Enterprise performance management case study
Holger Lindner, CFO, explains his company's transformation of budgeting, planning and forecasting activity
At TÜV SÜD we want to be able to look forward with more confidence, to understand the trajectory of the business and if you like 'cast a shadow' of our targets for the proceeding years out to 2020 and to 2025.
We continue to recognise some of the traditional shortcoming of the traditional budgeting process, which is why as a business we are transitioning to rolling forecasts.
TÜV SÜD's current budget essentially forms its one year detailed operating plans which is linked to the strategic plan. One driver behind the transition to rolling forecasts was the desire of the company to move from absolute targets to relative targets. They are aspirational but also at the same time realistic with a decent amount of 'stretch'. This puts a different frame and context on the planning process across the business.
Challenges in the budgeting process
Findings from the ACCA/KPMG work highlighted how traditional budgeting and planning process is under pressure. Too often plans and forecasts have been too financially focused and not tied into the real business drivers in the organisation.
Like many organisations, TÜV SÜD's historic approach to planning and budgeting has suffered from two key challenges:
Reducing the complexity of the process and the information required. Ultimately great planning, budgeting and forecasting should be a really useful tool for commercial decision making, it has to be agile and informative enough for the organisation to take corrective actions in a timely manner. Companies need a process which is well governed has clear accountability and where individuals can be incentivised around aspects of the process which are in their control. Planning and budgeting must be kept as simple as possible.
Collaboration: historically the finance team has been part of the planning process. However, it was never entirely connected to the wider business planning process to be effective. We are now on a journey to much better integrated business planning across the organization that joins together the different planning and forecasting activities. Finance has a huge role to play in facilitating this greater integration but we also need advocacy and support from the top across the business.
You need to get leadership buy in for enterprise performance management (EPM) to be truly successful.
Performance reporting process also continues to evolve at TÜV SÜD with an emphasis on ‘less is more’. Key Performance Indicators (KPIs) have been reasonably well aligned to the strategic objectives of the business.
However, like many organisations, the business has probably had too many and that has hindered driving the accountability the company wanted. Now KPIs are not fixed to absolute targets instead the company is making them more focused and sharper in a bid to improve performance.
We call these dynamic improvement targets and they are essential to driving our business forward. Linked to KPIs we are also continuing to evolve the different ‘dimensions’ on which we report our performance.
Historically our performance reporting was typically focused on products and services but increasingly we are moving to much clearer reporting on customers and specifically exploring reporting initiatives in terms of customer segmentation.
But there is more work done. One key area is customer analysis. TÜV SÜD knows which is its most profitable customers but it does not necessarily always know the attributes and characteristics that make them so.
Businesses should think carefully about KPIs ensuring that they are aligned, driving visibility over profitability and costs across different ‘dimensions’ but be careful not to over engineer this.
An important element of EPM is building better internal management reporting. The first step is to have good data. That means data is consistent; has integrity; is accurate, timely and aligned to KPIs This is achieved through strong data governance.
TÜV SÜD says it has looked at Centres of Excellence models that can drive standardisation, timeliness, and sustainable control over report production. Critically such a model also frees up precious finance business partnering resources allowing them to focus on actionable proposals for the business.
Centres of Excellence are economically efficient and support greater specialism allowing time to be spent on value-added commercial insight.
Encouraging the right behaviours for finance business partners to succeed is particularly important here – they have to walk a fine line between being independent but partnering and collaborating with the business too.
One business partnering challenge is to understand what data the business needs to make decisions. Sometimes the business knows what it doesn’t need, but doesn’t always understand what it does need.
Finance Business Partners have a key role to play in helping articulate this need so that they provide more focused analysis to the business to help them make better decisions. It often means working on a smaller but more relevant data set.
Technology helps data analysis providing informed and timely decision-support.
What finance should report on
Performance management reporting can risk over reporting Think about the 80-20 rule – trying to report 100% on everything is too time-consuming and non-value adding for the finance team and for the business. Be clear on what matters in your organisation, the activities that are important and that drive value. Focus your reporting around these to drive better decision making.
Culturally it is a big step for finance to report on 'less' and so it is difficult to instill this discipline but it is incredibly important.
Key elements in driving improvements in EPM:
1. Ensure support from leadership across the business
2. Recognise the importance of consistent and accurate data
3. Drive collaborative processes and ways of working. Finance team have a huge role to play in facilitating moving away from silo-based thinking;
4. Build effective finance business partnering capabilities
5. Think about the appropriate models and operating structures to support the provision of better insight
6. Ensure KPIS are focused and relevant to value-driving activities.