The days of having CFOs responsible for only preparing the statutory financial reports of the business and play the role of the bookkeeper are long gone. Today, finance leaders are expected to play the role of the strategic advisor to senior management and the board,and help drive operational and strategic performance across the enterprise.
That is, become custodians of enterprise performance management (EPM) by taking the lead on performance management and delivering informed business insights. EPM takes a completely different approach towards measuring, monitoring and improving enterprise performance.
Instead of assessing business performance in a siloed approach, EPM ensures the business evaluates and monitors its performance holistically. Although a majority of business decisions have either positive or negative financial implications on the health of the organization, evaluating, monitoring and improving business performance extends beyond a sole focus on financial metrics.
In order to perform better in their new business performance custodian role, it is imperative that finance leaders develop knowledge and a deeper understanding what constitutes and doesn’t constitute EPM.
A simple google search of the words “Performance Management” brings up results that associate performance management to the process of conducting employee performance appraisals and supervising employees and departments to ensure that goals and objectives are met efficiently.
As a result, many people think that performance management is a human resources process that is only people-focused and has nothing to do with finance – Human Performance Management. To a lesser extent, their thinking is correct in the sense that people are part of the process. However, to a larger extent, they are wrong.
Performance management is not entirely focused on carrying out the outdated employee annual performance appraisals or reviews based on isolated individual key performance indicators (KPIs).
Rather, performance management is the integration of multiple managerial methods and or frameworks such as strategy maps, balanced scorecards, activity based costing/management, driver-based rolling forecasts, process improvement, risk management and advanced analytics to support strategic decisions and drive performance.
This is not achievable individually, hence the key word “enterprise.”
As custodians of business performance, finance should play a leading role in implementing a robust EPM framework across the organization. The framework should enable the organization to communicate and translate its strategy into financial and non-financial metrics and targets, monitor its performance, create accountability, and focus its efforts and resources on the key business drivers.
Additionally, the EPM framework should ensure there is alignment between individual KPIs and reward and recognition systems, and corporate objectives, as opposed to mere job descriptions, in order to encourage behaviours which positively contribute to the overall strategy of the business.
When implementing the EPM framework, it is important to ask the following questions:
- What do we want to achieve and excel at? This helps define your goals and key value drivers.
- How do we know if we are actually excelling at this? This involves defining financial and non-financial KPIs, which are measures that help you understand whether you are achieving your goals
- What is the desired level of performance that we would like to see? Defining KPIs is not enough, you also need to define your targets that represent the level of success or failure at achieving your KPIs.
- What initiatives should we pursue or engage in to meet our performance targets? These are actions or projects or strategies or processes needed to achieve a target, or improve performance level.
- What resources and or investments are needed to achieve our target? Utilizing driver-based budgets and dynamic rolling forecasts will ensure resources are allocated strategically and efficiently.
Asking and answering the above questions helps design and implement management processes and systems that align business strategy to drive accountabilities, decision support and performance improvement.
For example, when KPIs are aligned with business strategy, decision makers will focus on the critical success factors of the organization. On the contrary, if there is lack of KPI alignment, senior management end up getting overwhelmed with an increasing number of performance reports that lack key insights necessary to move the business forward.
As custodians of enterprise performance, it’s important for finance to have the ability and capabilities to consolidate, analyze and interpret business performance in real-time. Rather than simply report on the past, finance teams must be able to explain the reasons behind the numbers (the whys and what-ifs).
Leveraging consolidation solutions enable teams to quickly model and assess the impact of alternative business scenarios and formulate appropriate solutions.
Given the complexity of today’s business environment, finance leaders need to rise to the occasion and perform the strategic advisory role now expected of them by senior management and the board.