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CPM Title (04A)

See also:
CPM: What it is and how it is different from traditional approaches? -- Part One
CPM: Systems and Steps to CPM -- Part Two
CPM: 12 Best Practices in Implementing a Solution -- Part Three
CPM: Selecting the Right Technologies -- Part Four (B)
CPM: Selecting a CPM Vendor -- Part Five
CPM: Emerging Technology Systems -- Part Six

          In the last article (Part Three), we took a look at 12 management 'best practices' that can transform existing planning and reporting processes -- and that form the basis of a CPM solution.

          In this article, we will look at the role of technology in supporting a CPM initiative and make a start in reviewing the capabilities provided in this new breed of software.

Technology is an 'enabler'

          I've been helping organizations to implement planning, budgeting and reporting solutions for over 25 years and all that time one thing has remained constant. If someone has a bad and broken budgeting/reporting process than throwing technology at the problem means you still end up with a bad and broken process -- although it's now probably delivered faster!

          Sure technology can make some immediate improvements -- for example, replacing a spreadsheet based budgeting system with one that is based around a central database to which everyone attaches will save considerable time and effort in rolling out spreadsheets and then collecting them back in. But if your collecting the wrong information to begin with, then it doesn't matter how much you improve efficiency with technology -- you will still won't be able to make the right decisions from the data.

          Having said that, technology does have a vital role to play -- and using the wrong technology will cause major headaches.

          Take for example, using a spreadsheet to collect a budget. Look at the manual tasks this technology requires:

  1. Create the spreadsheet model and then duplicate/customize it for each user
  2. Distribute the model together with instructions on how to use it and a timetable of when it's due back in. At this point you have lost control -- you are now at the mercy of end-users.
  3. Wait for the spreadsheets to be sent back to you
  4. Check that the spreadsheets have been completed properly and the numbers look as accurate as possible.
  5. Chase up those users who are late sending in their submissions as well as getting those who filled theirs in wrongly to do it again.
  6. Consolidate (or link) all the spreadsheets into one super spreadsheet.
  7. Produce the consolidated reports and distribute those to management
  8. Answer queries -- and produce more supporting analyses from a different viewpoint, e.g., by product rather than by operating unit
  9. Revise spreadsheets/targets for the second pass of the budget -- then re-issue the spreadsheets (telling users to throw away the 'old' version. After all we wouldn't want them to send back the old one this time round would we? Mind you there is nothing we can do to stop them apart from just 'hoping'!)
  10. Now go through all the above tasks for the second budget pass.

          This is a lot of effort, it's time consuming and prone to error.

          The problem with using a spreadsheet is that though they are a great personal productivity tool, they were never designed to deliver an enterprise-wide CPM solution for the following reasons:

Bullet   They are 'single user' -- only one person can use a particular spreadsheet at a time -- that's why we have to duplicate them.

Bullet   They only show a single fixed view of the business -- usually budget items down the rows and time across the columns.

Bullet   There is no 'financial intelligence' -- no understanding of Debit/Credits, P&L, Balance Sheet and Statistical measures, no currency -- all of which must now be programmed and maintained using cell formula, or Visual basic scripts!

Bullet   Limited security -- everyone can see everything on the sheet unless each sheet is personalized.

Bullet   Limited control -- you have to wait for users to send back sheets and you can't control which version they send back or whether it is complete and accurate.

Bullet   Limited data capacity -- many organizations need many hundreds of spreadsheet files to hold the data they need for organizational decision-making.

          However, the right technologies are the ones that eliminate the manual effort and are not limited in security, control or capacity. They are also designed specifically to support the implementation and monitoring of strategy.

           The role of technology in CPM is to support management 'Best Practices' as outlined in Part Three; to automate the process as much as possible; to facilitate communication between different parts of the organizations; and to reveal abnormal trends within the data itself.

Characteristics of CPM Systems

          To do this CPM systems CPM systems have the following nine characteristics:

  1. Complete integration. CPM systems encompass planning, budgeting, forecasting, financial consolidation, reporting, and analysis, and treats them as a single, continuous process.
  2. Enterprise-wide. CPM systems are extensible across the enterprise. CPM systems are web based, making it possible for users to work from anywhere at any time.
  3. Focus on exceptions. CPM systems accommodate the reporting and analysis of both financial and non-financial data . They focus users' attention on the unanticipated by highlighting and proactively alerting them to exceptions.
  4. Automate the processing of data. CPM systems automate the processing of ratios, currency conversions, allocations, elimination of minority interests and the consolidation of results.
  5. Filter and format data. CPM systems summarize large volumes of data and present it in a form that is easily understood for the purpose.
  6. Provide end users with access to information. CPM systems exploit the web and provide secure user access to any relevant information such as timetables, assumptions, comments, strategy, tactical plans, critical success factors, Key Performance Indicators, reports, analyses, actual, and forecast results. Information is easy to access and navigate online.
  7. Support collaboration. CPM systems are designed to allow users to collaborate with colleagues no matter where they are or what time it is.
  8. Provide insight. CPM systems provide strong analytical capabilities such as trend analysis, sorting, charting, and exception reporting, transforming data into insight.
  9. Automate monitoring of vital signs. CPM systems, can search underlying details on a continuous basis and proactively warn users when exceptions occur without a user ever having to look at a report.

          By combining these characteristics, CPM applications become a powerful management system. They allow executives to assess and communicate strategy; provide operational management with tools for developing effective plans; and give end users instructions and knowledge on how to perform their roles in implementing strategy. But as mentioned earlier, although CPM systems may improve efficiency, they cannot ensure effectiveness by themselves. They are only as good as the methodology, metrics, and processes that they support.

Architecture of a CPM system

          CPM systems can be thought of as the vehicle that takes an organization from where it is to a destination further down the road. This vehicle is an integration of individual components, each of which is vital but relatively useless if not integrated as a complete package. Provided that the driver knows how to operate the vehicle and where to go, there are three major components in the vehicle that contribute to the success of the journey: the chassis onto which everything is bolted, the engine which drives the vehicle forward, and the controls used to steer and regulate the vehicle.

           The design and integration of these components as a whole is critical to the drivability of the vehicle and will determine how effectively the occupants reach their objective. In addition, for the vehicle to move, it requires a constant supply of good quality fuel.

          Similarly, a CPM system is an integration of individual components, each of which is vital but relatively useless if not integrated with the other. In order to contribute to the successful implementation of strategy, a CPM system consists of three layers:

Bullet   The Data Tier is the chassis of a CPM system. It contains a definition of the organization covering the past, present, and future, and is expressed in terms of structures and business rules. It also contains information, or links to information, in the form of plans and results. It is on this data model that the other components of a CPM system operate.

Bullet   The Application Tier is analogous to a car's engine. This tier powers the CPM processes by transforming user interaction and source data into plans, reports, and analyses according to pre-set rules and operator selections.

Bullet   The Client Tier is used to steer and regulate the implementation of strategy through communication, collaboration, and guidance of user interaction. It also monitors the success, direction, and progress of strategic initiatives, and provides warning of real and potential problems as well as opportunities.

Architecture of a CPM System
          For the CPM system to operate, it requires a constant supply of good quality data. That data will be supplied from a variety of internal sources such as the ERP, HR, and CRM databases, as well as from external sources such as news agencies, market research, and public listings.

          The design and integration of these components in technology terms is known as the application architecture. The way in which these work together is critical to the effectiveness of a CPM system in helping employees, managers, and senior executives implement strategy.

          In the next article [Part Four (B)] we will look at the capabilities you should expect to see when evaluating CPM software.

About the Author:

Profile of Michael Coveney

Email: mcoveney@comshare.com

See also:
The Strategy Gap: Leveraging Technology to Execute Winning Strategies
Michael Coveney, Brian Hartlen, Dennis Ganster and David King
John Wiley & Sons, 224 pages, US$27.97 / 22.98 (Amazon.com)

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Revised: March 10, 2003 TAF

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