPM, also known as corporate performance or enterprise performance management, with a much less ambitious goal in mind: overhauling outdated and inaccurate manual budgeting-and-planning processes.
BPM is a strategy that combines management methodologies, processes and technologies to help companies ensure they are meeting their strategic goals. BPM softwareincreasingly bundled in BPM suites from vendors such as Hyperion Solutions Corp. and Cognos Inc.leverages underlying business intelligence data and provides users with easily understood analytical applications and reporting tools, such as dashboards and scorecards. According to IDC Research Director Kathleen Wilhilde, the worldwide BPM and financial analytic applications market was valued at $1.59 billion in 2005, with an annual growth rate of 11.2 percent forecast through 2010.
But despite BPM's high-level strategic promise, implementing the technology is essentially a bottom-up process that begins with accurate forecasting. Budgeting-and-planning is an area of perennial concern for most organizations, according to Murray Beach, managing director with Natick, Mass.-based Boston Corporate Finance, a technology-focused investment bank. "Managers and boards of directors are constantly evaluating their own performance, and the company's, against the budget, so the accuracy of the budget as it's being drawn up is essential," says Beach. "As businesses become more complex, the challenge of making the budget accurate and transparent has expanded tremendously."
Craig Schiff, CEO of Stamford, Conn.-based BPM Partners, says his consultancy often works with companies motivated by tactical budgeting problems. "Budget season is here. The people supplying the budgets, and the people trying to collect, consolidate and analyze those budgets, are all looking for ways to make the process less painful," says Schiff. In fact, in a 2006 survey conducted by BPM Partners, 53 percent of respondents cited budgeting as the leading component in their BPM initiatives. Just 37 percent chose operational analytics, the next most popular choice.
But BPM is not all nuts and bolts. According to John Van Decker, a vice president with Gartner Inc.: "Most companies start their [BPM] initiatives tactically to address financial concerns. But then they see an opportunity to more broadly improve their performance processes, and extract additional value out of investments they've already made. Lots of companies have implemented huge enterprise applications only to discover they still can't do planning. [BPM] takes business intelligence and puts methodologies around it, so information goes to the right people."
Of course, there are some side effects to BPM. The shift to automated, Web-based budgeting-and-planning processes typically ratchets up transparency and accountability within organizationsa cultural shift that pushes many employees out of their comfort zones. Executives need to address those concerns upfront, through education, training and awareness, while clearly sending the message that business performance is everyone's responsibility.
Ask your CFO:
How well are our budgeting-and-planning processes serving the needs of the finance department and the business units?
Ask your head of strategic planning:
How can we best leverage our operational and financial systems to improve planning and performance monitoring?