Driving business performance in today’s complex and volatile environment presents unique challenges for senior management, in general, and for corporate finance in particular. Because it is a rapidly evolving environment, there’s also increasing demand for finance leaders to lead business strategy in real time, a shift towards performance insight and higher value placed on an integrated business planning approach.
EPM can be described as the ability of an organization to effectively manage the execution of its business strategy through improved management decision making. It is the integration of various methods that translate your plans into results. In other words, it is execution or the framework for managing your strategy. Since strategy is of paramount importance, it is senior management’s number one responsibility. EPM’s main strength is in achieving success through the adjustment in execution of business strategies by aiding managers to sense earlier, and to respond more quickly to uncertainty. It enables this by pushing accountability for results to the lowest possible organization levels.
In a recent survey of over 1500 Accounting & Finance Executives, the following responses were found:
- Is the annual business planning process a critical to your EPM process?
YES – 90% / NO – 10%
- Is your company’s annual target setting process Top Down or Bottom Up?
Top Down – 60% / Bottom Up – 40%
- Is your company’s Tactical Plan (Short-term ~ 3 to 5-year) managed differently than the Strategic Plan (Long-term ~ 5 to 10-year)?
YES – 60% / NO – 40%
Risk: Potential for Misalignment between Short- and Long-term strategies, including Key Assumptions and Metrics.
The annual short- and long-term business planning processes are important tools in EPM.
Characteristics of Top Down Annual Business Planning Process
- Centrally developed short- and long-term business plans are issued to the company’s operating and support service organizations
- Usually involves fewer decision makers in senior management and the process may require less time and resources to complete
Characteristics of a Bottom Up Annual Business Planning Process
- Budget planners from each operating and support service organization develops short- and long-term business plans after being provided guidance regarding the key assumptions (E.g. sales forecast, input prices) by company headquarters.
- Target setting is performed at lower levels of the organization resulting in wider ownership of the plan and greater transparency in the process
- May require several iterations of the plans to achieve alignment between plan owners and senior management.
EPM’s impact on the organization
Ultimately, EPM is not just about the numbers, but also about monitoring and managing the impacts of the performance management framework on teams of people throughout the organization who tasked with delivering on its strategies, plans and objectives.