What is Enterprise Performance Management (EPM)?

We sometimes describe Compas as 'EPM software', but what does that mean? It is not a term that is particularly widely known, and this may be because there are not that many tools that describe themselves in that way. Most organisations are familiar with the idea of Enterprise Resource Planning (ERP). That term has been around since the 1990s and refers to software that integrates the various operational processes in an organisation into a common platform, reducing errors and increasing efficiency as data flows seamlessly between different parts of the business. In more recent times, the term Enterprise Performance Management (EPM) has been coined to denote a class of software that operates in a similar integrated fashion to ERP, but at a higher level - for strategic planning and reporting, rather than operational management. Sometimes conflated with Financial Planning & Analysis (FP&A), it typically goes further than that, into the operational management of the business. This post explores the concept of EPM software, where it fits within an organisation's IT ecosystem, and why it is of importance - now, more than ever.

Unlike the term ERP, EPM does not appear to have any generally-agreed definition. Indeed, the term does not appear to be 'owned' by anyone in particular, so most articles about EPM software (this one included) tend to be by vendors of software that they describe as being in the EPM space, or by organisations that help potential customers to choose between vendors. Even the name itself does not seem to be completely accepted, with some preferring the terms CPM (Corporate Performance Management) or BPM (Business Performance Management). Analysts like Gartner and Forrester have already moved on from the term 'EPM', with Forrester claiming that EPM has been superseded by DOP Planning and Analytics (Digital operations platform). Gartner tend to include EPM systems in their category of 'Cloud Financial Planning & Analysis (FP&A) Solutions'  - or more recently, 'Cloud Extended Planning and Analysis Solutions' (Cloud xP&A). This latter term captures the fact that EPM goes beyond pure financial planning and analysis, but covers much of the same ground.

Indeed, does the name even matter? Is a precise definition important? Terms like these tend to be created by consultants and analysts, who see them as a way of making sense of a fragmented software market - and can be of use to organisations when creating a shortlist of potential vendors. Changing the label, and writing about 'the next big thing' creates a sense of movement, and a need for new research. In my view, labels and precise definitions do not particularly matter - but they can help to give people a rough idea what a piece of software does and is for. This can help to produce a shortlist, but beyond that, people have to look at the specific functionality offered by each solution. Compas and its predecessor applications had been providing the sort of integrated functionality of EPM for many years before we, as an organisation, were aware of the term. I'm personally not interested in debating the niceties of different TLAs. The question is, what is EPM software for? What role does it play in an organisation, and with that in mind, what capabilities should it offer? That is the primary focus of this blog post. In my next post I shall explore the extent to which Compas fulfils that role.

What is EPM software for?

For all the disruption and pain involved with implementing a full ERP solution, organisations value the integration between processes and functions that it provides. Sitting multiple processes on the same database removes the time requirement and scope for error associated with rekeying data, and ensures that a change made in one place will flow through to all departments that depend on it. That, in turn, has allowed companies to operate more efficiently, and to spend less time on the humdrum tasks of processing orders, recording transactions, managing stock etc. However, at root, ERP systems are designed to help run a business. They are necessarily complex, because they have to cope with all the complexities of the business, and they operate at the lowest level of detail, as they have to manage individual transactions and customer interactions. They are basically operational, not strategic tools. Although they can be used for planning and analytical purposes, planning in an ERP tool typically has to be done at the lowest level of detail, and reporting is primarily designed for conveying information, rather than strategic analysis. It became clear that what was needed was a new class of software that benefitted from the sort of joined-up approach offered by ERP, but operated at the level required by management, to allow the business to build strategic plans and analyse performance in a holistic way. If it didn't come with a multi-million dollar price tag, and an implementation period of several years, that, too, would be a distinct advantage.

Characteristics of EPM software

With that in mind, we can then have a go at identifying the sorts of characteristics that a piece of software would need to have to fulfil that role. If we have correctly identified the role of EPM software, then software that has those characteristics can be described as EPM software, unless it has further capabilities that mean that it would be better included in a different category. My researches have indicated a number of key features:

  • It covers multiple areas of the business in an integrated way. Much in the way that ERP systems use a common database to link functions and departments, EPM provides an integrated view, such that all areas of the business are consistent and refer to a single version of the truth. A change in one area affects all other areas depending on the same data - even if the changes are not recalculated immediately
  • It has a strong focus on Finance. Traditional EPM tools have always had a strong focus on financial planning and analysis (FP&A) and also on helping with the financial close. Indeed, Oracle's cloud EPM product lists 'optimising the financial close' first in the list of business drivers.
  • It goes beyond Finance into other functions. In order to differentiate itself, EPM software must clearly go further than pure FP&A. Typically, this would involve going deep into the Sales, Marketing or Operations functions, so that revenues, operational needs and costs are driven by anticipated sales. A change in anticipated sales ripples through the system, impacting Finance and Operations as it goes.
  • It combines planning and analysis. Traditional spreadsheet-based planning is forward-looking in scope. Reporting actuals against plan typically requires copying actuals data into a spreadsheet, or taking the planned figures out of the spreadsheet and loading them into a reporting tool. EPM tools, by contrast, combine actual and planned data in the same environment, allowing them to be compared, and ideally, allowing the actuals to feed into, and improve, future plans.
  • It is strategic and analytical in outlook. Unlike ERP, which is for running the operations of a business, EPM software is more about managing the business. Instead of the item of interest being a single transaction, or a single works order, EPM tends to operate in terms of time periods of days or weeks, and aggregations of transactions by customer, sales channel, retail outlet etc. It is typically used by middle and senior management and needs some level of analytical reporting and modelling capabilities in order to meet the needs of its users.
  • It permits the creation and storage of different scenarios. As a strategic planning tool, it is important to be able to store more than one version of the forecast, as plans change. Because of the integrated nature of the planning, a stored scenario needs to contain detailed information about all of the inputs, so that it is possible to see exactly what was in the plan and not just the net result in terms of monthly revenues or costs. Also, as well as being able to store different versions of the plan, EPM tools typically permit the creation of different scenarios to allow what-if analysis, or stress-testing of assumptions.

Benefits of EPM software

Why do businesses need EPM software if they already have a set of planning and reporting tools that meet their needs? The main reasons have already been highlighted above. Copying or transferring data from one system leads to errors, delays and inefficiency. Different departments tend to plan based on different metrics: for a call centre, it may be the number of calls and cost per call, for a warehouse, the number of pallets to move, or items to pick, and so on. Within Finance, they might see the cost of each of these - but without a way of tying them back to the original drivers, they can't automatically be updated if things change. This leads to a disjointed organisation, and fundamental mismatches between Finance and the various operational departments, making it very hard for senior management to get a clear picture of what is going on.

However, if the financial forecast is based on the same metrics, then if those metrics change, the financial forecast will change. And, if the system stores previous versions of the forecast, it will be possible to drill right down to the original drivers to see how those differ between versions. For example, if the call centre invests in some new software that allows them to handle calls more efficiently, then the number of calls and the cost per call may both change.

The main advantages of using an integrated EPM tool like Compas for planning and reporting are:

  • Reduced errors from avoiding rekeying data into different systems
  • Higher productivity (and morale) from more efficient processes
  • Greater agility and responsiveness when businesses are faced with a rapidly evolving situation
  • Greater collaboration between departments as they work together on a shared forecast, rather than each building their own plans in isolation
  • Better decision making as data is made available across the organisation, rather than being hoarded by departments
  • Greater control, with reduced need for buffer stock and working capital, as more timely data and better tools lead to more accurate forecasts
  • Improved customer service, from more accurate anticipation of customer needs

Typically, EPM systems are not nearly so expensive or difficult to implement as an ERP tool, as they can usually gloss over most of the knotty operational details that cause so much heartache when implementing ERP. Therefore, the payback time is much quicker, in terms of increased productivity, reduced inventories and a lower error rate. Traditionally, EPM systems were installed locally, but these days much of this activity is migrating to the cloud, reducing up-front costs and implementation time still further. As businesses struggle to recover from the Covid pandemic, and to cope with a constrained workforce, efficiency and agility are more important than ever if they are to survive and thrive. Key to those are good data and good tools, and the name for that type of tool seems to be Enterprise Performance Management (EPM) - or CPM, or BPM if you will.

In my next post, I will examine the extent to which Compas meets the requirements outlined above, and delivers the associated benefits. In the meantime, this explainer video provides a light-hearted overview of Compas and how it fits in to an organisation's software landscape.

NB: We will shortly be making a simple demo of Compas available through the website, to allow users to explore its functionality for themselves. In the meantime, if you would like a no-obligation demo, tailored to your requirements, please contact us directly.