Best Practices in Implementing and Delivering Value from Your CPM Solutions

Implementing and Delivering Value from Corporate Performance Management …

The CFO’s RoleTony BevacquaPartner, KPMG LLP

© 2014 Proformative2

Introductions

• Tony Bevacqua, Principal KPMG • Bo Poulsen, Director KPMG

© 2014 Proformative

Workshop Topics

• Evolving Role of the CFO• Corporate Performance Management (CPM)

• CPM Defined• Leading Practices

• Implementing a CPM Solution• A Framework for Implementation• Challenges and Critical Success Factors

• Open Discussion /Q&A• Suggested Reading

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Evolving Role of the CFO

4


Increasing Pressure on the Finance Function

5

FinanceFunction

External pressures Internal pressures

Globalization

Credit crisis

New rules & regulations

Shortage of skilled staff

Organizational complexity

Outdated IT systems

Budget constraints


Recent KPMG Research

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“62% of the finance executives expect their Finance department to have a larger role in developing and executing business strategy

in the next 5 years”

“Likewise, 50% say they are already able to contribute well to the company’s long-term

business strategy development(up from 33% four years ago)”

The Goal for Many Finance Organizations: Become a Value Add Business Partner

From Scorekeeper to value-adding business partner


As a Result, the Finance Function is Continuing to Evolve Into a Leaner More Strategically Focused Organization…

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Reporting &Budgeting

Measuring &

Controlling

Financial Risk

Shared Services

Financial

Planning&

AnalysisMeasuring &

Controlling

Enterprise Risk

Business Services

Historical Reporting and Transaction

Focused Role

Forward Looking more Strategically

Focused Role

FROM: TO:

Total Cost of Finance is 1-2%+ of Revenue

Total Cost of Finance is

.6 -1% of Revenue


A Model for Driving Value Focusing on 4 Key Roles

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Decision Support

Enhancing the decision making

capabilities through effective

information delivery…

Efficient Operations

Providing lean operations through

standardized transaction processes…

Strategic Growth

Providing insight into business

performance to shape

organizational strategy…

Governance

Protecting the organization’s assets

by maintaining statutory obligations

and managing enterprise risk …

Value Driven CFO


Priorities of the Value Driven CFO

Efficient Operations

Governance

• Increasing Finance’s relevance in the strategic planning process

• Improving the organization’s understanding of the business model and value creation opportunities

• Deploying integrated performance management processes

Decision SupportStrategic Growth

• Standardizing and automating processes

• Deploying common global ERP platforms

• Achieving a global operating model with high shared services leverage

• Simplifying finance data structures

• Implementing centralized, automated and preventive business controls

• Integrating enterprise risk management capabilities into the business

• Optimizing Tax and Treasury functions

• Increasing the speed of decision making across the organization

• Integrating analytics into the decision making process

• Providing greater insight into business performance

• Upgrading finance skill sets to be a better business partner


What Does Recent KPMG Research Tell Us?

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Our research findings show that finance executives are ready to:• Strengthen their strategy,

planning, information reporting and analytical capabilities

• Empower their finance organization and their C-level peers to make better business decisions

• Transform data into intelligence that enables actionable decisions

• Refine current technology and take advantage of evolving technology

76% said The quality of financial and performance data and analysis available to management

68% said Management’s access to financial and performance data

66% said Our ability to provide detailed financial and performance data to management

75% said The F&A organization’s data analysis capabilities

68% saidThe information available to the CFO from across the business (e.g., ‘one version of the truth’)

CFOs’ planned improvements…

Source: 2012 KPMG/CFO Research survey of over 350 finance executives


So What Does All This Mean to The CFO?

• Pressure to keep increasing value add will continue with priority on strengthening their strategy, planning, information reporting and analytical capabilities

• More with less will continue through leaner processes and deployment of scalable Finance Operating Models

• Role will continue to be further shaped by advancements in technology and data

• Transforming data into intelligence that enables actionable decisions will continue to shift toward the CFO’s office

• Increasing demand for higher level skill sets

Corporate Performance Management (CPM)

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Corporate Performance Management (CPM) Defined

The business processes, policies and cultural practices an organization utilizes to develop,

monitor and evaluate progress toward executing business strategy and creating value

• Note; the concepts of CPM are also referred to as Enterprise Performance Management (EPM), Business Performance Management (BPM), Strategic Enterprise Management (SEM), Strategic Performance Management (SPM) and Financial Performance Management (FPM) and there are probably others too!


Common CPM Business Processes

• Sales and Operational Plans

• Financial Plans• Capital Plans• Budgets

Strategic Planning

Business Planning Forecasting Performanc

e Reporting

• Strategic Plans• Plan Assumptions• Capital Allocation• Business

Scenarios• Performance

Targets

• Monthly/ Quarterly Financial Outlook

• Performance “Gaps” versus Targets

• Reporting• Variance

Analysis

CPM requires execution of the following business processes…


Select Leading Practices for Effective CPM

1. “Closed loop” performance management cycle2. Use of top down target setting to link strategy and business

performance3. Adopt “Driver” based models for forecasting, reporting and

variance analysis4. Integrated Reporting Models5. Scenario analysis through predictive analytics6. Incentive compensation alignment


Leading Practice Consideration – Deploy “Closed Loop” Planning Cycles

What does a “Closed Loop” CPM cycle look

like?


What We See in the Marketplace; CPM Process Maturity

• Highly manual process often spreadsheet driven with low repeatability

• Decision support and scenario analyses is reactive and ad-hoc

• Strategy, planning, and reporting function as an integrated closed loop process

• Technology enabled process• Focus is on the forecast and gap closure

• Analysis is standardized using operational drivers

• Process and data standardization achieved although strategic linkage may be lacking

• Processes are financially driven with limited focus on operational drivers or long term forecasts

Level Two: Mature and

Standardized

Level Three: Fully Integrated

Level One: Ad Hoc and Basic

Degree of Strategic Impact

Degree of Process Integration


Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q40

2

4

6

8

10

Baseline Rolling

Forecast

Target Gap Closure through:• Strategic Initiatives• Management of

Operational Drivers

Targets established

during Strategic Plan

Gap Closure

Gap Closure

Gap Closure

Leading Practice Consideration – Top Down Target Setting

Setting targets “top down” as an output

of the Strategic Planning process

focuses the business on closing the “performance”

gap!


Common Inputs for Effective Target Setting

“7” Key Inputs for effective Target Setting:• Latest Rolling Forecast• Prior 3/5 Year Plan• Current Economic Indicators• Industry Forecasts• Competitive Outlook• External Market Expectations• Strategic Initiatives/Management Stretch

Debate is good but avoid

iterations and never set unrealistic

goals!


How One Organization Applies Top Down Target Setting

Group Region• Group sets targets for each Region

based on several factors:Latest Rolling ForecastPrior 3 Year PlanCurrent Economic IndicatorsIndustry ForecastsCompetitive OutlookManagement StretchExternal Market Expectations

• Annual targets include at a Minimum: Revenue EBIT LGO

Regions Markets/Divisions

• Region allocates targets to Divisions based on several factors:

Maturity of BusinessBusiness SizeCurrent Economic

IndicatorsCompetitive OutlookMarket Growth

Expectations• Initiatives focused on key

business drivers are developed to close gaps between targets and the latest rolling forecast

Markets/Divisions Units

• Divisions allocate targets to units based on several factors:

Business SizeGrowth ExpectationsKnown Events

• Review of Targets Necessary to Gain “Buy-In”


Leading Practice Consideration – Adopt “Driver” Based Models for Forecasting Reporting and Analysis

Strategic Objective Driver

Financial Target; Margin

Financial Target;

Revenue Growth

Financial Target;

Operating Expense

Financial Target; Capital

Expense

Driver Based Models can be

used to effectively align strategic objectives and

business performance …

Leve

l 2

Driver

s

Leve

l 1

Driver

s


Drivers for Select Industries

• New Customer Adds• Average Rate Per Unit

(ARPU)• Customer Churn/Churn

Rate• Number of Sales Orders• New Customer

Conversion Rates• Marketing Spend• Promotional Spend

Telecom. • Store size• Days open / hours of

operation• Population growth• Program participation

rates• Transactions per day

Average check size• Pricing strategy• Employee engagement• Weather

Retail Consumer Products• Volume/Units Shipped

• Price/Pricing Flexibility• Market Growth Rate• Market Size/Market

Share• Category / Market

Growth• Coupon redemption• Return Rate / Rebates• Promotional Discounts

Rate


Driver Based Model Example – Consumer Products Industry

Revenue Gross Sales

Forecasted Demand/ Volume (Units)

Forecasted Market Size

(Units)Historical

Market Size

Market Growth Rate

Market Economic

Growth Rate

Market Population

Growth

Consumer Usage Rates

Cannibalization

Product Extensions/ Innovations

Other Macroeconomic

trends

Historical Market Share

Forecasted Market Share Change (Pct.) Brand Loyalty

Marketing and

Promotional Spend

EffectivenessNew Product Introductions

Competitive factors

Forecasted Average Unit

Price

Historical Average per Unit Price

Price Change (Pct.)

Package Mix


Driver Based Models; Forecast Examples

• Deploys a continuous 12 month rolling forecast process

• The process relies on key performance indicators to provide “early warning “ signals

• Adopted driver based forecasting model

• Forecasts are based on 8 key drivers that have the most impact on performance (e.g. fuel costs)

A leading domestic Airline…

• Eliminated overly detailed spreadsheet based forecast process

• Determined that a select few drivers explain 80% of the financial results (e.g., # of new cards issued, avg. spending per card etc.) required to estimate revenue

• Utilizes the driver based model to forecast short, medium and long term performance

A global Financial Services company…

Source: Beyond Budgeting Roundtable


What Does the Research Tell Us?

Which has/would give your organization most benefit in improving the confidence of

forecasts?

Recent KPMG Research; “Forecasting with Confidence” surveyed over 500 finance executives leading the forecasting process…

Finance executives in the survey point to five main process areas where improvements need to be made to enable more reliable forecasting


Integrated Reporting Models

Out

puts

Reporting Management Process

Scorecard, dashboards,

and management

reporting outputs should be linked with

drill down capabilities

Daily Weekly Quarterly

Scorecard

Dashboards

Reports

Report Type

Time Period

Size of Available Information on Specific Metrics

Size of Available Information


Integrated Reporting Models – Driver Based Reporting and Variance Analysis

Traditional Variance Analysis

UnitsPlan = 100Actual = 80

RevenuePlan = $10000Actual = $8000

Net PricePlan = $100

Actual =$100

Driver Based Analysis

Conclusion: We held price stable and lost market share, we need to

adjust our pricing!

UnitsPlan = 100Actual = 80

RevenuePlan = $10000Actual = $8000

Net PricePlan = $100

Actual =$100

Market SharePlan = 10%

Actual = 16%

Market Size

Plan = 1000

Actual = 500

Conclusion: We doubled share in a shrinking market, will this market

recover?

Revenue Target Missed


Leading Practice Consideration – Scenario Analysis through Predictive Analytics

It is about leveraging data to dramatically improve insight and

decision making capabilities. The CFO is in a unique position

to drive increasing value in this space… CFO of a leading Global Consumer

Products Company


Leading Practice Consideration – Alignment of Incentive Compensation

Key Considerations…

• Decoupling incentives from the annual budget or financial targets

• Applying incentive programs based on optimizing company wide performance

• Evaluating results for incentive compensation purposes over multiple years

• Apply incentive programs in the context of relative performance across the industry and in comparison to peers

To Avoid…

• Negotiated targets that lead to excessive gaming to meet incentives• Applying incentives that are too heavily weighted toward short term/annual performance• Applying incentives that are too heavily weighted on financial outcomes• Restricting partnering and teaming across the organization


So What is the CFO’s Role?

The role of Finance should be to lead the introduction and ongoing execution

of a fully integrated Corporate Performance Management process


Autonomous Strategic AlignmentGovernance/

Service Management

Localized, onshore structure

Integrated Function/ Effective and

EfficientOrganization

ScorekeeperBusiness

Partner/Driver of value

People

Locally specific Standardized and optimizedProcess

Multiple tools, fragmented data

Enterprise Wide data model /

systemsTechnology

Global governance structure: KPI-driven

Policies and procedure reflect common methods, processes, technologies, KPIs & reporting

Local (Business Unit) FP&A reporting into Local Mgmt / dotted line to CFO

Strong alignment with CFO (“hard dotted”) –

some centralized some localized

Integrated FP&A community – Global

Operating Model

Low degree of standardization and automation, budgeting and

forecasting effort intensive

Standardized analysis & transaction monitoring

Rolling, business owned, fully integrated with

actuals, trending and predictive capability

ConstructiveChallenger, Influencer;

global staffing model

Commentator / reporter, business acumen and financial knowledge

Guardian, rule-based, reactive, ad-hoc analysis

performed by local support

Standard tools and applications, on single

design

Fragmented, siloed data, effort spent on extraction, manipulation,

and reconciliation.

Standard systems, interface layer and

recommended data models

Distributed; siloed mentality

Basic Progressive Leading

Key Dimensions of the CPM Operating Model

It is About Becoming More Strategic…

Implementing CPM Solutions

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A Framework for Implementation

Governance / Controls LayerIdentifies the specific controls that are in place to mitigate operational and financial risks and exposure.

People LayerDescribes how people are organized. Outlines skills, roles, responsibilities and support activities for each process area.Functional Process LayerOutlines how specific process steps link to functions or departments that perform the processSupporting Technology LayerThe applications that are used to enable the processes, policy compliance, internal controls, and reports.Data and Reporting LayerIncludes Information requirements to drive key business insight and optimized decision making

Service Delivery Model Layer Describes how finance services are delivered. Includes Shared Service Center and outsourcing concepts.

Busi

ness

& In

form

atio

n St

rate

gy

Alig

nmen

t

Key Framework Aspects


Common Implementation Challenges

Strategic Prioritization Organizational Alignment Current State Operations Governance & Compliance

Ability to effectively define, prioritize and plan the transformation program

Achieving a common vision and commitment across the finance function

Lack of a common end-to-end understanding of current state operations

Establishing the right governance structure and framework for the organization

Information strategy is not aligned for providing the right Key Performance Indicators (KPI’s), metrics, measures

Decentralized and autonomous business models

Undefined business processes with unique and/or poorly defined business requirements

Governance and standardizationof data, systems and processes across the organization are not aligned to the information strategy

Securing and justifying funding of the transformation program

Securing cross-functional support from other organizations such as IT and HR

High degree of system proliferation, disparate systems with limited consistency across redundant and shadow systems

Ensuring alignment with an increasingly complex regulatory environment

Maintaining alignment between the program and on-going business priorities that may change

Challenges freeing up the right talent necessary to enable a more strategic finance function

Informational and reporting challenges from poor data quality, lack of standards, or understanding of business information requirements

Addressing impacts on the tax landscape that may result in unfavorable tax positions


Critical Success Factor – A Business Integration Approach

A business integrator approach focuses on overall value delivery versus just technology implementation Technology Implementation becomes Business Enablement

Systems Integrator Business IntegratorTechnology as the driver Business transformation as the driver

■ Technology platform centric■ Driven by IT■ Automation focused■ Success measured by timely deployment of

technology■ Technology is always the answer■ Poor ROI from many programs■ Starts with data (report on what I have, not what I

need)

■ Target operating model–centric■ Strategically aligned with business objectives■ Business led■ Process focused■ Value added service delivery■ Success measured by achieving business value■ Technology is one enabler of transformation■ Considers the technology needs within the larger

technology portfolio■ Analytics enabled■ Reduce time to value


Q&A

Suggested Reading

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KPMG Thought Leadership – Current Series

• In late summer and early fall of 2012, CFO Research, in collaboration with KPMG LLP (KPMG), conducted extensive research to find out how CFOs at large companies are planning to use technology to further their strategic initiatives over the next two years. The Intelligent Finance Organization (IFO) series consist of a total of eight briefs, reporting research findings from the joint study. CFO Research deployed an electronic survey to senior finance executives at U.S. companies with more than $1 billion per year in revenue, receiving 358 qualified responses. We also conducted in-depth interviews with 10 additional CFOs.

Research Summary: Intelligent Finance Organizations

This research summary demonstrates that CFOs are focused on changing the goals of their finance organizations: they look to strengthen their strategy & planning functions, empower their organization with improved data capabilities, and capitalize on evolving technology.

IFO Series: The Right Information, in the Right Hands, at the Right Time

This CFO.com brief is the third in a series that reports findings related to the widely differing stages that companies are in when it comes to collecting and processing data quickly, converting it to actionable information in real time, and delivering it promptly to the right people—wherever they may be.

IFO Series: The Goal Line is Always Moving

This CFO.com brief is the first in the series that reports findings related to the continuously moving goal line that leaders are faced with when it comes to analytical capabilities, and how technology plays a huge role.

Please visit the following site for more information on these articles and more http://www.kpmg.com/US/en/cfo-research/Pages/Default.aspx

http://www.kpmg.com/US/en/cfo-research/Pages/Default.aspx


Additional Links to KPMG Thought Leadership

CFO – Intelligent Finance Organizations: http://www.kpmg.com/US/ifo

Value Driven CFO White paper: http://www.kpmginstitutes.com/advisory-institute/insights/2013/value-driven-cfo.aspx

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Tony BevacquaPrincipalFinancial Management

KPMG LLP1601 Market StreetPhiladelphia, PA 19103

[email protected]

Tel 267-256-2929Fax 267-285-4299Cell 610-613-2511

Bo PoulsenDirectorFinancial Management

KPMG LLP303 Peachtree Street N.EAtlanta, GA 30308

[email protected]

Tel 404-650-9553Fax 404-601-9799

mailto:[email protected]

