4 Keys To Effective Financial Performance Management

4 Keys To Effective Financial Performance Management

By Sonia Johnson on Apr 20, 2017

4 Keys To Effective Financial Performance Management

The pressures on finance teams are similar to those throughout the rest of the organisation. Finance is being asked to do more with less, however CFO's are also being tasked to be true strategic leaders, not only in their own department, but also throughout the rest of the organisation. As businesses require the ability to react quickly to unforeseen events and to seize opportunities. With financial and operational risk a rising concern, business leaders - led by finance teams - need to look to the future, the past and inside and out for answers to their questions. This is where effective Financial Performance Management comes into play.

But most finance teams still spend too much time in manual, spreadsheet-based processes or relying on complex systems - collecting, consolidating and validating their data before they even begin to analyse it. And as a result this impedes the ability to deliver reports, plans, budgets, forecasts and value add analysis that stakeholders need in time.

The main objective of Financial Performance Management or Corporate Performance Management (CPM) as it's otherwise known, is to help organisations maximise performance in terms of revenue and operating margins, and increase shareholder value by linking strategy to plans and execution through the key processes of goal-setting, modelling, planning, forecasting, close management and financial reporting. In essence, the glue that brings together all of an organisation's disparate financial and strategic data to improve planning and decision making, and light the way forward.

Let's have a look at 4 key areas that finance teams should consider when delivering an effective financial performance management process.

1. Be Insights Driven

According to a survey by the Economist Intelligence Unit on data-driven enterprises, there is a clear link between improved financial performance and the use of data to fuel decision making. While top-down guidance was considered the most important factor to those companies whose own cultural development has been successful, leaders of agile enterprises understand the value of collecting, analysing and deriving insight from business data.

With the office of finance often seen as the custodians of information, there is a critical part to play in leading or participating in this change. Finance has long been data-driven in terms of managing the business with upper level 'strategic' decisions such as planning, budgeting, forecasting and reporting. However, to be truly data-driven, finance is required to demonstrate best-practice leadership within these core financial areas and to use these strategic components to influence the 'running of the business' with day-to- day operational decisions. It is then that CFO's can strengthen ties throughout the business, and expand influence outside core finance functions.

Each organisation will need to find its own path, but a few key steps will assist, such as placing a high value on data transparency, coming together around the numbers and putting in place the right CPM capability. A capability that drives efficiency throughout core financial processes in a way that strips out complexity but adds granularity. Perhaps most importantly though, implementing a data driven culture, where the CFO and his team lead by example, will be an important step in delivering a more resilient, forward-looking business.

2. Simplify & Systemise Where Possible

The transition towards a data-driven culture presents greater opportunities, with many organisations identifying and moving to more flexible driver-based planning where performance is planned based on changes in the most critical variables that impact the business. Essentially, this results in a simpler planning process that can be delivered much faster, and is flexible enough to be updated as the business and operating landscape evolves.

This is usually then complemented with bottom-up planning as appropriate. To move to driver-based planning, a systemised approach is required. Modern CPM tools are designed to simplify financial operations in a number of ways, including:

  • Reduction of manual processes and dependence on traditional spreadsheet-based approaches.
  • Transition towards more dynamic planning techniques such as rolling forecasts to more accurately predict earnings and expenses when fluctuations occur, simplifying the planning process, moving away from annual budget cycles.
  • Improved prediction of future outcomes, with scenario based planning and detailed what-if modelling to maintain an agile plan that can be altered quickly and yield insights on emerging issues and make upfront mitigation strategies possible.
  • Completely integrating operational, financial and strategic planning processes with reporting and consolidation
  • Introduction of cloud-based CPM solutions that remove the complexity of managing on-premise platforms while also providing five times the ability to deliver real-time updates to financial metrics. This can improve budget cycles by 7% and deliver higher collaboration and accountability in the budget according to Aberdeen Group.

3. Sharing Ownership Of The Numbers

One of the biggest challenges in enterprise budgeting and planning is, despite significant efforts, gaining business acceptance of the process and owning the numbers as part of that process. Too often than not, finance teams, find it difficult to engage the business and drive accountability in this vital part of the planning and budgeting process.

As we've often found, the key to success here lies in the systems and tools finance teams use to manage these forecasting and budgeting processes. Tackling the 'not my numbers' problem is about providing transparency in the budgeting and planning process, so operational teams are responsible for inputting their forecast and budget information but can also see the roll up effect of these on the company as a whole. By using CPM systems that intuitively link budget details to those items that end users are actually accountable for and which they control, increases ownership of that detail. Advances in forecasting and budgeting applications also enable integrated analysis and reporting capabilities—not just data collection—to be deployed to a larger and widely distributed base of operational end users, providing the ability to further interrogate the data.

4. Financial Systems Must Empower Finance

A finance-owned CPM system will automate many manual tasks and free up time for finance teams to perform data analysis. This is where the most significant value from financial performance management comes from - finance now has the time to work closely with the business and uncover opportunities for value.

Hackett Group, in a recent survey of CFOs, found that companies with superior financial performance management capabilities are more likely to outperform their industry peers on company financial metrics. Examples include reporting and planning more effectively and forecasting more accurately. The survey also showed that by doing this, effective financial performance management also improves enterprise agility. So placing analytics tools like CPM in the hands of finance departments allows them to adapt forecasting and planning on the fly, and align initiatives to close strategic gaps much more easily.

The advent of cloud-based CPM solutions has gone some way to enabling this, and the notion of a system owned and managed by the finance department is becoming a reality. Cloud-based CPM solutions are easily integrated into existing systems to provide a functional, adaptable, secure and integrated financial analytics platform.

Processes and models should be consolidated within a single system, rather than scattered across a number of platforms. Nucleus Research found in its 2016 CPM Technology Value Matrix that for businesses to gain maximum value from their CPM investments solutions need to have above all, high usability and operability by users without IT involvement. The report indicates that cloud-based platforms deliver to this better than on-premise CPM alternatives while also providing 2.3 times the ROI.

To provide businesses the ability to react quickly to unforeseen events and to seize opportunities, finance teams need to improve financial performance management capability and view data and decision making as critical within the business. This involves moving beyond manual, complex approaches and recognising that increases in demand for information requires cultural, process and financial system transformation that will equip businesses to better anticipate and react to unpredictable forces.

sonia's picture

Written by

Sonia Johnson

Sonia Johnson heads Inside Info's Marketing team, as an experienced B2B marketer, having launched and built the Qlik brand in the Australian market. Sonia has 20 years' experience working within the IT and telco industries, having worked for IBM and Vodafone, the last ten years have been focused within the business intelligence and corporate performance management sectors.

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