The 5 critical success factors of Corporate Performance Management

I was recently invited by Microsoft and Forest Grove Technologies to give an address to Finance Professionals in Perth who were keen to understand how they could improve their business through a more structured approach to budgeting and forecasting.

At the event I outlined the key elements required to achieve success when incorporating a Corporate Performance Management (CPM) framework and also showed how a structured budgeting process can deliver unforeseen benefits in operational performance and profitability.

Below are some of the highlights from the presentation:

Bill Gates is famously quoted as saying that "The first rule of any technology used in a business is that automation applied to an efficient process will magnify the efficiency. The second is that automation applied to an inefficient process will magnify the inefficiency."

I bring this up for a number of reasons. First of all its important to have robust processes before going towards a technology implementation, but it’s also naïve to think that you can go from inefficient excel based practices to the world’s best budgeting system. This is why it’s really important to partner with technology that is rigid enough to allow you to again efficiencies but also flexible enough that it can evolve with your finance function as you travel along the sophistication curve.

When creating an optimised budgeting structure it is important to balance the needs of our end users with a manageable maintenance program and this can take many iterations. However, over my career I have found that it is most important to focus on scalable maintenance and consolidation processes, usually referred to as "back end" before optimising front end user experience.

This helps to keep support resources at a manageable level and will also ensure consistency across budgeting units. A flow on effect from this is that more support can be offered to end users during the budget creation cycle.

Through my latest CPM transformation project I have arrived at what I consider to be the critical budgeting elements when migrating from an Excel consolidation to a structured budgeting tool. If you can satisfy these 5 elements you will go a long way to ensuring a successful budget process.

1. Integrity

Given the importance of the budget to many employee pay packets, our end users need to be confident that if they tweak a driver – Units sold for instance – that the effect on the bottom line profit is calculating properly and will be reflected in their monthly financials.

2. Consistency

We need to know that a given line items - Gross margin per unit - at our Toyota dealerships means the same as a Mazda franchise.

3. Scalability

As we are building and acquiring new sites every year, we needed a platform that could grow with the business, quickly absorb new users and deliver the same end user experience during times of heavy usage - such as the last week before the budget was due to the Board.

4. Maintainability

With 100 franchises at AHG, inefficient consolidation processes would slow down our delivery times and require significant employee resources. Similarly, with an ever expanding franchise network, small reporting enhancements and time period roll overs need to be automatically applied to every user at the same time.

5. Flexibility

With enhancements in budgeting comes a deeper understanding of how the business operates. When structural, operational or reporting enhancements are achieved in financial reporting, we needed a budgeting platform that could quickly replicate the financial reporting improvements.

While the Prophix platform delivered on all 5 of these elements, the greatest advantage was the insight we gained into our operations. By simplifying, standardising and focusing on what was important, we reduced the time to close our monthly accounts and were able to drive meaningful operational improvements, leading to bottom line profits.

As an accountant it doesn’t get any better than that. When budgeting and reporting can have a P&L impact and drive operational insight, that’s the Holy Grail we are all searching for.

So what’s next for us? As we are on a path of continual and never ending improvement our next steps are aimed at eliminating duplication and simplify reporting, optimising our CPM infrastructure and implementing a rolling forecast that will eliminate the need for a formal budget process.

You can find more information about Forest Grove and the Prohix CPM platform here:

http://www.forestgt.com.au

http://www.prophix.com