Making the transition from a start-up to a profitable business is a challenge most small businesses face. As businesses mature, it is essential to guarantee that their market share is secure, their revenue is consistent, and their profitability is improving. The digital economy entails enterprises to employ technology strategies that can bring them exceptional value. One type of tool that is widely-used among most small companies today is EPM.
What is EPM and why do most small businesses use this tool?
Enterprise Performance Management (EPM) is defined as a form of business planning which entails the process of monitoring, evaluating and managing performance to improve the business performance, optimize business processes and reach the company’s goals.
The EPM process features management and monitoring of key performance indicators (KPI’s) that allows the managers of different departments to understand the market and business trends on a more frequent basis such as hourly, daily, weekly, monthly and quarterly. This facilitates quick response and crisis management planning for the manager when the department they are heading is not performing well so that they can suggest amendments that can bring them closer to their business goals.
The goal of EPM is to make sure that the business objectives are identified and are manifested in the budget and plans. To be effective, EPM needs periodic utilization to guarantee that all the business departments are aligned around a unified set of goals and objectives over a period. This is managed through a periodic reviewing of results done by internal stakeholders and external stakeholders. The review and reporting usually occur monthly, quarterly and annually except for fast-paced organizations which run their EPM process weekly or even daily.
To further understand how EPM works, it’s essential to note what solutions it can offer. Ultimately, the EPM system helps businesses answer these four major questions that are essential in facilitating better understanding and knowledge about business operations:
1. What are our goals?
- Clear definition of goals is crucial to be able to steer any organization towards success.
2. How are we performing against our goals?
- The performance of the business should be monitored regularly to see if it reflects the goals and is aligned with the objectives of the company.
3. How do we communicate our performance?
- Every company’s goal is continuous improvement. Communicating the strategy to the workforce is key to ensure that it is understood, funded and actions will be taken by all the departments.
4. What drives our results –and what can we do to improve these?
- Knowing what drives the results plays a chief role in establishing fresh strategies so that better results will be obtained for the next period.
How EPM Originated
EPM is not a new concept. In its first stages before the 1970s, EPM processes were implemented through the paper in discussions, presentations and in meetings.
By the 1970s, the collection of budgets and financial results for the purpose of reporting was started.
Spreadsheet software like VisiCalc and Lotus 123 emerged in the 1980’s so that the creation of budgets and reports can be automated which can take the place of the manual worksheets. As email communications started existing in the 1990s, it became easier to share spreadsheets and coordination between different departments for the goal of collecting and distributing finance data became possible.
One of the EPM software packages that emerged in the 1980S was Hyperion Pillar which helped in handling the budgeting and planning across the organization. Another one was Executive Information Systems (EIS) which provided KPI’s and graphical reports to managers through their personal computers.
Over the years, EPM software systems have progressed from mainframe systems to client/server systems and to web-browser-based applications. The latest EPM model is now cloud-based software or software as a service (SaaS), an EPM platform that enables Finance to manage, set-up the solution and generate programmed upgrades.
The main function of EPM is to tie up the company’s strategies to its execution and goal. To achieve this, EPM is divided into several fields and processes:
1. Defining goals
- This process involves determining the direction of the organization and developing the strategy. After the strategy is developed, steps will be taken to transform the strategy into actions.
2. Planning and forecasting
- Planning and forecasting are where the strategies established are taken into consideration to determine what results and activities will be derived during the execution phase. This is crucial so that the organization can evaluate its sales, costs, financing needs and profitability.
3. Supply chain effectiveness
- The role of this set of processes is to supply transparency in each part of the value chain.
4. Financial management
- This set of processes is done at the end of a period and its key function is to close the financial records of an organization accurately based on accounting standards. This process prepares the presentation of financial statement results to internal and external stakeholders.
How will EPM help smaller companies flourish? Take a look at the summary of benefits below:
1. Centralizes information
- EPM provides small businesses with a centralized information source for common evaluation and assimilation of the performance of the enterprise. This also makes it easy to connect each department’s contribution to the team’s goals.
- With EPM, the stakeholders’ time is maximized as they don’t have to seek information from other people in the organization. The information is readily accessible to those who need it. EPM also increases workflow and innovation speed in smaller companies (e.g. finance processes), helps departments automate manual tasks and improves coordination between the Finance and Operations departments.
3. Provides accuracy
- EPM ensures that the figures in the system are correct and gives analysis of the figures found in the system.
4. Provides insights
- Another advantage of EPM is how it gives insights on how performance can be enhanced. It helps small business managers identify a course of plan that can help the team get closer to their goals.
5. Drives performance
- As EPM gives valuable insights to the organization, it paves the way for the assessment of business performance which in turn drives the business towards better performance.
Is EPM right for your small business?
To sum it all up, EPM is a process created to help organizations connect their strategies to their plans and execution. EPM’s main function is to support EPM processes such as analysis, budgeting, financial consolidation, forecasting, planning, and reporting.
More than just a software tool, EPM is a multi-faceted initiative that delivers continuous improvement for both large industries and smaller companies alike. It provides benefits through education, analytics, and best practices.
As organizations continue to strive for improvement, each process in the EPM system is designed to optimize the performance of the people in your team. Providing a roadmap of excellence from start to finish, EPM provides solutions to small business challenges including mistrust of the management accounting system, failure to execute a business strategy, unfulfilled return on investment (ROI) promises from software vendors, dysfunctional budgeting and poor customer service handling and more.
Learn more about EPM and what it can do for your small business, click below to download the white paper by visiting https://www.intelliteksys.com/what-is-epm.pdf.
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