Is Excel the Right Tool for Corporate Budgeting?

Is Excel the Right Tool for Corporate Budgeting?

Well, here we are in late January and most companies have wrapped up their budgeting for 2017.  But while the memory of the process is fresh this is a good time to think about how well it’s working.

Is your budgeting process an orderly, streamlined exercise, or is it bogged down due to the use of Excel spreadsheets and email for collecting and consolidating budget data?

Many organizations start out using Excel spreadsheets for budgeting and planning, especially when their businesses are fairly simple and there’s a small number of users involved in the process.  Businesses, particularly startups, may not have huge volumes of data to analyze or complex corporate structures with multiple strategic business units and departments. Spreadsheets are easy to set up, flexible, and are familiar to many users. Nearly everyone has some experience with Excel. They can help organizations implement budgeting and financial planning easily and cost effectively.

drowning_in_spreadsheets.pngHowever, as organizations grow in size and complexity, Excel can become a handicap.   For mid to large-sized companies or organizations that have grown significantly, the disadvantages may start to outweigh the advantages when it comes to budgeting with Excel spreadsheets.  You may even find yourself drowning in spreadsheets!

If you fall within this category, congratulations on your business acumen and success to grow your business to this point! However, you will likely be familiar with some of the pain that can come from relying on spreadsheets for your planning needs. If so, it may be time for you and your organization to use Excel for what it’s good at, as a personal productivity tool, and a front-end to a more scalable system that does the heavy lifting and provides the control and accuracy needed to streamline the budgeting process.

Planful’ partner CrossCountry Consulting, recently published a white paper on this topic.  In this white paper, they provide an overview of budgeting, and outline the importance of financial planning and performance management for your business. They highlight why Excel spreadsheets are an insufficient tool for this critical process, and how cloud-based EPM systems that use Excel as a front-end, can help your business streamline your budgeting practice, keep your sensitive data secure and reduce potential mistakes from human error.

To learn more, download the free white paper, “Budgeting in Excel – Why Use the Wrong Tool for the Job”.

Download the Whitepaper

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A Key Task for Finance – Measuring and Managing Customer Profitability

A Key Task for Finance – Measuring and Managing Customer Profitability

The only value a company will ever create for its shareholders and owners is the value that comes from its customers – current ones and new ones acquired in the future.

To remain competitive, companies must determine how to keep customers longer, grow them into bigger customers, make them more profitable, serve them more efficiently, and acquire more profitable customers.

But there’s a problem with pursing these ideals. Customers increasingly view suppliers’ products and standard service lines as commodities. This means that suppliers must shift their actions toward differentiating their services, offers, discounts, and deals to different types of existing customers to retain and grow them. Further, they should concentrate their marketing and sales efforts on acquiring new customers who have traits comparable to those of their relatively more profitable customers.

Gaining a Customer-Centric Focus

As companies shift from a product-centric focus to a customer-centric focus, a myth that almost all current customers are profitable needs to be replaced with the truth. Some high-demanding customers may indeed be unprofitable! Unfortunately, many companies’ managerial accounting systems aren’t able to report customer profitability information to support analysis for how to rationalize which types of customers to retain, grow, or win back and which types of new customers to acquire.

With this shift in attention from products to customers, managers are increasingly seeking granular nonproduct-associated costs to serve customer-related information as well as information about intangibles, such as customer loyalty and social media messaging about their company and its competitors. Today in many companies there’s a wide gap between the CFO’s function and the marketing and sales function on this issue. That gap needs to be closed

Here’s the basic problem. With accounting’s traditional product gross profit margin reporting, managers cannot see the more important and relevant “bottom half” of the total income statement picture – all the profit margin layers that exist and should be reported from customer-related expenses such as distribution channel, selling, customer service, credit, and marketing expenses.

The marketing and sales functions already intuitively suspect that there are highly profitable and highly unprofitable customers, but management accountants have been slow to reform their measurement practices and systems to support marketing and sales by providing the evidence. To complicate matters, the compensation incentives for a sales force (e.g., commissions) typically are based exclusively on revenues. Companies need to not just increase market share and grow sales but to grow profitable sales. Compensation incentives should be a blend of both customer sales volume and profits.

Who are the troublesome customers, and how much do they drag down profit margins? Who are the more profitable customers and why? More important, once these questions are answered, what corrective actions should managers and employees take to increase the profit from a customer? Measurements are the key.

Pursuing the Truth About Profits

Some customers purchase a mix of mainly low-profit margin products. After adding the nonproduct-related costs to serve for those customers, apart from the costs of the mix of products and standard service lines they purchase, these customers may be unprofitable to a supplier. But customers who purchase a mix of relatively high profit-margin products may demand so much in extra services that they also could potentially be unprofitable. How does a company measure customer profitability properly? In extreme cases, how does it deselect or “fire” a customer that shows no promise of ever being profitable?

Every supplier has what can be referred to as good and bad customers. Low-maintenance “good” customers place standard orders with no fuss, whereas high-maintenance “bad” customers always demand nonstandard offers and services, such as special delivery requirements. For example, the latter constantly returns goods or contacts the supplier’s help desk. In contrast, the former just purchases a company’s products or service lines and is rarely bothersome to the supplier. The extra expenses for high-maintenance customers add up. What can be done? After the level of profitability for all customers is measured and understood, then actions can be taken to migrate them toward higher profits.

To be competitive, a company must know its sources of profit and understand its own expenses and cost structure. For outright unprofitable customers, a company can explore passive options of gradually raising prices or surcharging for extra work, hoping the customer will go elsewhere. For profitable customers, a company may want to reduce customer-related causes of extra work for its employees (e.g., unneeded extra product packaging), streamline its delivery process, or alter the customers’ behavior with pricing incentives so those customers place fewer workload demands on the company.

Beneath the Iceberg: Unrealized Profits

With a valid costing model that adheres to cause-and-effect correlation cost allocations, Figure 1 displays a graph line referred to as the “profit cliff” (and sometimes the “humpback whale” curve). This line is the cumulative buildup of each customer’s profit. Customers are rank-ordered from the most profitable to the least profitable, including those who are unprofitable (i.e., customers with a financial loss where their costs exceed their revenues). The last data point reconciles exactly with the company’s total profit and loss (P&L) statement.

Gary Cokins figure 1-992879-edited.jpg

The graph illustrates how a substantial amount of unrealized profits can be hidden because of inadequate existing (and traditional) cost allocation methods and incomplete costing below the product gross profit margin line. Managers usually believe that the curve would be relatively flat. The broad averaging of traditional “non-causal” overhead cost allocations is crushing the cost accuracy and results in this flat-curve belief. The use of “causal” cost allocations” detects the unique variations of the final cost objects’ consumption of the work activities and their related capacity-providing resource expenses. The properly calculated profit and cost information usually shocks executives and managers the first time they see it because they have typically presumed that almost all but a few of their customers are profitable. Instead, they have large profit makers and profit takers.

Excel is limited at calculating these types of costs. By using commercial software, there can now be a valid P&L statement for each customer as well as for logical segments or groupings of similar types of customers. The shape of this graph is typical for most companies. From left to right, the graph line reveals the company earns a substantial amount of profit from a minority of customers, roughly breaks even on some, and then loses profits on the remainder.

Migrating Customers to Higher Profitability

Although customer satisfaction and loyalty are important, a longer-term goal is to increase corporate profitability for the shareholders derived from increasing profits from customers as if each customer were an investment in a stock portfolio. Think that the purpose of actions taken is to increase the financial “return on customer (ROC).” There should always be a balance between managing the level of customer service to earn customer loyalty and the spending impact that doing that will have on shareholder wealth.

In any company’s P&L there are two major “layers” of profit margin:

1 – By the mix of products and service lines purchased

2 – By the “costs to serve” apart from the unique mix of products and service lines. (This is that “bottom half of the picture” I referred to earlier.)

Figure 2 combines these two layers as a two-axis grid: (1) the “composite product mix profit margin” of what each customer purchases (reflecting net prices to the customer) and (2) their costs to serve. Individual customers (or grouped cluster of customers with similar traits) are located at intersections where the size of the circle diameters reflect each customer’s revenues. Note that migrating customers to the grid’s upper-left corner is equivalent to moving individual data points in the “profit cliff” profile in Figure 1 from right to left. Knowing where customers are located on the matrix requires cost calculations that comply with costing’s “causality principle”. Sadly, many accountants violate this principle when calculating costs.

Gary Cokins figure 2-055530-edited.jpg

Figure 2 debunks the myth that customers with the highest sales volume are also generating the highest profits. The objective is to generate more profits from all customers regardless of their intersection location. This is represented by driving customers to the upper-left corner of the grid. Examples of actions that will do this are surcharge fee pricing, up-selling, and cross-selling. Those actions come from the sales and marketing function. The point here is the CFO’s accounting function needs to provide them the information.

A critical reason for knowing where each customer is located on the profit matrix is to protect the most profitable customers from competitors. Because so few customers typically account for a significant portion of the profits, the risk exposure from losing them is substantial. In Figure 1, the farther to the left side of the “profit cliff” profile distribution curve that the curve’s peak is located, the more sensitive and vulnerable the bottom line corporate profit is to competitor attacks from winning a company’s key customers.

Expand the Finance Function

Much has been written about the increasing role of CFOs as strategic advisors and their shift from bean counter to bean grower. Now is the time for the CFO’s accounting and finance function to expand beyond financial accounting, reporting, governance responsibilities, and cost control. They can support sales and marketing by helping them target the more attractive customers to retain, grow, and win back and to acquire the relatively more profitable and valuable ones.

Is your finance function stepping up to helping sales and marketing understand profitability by customers?  Please send your comments.  Thanks.

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Taking On the Complexity of the Financial Close

Taking On the Complexity of the Financial Close

Well, hopefully the year-end close process is complete for most companies who have a December 31st

fiscal year-end.  Of course, there’s still plenty of work ahead on financial and regulatory reporting, right?

We know that the financial close cycle is a challenge for many organizations.  The financial close and consolidation process impacts Finance staff in many departments and locations, requires pulling data from multiple systems, and can consume an enormous amount of time and resources.  This is especially true if an organization is reliant on spreadsheets, email, and manually-intensive processes, or legacy applications that the company has outgrown.   And there are a number of complexities to the process. 

  • Consolidating data from multiple systems
  • Operating in multiple currencies
  • Reporting using US GAAP and IFRS
  • Reconciling and eliminating complex inter-company transactions
  • Reporting on minority-owned companies

Join us on January 31 for our webinar featuring Brad Tingey, Corporate Controller at Golden State Foods to learn how they are using Planful’ cloud-based Consolidation solution to address their complex financial close and reporting process in a global enterprise.

Join the Let’s Take It On Challenge

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Let’s Take it On Challenge

.”  If you have a complex requirement that’s slowing down your financial close process, Challenge us! Tell us your specific use case and we’ll present you with a solution during the demo portion of this webinar. Take the challenge!  Learn more and register for the webinar here.

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The New Revenue Recognition Guidelines – How EPM Software Can Help

The New Revenue Recognition Guidelines – How EPM Software Can Help

Business planning in the face of the upcoming, new revenue recognition guidelines issued by the FASB and IASB has created quite a flurry in finance and accounting circles.

Revenue is perhaps the most important metric in the assessment of the firm’s performance and the US GAAP VS IFRS revenue recognition guidance was lacking in many aspects. As a result, the FASB and IASB have announced new guidance which removes inconsistencies and also implements a framework that resolves revenue recognition issues. These new guidelines also normalize revenue recognition practices across various jurisdictions, industries and organizations. These changes will have a substantial impact on financial reporting as well as budgeting and planning.

The rules that dictate revenue recognition for contracts will be implemented in 2018 with business planning and budgeting processes requiring a reassessment. The turnaround time between the signing of a contract and revenue recognition will have significant variation. This would inadvertently result in the divergence of real economic performance from performance measured by financial accounting. The pressure on executives to assess their business performance from a dual perspective will require a paradigm shift from the traditional methods of assessment of a company’s performance.

Well-Deserved Buzz

The buzz generated in accounting and finance circles about the impact of these standards on transactional accounting practices isn’t misguided. The new regulations streamline unwieldy processes and impose consistency in reporting revenues. These standards are based on a bedrock of principles as opposed to centrally planned rules. The standards have also expanded the scope of auditors while eliminating company specific guidance. They also comprehensively cover all firms that enter into contracts. Ensuring the triad of Sales, Legal and Finance are on the same page is a challenge that is being posed to all companies in the short term. The US GAAP guidelines which were notoriously complex will have a radical makeover in the days ahead.

Step-By-Step Process

The five-step-process defined by FASB that determines the revenue from customer contracts are:

  • Step 1 — Identify a contract with the customer.
  • Step 2 — Identify the obligations relative to performance in the contract.
  • Step 3 — Determine the price of the transaction.
  • Step 4 — Specify the price of the transaction to the specific obligations of performance detailed in the contract.
  • Step 5 — Recognize revenue if the entity satisfies the obligation for performance.

Time to Leave Spreadsheets Behind

Experts recommend that companies currently using spreadsheets for budgeting and business planning would be better off switching to purpose-built planning applications to more easily address the challenges and complexity of the new guidelines. The same applies to companies currently using spreadsheets for financial reporting.  Moving to purpose-built applications will lead to efficiency in reporting with little margin for inaccuracy in shorter timeframes.

As Derek Hazelwood, financial analyst for Interactive Intelligence noted, the cloud-based enterprise performance management platform offered by Planful is helping their business planning face the challenges of the new standards. In order to avoid a crunch before the year-end proactively acting on ushering in these changes through the EPM platform would be prudent on the part of the companies that are about to be impacted.

Access the webinar, The CFO Playbook on Financial Reporting: Tips for a Smoother Year-End Close to learn more.

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What’s on Tap for Finance and EPM in 2017?

What’s on Tap for Finance and EPM in 2017?

Now that the dust is settling on the 2016 year-end close, and the 2017 budget is finalized (hopefully), Finance teams should be thinking about potential improvement goals for 2017. 

But what are some of the latest trends in Finance and enterprise performance management (EPM) that organizations can take advantage of this year?  To help answer that question, Planful has invited Craig Schiff, CEO of BPM Partners, an advisory services firm that helps clients address their performance management challenges, to join us on a webinar titled: “5 Predictions That Will Transform the Finance Function in 2017.”

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Drawing from the 2016 Pulse Survey by BPM Partners and client engagements, Craig will share and review key finance and performance management trends from 2016 and make predictions on what to expect in 2017.   We’ll provide answers to questions such as:

  • What’s the right role for spreadsheets in EPM processes?
  • Who’s moving to the cloud and what are the advantages?
  • How can mobile technology be leveraged in planning and reporting?
  • What can organizations do to better align finance and operations?

In this webinar, we’ll also cover the following: 

  • Review the findings of the 2016 BPM Pulse survey
  • Talk about the impact this has on EPM processes, including planning, consolidation, modeling, reporting and analysis
  • Examine the evolving roles of FP&A, accounting, and operations
  • Highlight anticipated changes in the EPM vendor landscape
  • Share the top 5 predictions that will transform the Finance function in 2017

Please join us for what we expect to be an informative and engaging webinar on Thursday January 26th at 11AM PT/2PM ET.  You can learn more and register here.

Register for the Webinar

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EPM Software:  An Essential Solution for Good Times and Bad

EPM Software:  An Essential Solution for Good Times and Bad

As we put 2016 in the rearview mirror and enter 2017, it’s clear that the world is becoming more unpredictable all the time. 

Just think of the recent changes we’ve seen, such as Great Britain’s planned exit from the European Union (Brexit), and the surprising election of Donald Trump for President of the US. These changes will have lasting impacts on the global economy, tax rates, interest rates, and the price of oil and other commodities. 

The world has also become riskier.  Think about the recent news about hackers, the rise of ISIS and global terrorism, the increasing nuclear threat, the usual supply chain risks and fluctuating consumer demand. The business landscape and the world of Finance are not immune, in good times or bad, to these changes and risks.

Top Finance Executive Concerns in 2017

Are things going to get better or worse?  Your guess is as good as mine.  But in a recent CFO Leadership Council survey of Finance executives about their biggest planning challenges in 2017, these were the top responses:

  • Managing costs and profits – 80%
  • Attracting and retaining talent – 72%
  • Forecasting under economic uncertainty – 52%
  • Retaining customers – 40%
  • Navigating new regulations – 22%

When asked what the top priorities of Finance will be in the future, these were the top responses:

  • Driving change and adapting to change – 80%
  • Promoting efficiency – 72%
  • Driving growth – 70%
  • Enabling innovation – 42%
  • Talent management – 37%

The Evolving Role of Finance

Clearly, the role of the CFO and Finance has changed and continues to evolve.  The CFO and Finance are no longer viewed as simply back-office bean-counters or scorekeepers.  Finance is becoming more strategic, moving from backward-looking to forward-looking.  From reporting to forecasting.  From accounting to helping the CEO and other executives consider the possibilities.  From controlling costs to driving growth and helping the organization adapt to change.

Going along with the evolving role of Finance is the evolution of enterprise performance management (EPM) software solutions.  If we look back at EPM prior to 2007, the main focus was on automating processes such as budgeting and financial consolidation.

For each process, the first generation vendors offered disconnected point solutions, which were deployed on-premises, required a lot of IT support, and were costly to maintain and upgrade. Reporting and analytics for line management were mostly an afterthought, and EPM 1.0 was mostly confined to Finance.

Fast-forward to today, and EPM solutions have evolved along with the worlds of Finance and Business.  EPM software can still automate financial processes – but it’s more focused on driving strategic value for the business, on linking strategies to plans and execution.  Customers are looking for unified platforms that can support a broader set of processes:  budgeting, planning, forecasting, consolidation and reporting, as well as financial and operational modeling

Cloud-Accounting.jpgThere’s increasing demand for cloud-based solutions that allow Finance to take control, deploy the solution quickly, and receive automatic, low-cost upgrades. And integrated reporting & analytics are becoming essential to driving broader adoption – not just in Finance, but across the enterprise so that Finance can be a better business partner to line of business managers.

The benefits of EPM to organizations are increasing as EPM solutions evolve.  This can be summarized in what we call the “three A’s” – automate, accelerate, and align:

  • EPM solutions help automate key Finance processes – such as budgeting, planning, and reporting – to eliminate errors and increase Finance productivity, as well as staff morale.
  • EPM solutions help accelerate these processes, so you can shift more time to value-added analysis and faster decision-making.
  • EPM solutions help increase alignment across the organization – making Finance a better business partner by connecting better with operations, aligning financial and operational plans, and helping the lines of business become more successful in achieving their goals.

EPM Needed in Good Times and Bad

Now let’s tie the use of EPM solutions to today’s uncertain and volatile business environment.  EPM solutions have proven their worth to companies in times of growth and in times of decline.  In good times and bad, fair and foul weather.   

HA_World_DK_keynote.jpgOur CEO, Dave Kellogg spoke about this in his keynote address at Planful World 2016.  When the economy, your industry, and your business are growing and expanding – EPM solutions can help you identify and evaluate new business opportunities and ensure resources are allocated to the right opportunities.  Typical use cases here include: 

  • Trended budgets
  • Driver-based, rolling forecasts
  • Modeling growth opportunities (e.g., new markets, new products, new customers)
  • Planning workforce expansion
  • Planning capital expenditure (CapEx) expansion
  • Decentralized planning

On the flip side – when times get rough, the economy or industry is in a downturn, and your business is shrinking – EPM solutions can also help and may be even more important.  Relying on spreadsheets and email to support critical financial processes during critical times can lead to errors and increased risk.  These critical processes may include reforecasting revenue, controlling costs, more tightly managing headcount, and daily/weekly cash flow forecasting.  Typical uses cases for EPM solutions here include:

  • Zero-based budgeting
  • Frequent reforecasts
  • Revenue and expense/capacity modeling
  • Modeling and planning workforce reductions
  • Controlling Capital Expenditures (CapEX) and Operating Expenditures (OpEx)
  • Centralized planning

As Franklin D. Roosevelt once said, “A smooth sea never made a skilled sailor.”  Many companies who have managed well through downturns, survived and thrived when their markets returned to growth.  And it was often up to the CFO and the Finance organization to take the lead in navigating these organizations through rough seas. 

Planful has worked with over 650 CFOs and Finance organizations to implement cloud-based EPM solutions that help them navigate both fair and foul weather.  They were able to reduce reliance on spreadsheets and manual processes or replace legacy applications with a scalable, flexible, cloud-based platform that can be deployed rapidly, is Finance-owned, and offers a low cost of ownership.  Check out our customer case studies and videos to hear for yourself. 

To learn more about how EPM solutions are helping organizations navigate change, watch Planful CEO Dave Kellogg’s keynote address at our 2016 user conference. 

Watch Dave Kellogg’s Keynote

Best of luck in navigating the changes ahead in 2017.  Let us know how we can help! 

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Planful – Your Partner in Taking on Complexity

Planful – Your Partner in Taking on Complexity

Happy New Year.  One thing that is certain in 2017 is change and complexity.  Business complexity. It comes at you, constantly, from all fronts.

There are the external complexities you can’t control. But there are internal complexities you can—provided, of course, you choose the right partner. Planful is that partner. Why?

Because we understand that breaking the silos, confusion and inefficiencies present across your enterprise isn’t easy. We take immense pride in delivering a unified, cloud-based platform for modeling, planning, consolidation, reporting, and analytics that helps automate and accelerate key processes.  And we help break those silos, so you can collaborate more effectively, aligning finance and operations

And, unlike other vendors out there, we don’t just speak finance and enterprise performance management (EPM). We live it. We love it. And it’s this love that fuels the enthusiasm and expertise we bring to every customer and challenge we meet.

So let’s take on finance and business complexity together. Let’s take on silos and replace them with insight. Let’s take on problems and replace them with performance.

Let’s create a new kind of finance and business world. One where you are not just a “numbers guy,” you’re an architect of peak performance across your entire enterprise.  Moving finance from counting and scorekeeping, to analyzing and considering the possibilities.

You’re the progressive leader who empowers colleagues across finance, sales, marketing and operations to access and analyze data quickly. To derive trustworthy, accurate insight that drives your business forward. To propel the agility, efficiency and innovation that creates peak performance in all its forms.

It’s your business. It’s your vision. It’s your definition of success. But that doesn’t mean you have to wage the war against business complexity all by yourself.

Planful – your partner in taking on complexity. 

To learn more, visit our newly rebranded web site at www.hostanalytics.com.

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Enterprise resource planning (ERP) and enterprise performance management (EPM) sound like very similar processes and systems on the surface.  Given this, the need to have both systems in place may seem redundant.

So what’s the difference between an ERP system and an EPM system?  What business problems do they solve?  Why do you need both?  How do they work together?

ERP – Optimized for Transaction Processing

Let’s start with ERP systems.  Although the name makes it sound like a system that’s optimized for planning, in reality, an ERP system is designed and optimized for back-office transaction processing and operational process support.  Here are some of the key processes supported by an ERP system:

  • Purchasing
  • Accounts payable
  • Order processing and billing
  • Accounts receivable and collections management
  • Fixed asset management
  • Treasury and cash management
  • General ledger accounting

Most ERP systems are built and deployed using a relational database management system (RDBMS), which is optimized for high-volume transaction processing.  The data in an ERP system is typically summarized in the general ledger module.

So in addition to handling operational reporting on transactional data, ERP systems also support some basic financial and management reporting.  This includes basic financial statements, such as the balance sheet, income statement, and statement of cash flows.  It also includes management reports, such as actual vs. budget variance reports by cost center and department.

Most ERP systems, however, fall short in supporting the following EPM processes:

  • Consolidating and reporting financial results from multiple ERP/GL systems
  • Iterative collecting, compiling, and managing of financial and operational budgets
  • Orchestrating and managing a rolling forecast process
  • What-if modeling of different financial or operational scenarios (M&As, reorganizations, new product or market entry, long-range planning, cash flow forecasting, etc.)
  • Multidimensional analysis of financial and operating results

So you may be wondering – how do organizations handle these types of requirements if their ERP systems cannot handle them?  The answer:  Many organizations augment their ERP systems with a series of Excel spreadsheets or use EPM applications to support these requirements.

EPM – Optimized for Management Processes

EPM software solutions are complementary to ERP systems and typically replace spreadsheets being used to support specific management processes:

  • Budgeting, planning, and forecasting
  • Financial consolidation and reporting
  • Management reporting & analytics
  • Enterprise modeling

Let’s take a look at how an EPM system handles some of these processes – starting with budgeting, planning, and forecasting.

The planning module within an EPM system is designed to handle the collecting and compiling of budgets and forecast data, with workflow and process support that recognizes the iterative nature of the process.  Budget data entry templates can be created and tuned to the needs of various departments, but line managers cannot typically override business rules and calculations that have been defined by Finance.

And when managers enter their budget data and push enter, the results go directly into a centralized database for compilation.  These capabilities allow organizations to accelerate the budgeting process while improving the accuracy of information. The budget can be “seeded” with prior year actual results from the ERP system, and when the budget is finalized, it can be loaded into the ERP system, if needed.

accounting_books.jpg

When it comes to financial consolidation and reporting, the consolidation modules of most EPM systems are designed to collect and consolidate financial results from single or multiple GLs, and other data sources.  These systems provide built-in support for complexities such as currency translation, intercompany eliminations, and reporting under multiple accounting guidelines, such as US GAAP or IFRS.  Plus, EPM systems provide flexible reporting tools that allow Finance users to easily create and produce a wide variety of financial and management reports, with no IT support.  This allows organizations to automate and accelerate the period-end close and reporting process, and free up more Finance time for analysis.

And when it comes to supporting “what-if” analysis, the modeling modules in most EPM systems are designed to support integrated, multi-dimensional models that allow organizations to understand the financial impact of operational decisions, pulling data from other EPM modules, or from ERP and other transactional systems.

EPM and ERP – Better Working Together

Once you understand the differences between ERP and EPM systems, the question might be, which do you deploy first?  This reminds me of the chicken or the egg question – but this one is easier to answer. In most organizations, the accounting/ERP system comes first.  Unless you plan on paying bills and keeping the books manually, your company cannot operate without some type of automated accounting system to run payroll, process invoices, make payments, bill clients, track collections, and produce periodic financial statements.

Spreadsheets can suffice, in the early stages, as a means of creating budgets or forecasts, and doing some basic reporting and analysis.  But as companies grow in size and complexity, the manual approach to budgeting, planning, forecasting, and reporting using Excel and email becomes cumbersome.  The need for an EPM solution will emerge.

The good news here is that EPM systems can often leverage Excel as a front-end, and are designed to integrate with and collect data from multiple sources – ERP, GL, HR, Sales, Marketing, etc.  In some cases, the vendor may even provide certified connectors that provide direct integration with specific systems, which speeds up the integration process and reduces the cost of integration.

And the nice thing about most EPM systems is that, since they’re agnostic to the underlying transaction systems, you can upgrade or replace your underlying ERP/GL system without disrupting your management processes – i.e., planning and reporting – during the transition period.  So organizations looking to upgrade these systems, and don’t already have an EPM system in place, may want to implement an EPM system before doing the ERP upgrade in order to reduce the disruption.  So in this case, the chicken does come before the egg!

Customer Examples

Planful has worked with over 600 companies to help them replace spreadsheets or legacy applications being used for planning, consolidation, reporting, analysis, and modeling – with a cloud-based EPM solution that works seamlessly with their ERP systems.  And whether the ERP system is deployed on-premises or in the cloud, Planful can be deployed quickly – typically in a matter of weeks or months.

These customers are able to:

  • Reduce planning and forecasting cycles by up to 50%
  • Shorten the days to close by up to 75%
  • Accelerate financial and management reporting by up to 80%
  • Deliver insights that reduce costs and improve business focus
  • Do all of the above at a lower TCO than on-premises and other cloud vendors

To learn more, download our free white paper titled “Best Practices:  ERP and Enterprise Performance Management.”

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