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Integrate finance and operations with these CPM software tips

CPM experts offer strategies for addressing the people, processes and technology issues involved in bringing both sides together.

Experts have long asserted that the most effective corporate performance management (CPM) strategies align operational data and financial data to drive enterprise-wide performance improvements.

That means identifying and collecting CPM software measures based on the organization's strategic goals and bringing operational activities in line with business priorities. To do that, managers must balance the budgeting process with an understanding of how operations such as manufacturing, sales and service impact the bottom line. The challenge is measuring and collecting the right things.

Here are five tips to help integrate operational and financial performance at the business-process and technology levels and use CPM software more effectively.

1. Understand how end users and business managers are creating financial input.

"Financial managers know how to crunch the numbers and understand how to get to the balance sheet and how to charge back things correctly, going through accounts payable and accounts receivable," said Hyoun Park, principal consultant at Boston-based DataHive Consulting. "All of those processes tend to be fairly fixed and consistent from month to month and people are very good at that consistency of process."

However, financial managers typically don't think about integration, or how those processes fit into the rest of the business. They're more interested in getting things in and out in the way that they've defined, he said.

One of the big challenges is bringing financial performance management to the rest of the organization using CPM software and technology that goes beyond Microsoft Excel.

The key is understanding where else the information can be used and how to deliver it -- along with associated processes -- to the 90% of employees who are not as adept at accounting and financial management as others, according to Park.

It's also important for finance managers to understand where the information comes from. "It gives you an idea which applications you're going to need to integrate the financial information with," he said. "Those sources need to be understood to create a technical deployment in the long run that is helpful for performance management."

2. Identify the costs and value drivers in the organization.

CFOs must do a value-stream analysis to identify where value is created or reduced in the organization's business processes.

"The financial figures from an operational perspective are a result of running an efficient and effective business," said former CIO Rob Livingstone, owner and principal of Rob Livingstone Advisory Pty. Ltd., based in Sydney, Australia. "So the key thing is to identify the cost and value drivers that are analogous to the inputs that one can control or manage."

For example, if warehouse throughput can improve by rearranging the way workers pick and pack, an operational measure of  pick-and-pack times would be a critical performance metric.

"If you can measure it, you can manage it," he said. "So, you have to identify the subset of key operational and process-oriented measures that you can quantify. These should go through a process of selection by all stakeholders to make sure that these measures are valid, that they're appropriate and represent the key processes."

Determining effective performance requires a multidisciplinary approach because the organization's balanced scorecard doesn''t just contain financial measures, he said.

"Running on pure financial measures alone is more an indicator of what historic events have occurred rather than the operational measures that are a measure of what is happening right now," Livingstone said.

The truly valuable and effective measurements of the business’ intrinsic performance are the ones that are "timely, important and relevant," and can be acted on in the short term. "Most experienced CFOs and COOs would understand very rapidly which parts of their business create the most value and where to focus their efforts," Livingstone said.

CFOs and finance teams have a clear view of the monetized value of  processes, assets and liabilities. They need to engage with the operational side of the business to agree on which benchmarks are valid ones on which to base a timely and appropriate management response, he said.

"Reporting stuff is fine -- that's almost the easy bit," Livingstone said. "Deciding what to do is often the hard bit."

3. Don't look for technology until you figure out what you want to measure -- and how.

"There are lots of dashboards and performance measurement software and tools around, but the key thing is trying to understand what you're trying do first," Livingstone said.

Otherwise, you're putting the cart before the horse, he said, and can be subjected to the vendor "wow" factor that can distract  from the important and often harder decisions about what to assess and how.

Analyst Chris Iervolino agreed with this assessment.

"Understanding the business problem and then understanding which technology or which product is the best fit, is the way to go," said Iervolino, However, it might make sense during this process to take a look at the CPM software technology that's out there to give you perspective because "you may not imagine what you couldn’t imagine," he added.

4. Expand the financial plan with additional operational detail and involvement.

Companies should explore opportunities to bring more meaning to the financial plan with operational details related, for example, to workforce, sales, capital, demand or tax plans. Such comprehensive planning capabilities are becoming more widely available, Iervolino said.

More operational involvement may be needed to give meaning to and manage the detail, he said. "Having that detail could be useful, but it's optimal to have that operational involvement from front-line managers to help ensure the data is accurate and timely. "

What's needed is a more collaborative planning approach and the technology to manage more expansive involvement and more frequent planning cycles, Iervolino said. 

5. Take a more enterprise-wide look at the planning process

Operational planning processes are typically siloed, which is understandable since they encompass disparate practices and systems, Iervolino said. What's needed is the ability to establish the relevance of the financial plan to the business units, and vice versa.

"This is most often the first piece in terms of integrating those plans more thoroughly," he said.

Next Steps

Read what finance can do for operations

Learn why CFOs underutilize CPM software

Understand the role of CPM in financial planning

Dig Deeper on CPM software

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