2 BPM: In Practice
Financial Implications of CPM
White Paper
written by
Alex Veytsel
Aberdeen Group
Alex Veytsel is a research analyst at the
Aberdeen Group. His research practice
focuses on financial and analytical
software that is a major component of
corporate performance management.
In that capacity, he tracks four
interrelated technology areas:
· Real-time analytics
· Risk analytics, including fraud
detection as well as compliance
with anti-money-laundering
(AML) legislation, Basel II, and the
Sarbanes-Oxley Act
· Financial value chain management,
including process automation
and analysis in accounts payable,
accounts receivable, and treasury
departments
· Financial analytics, including
budgeting, planning, and
forecasting, cost-based accounting,
prediction, and optimization along
with the accompanying reporting
and analysis mechanisms.
110
Corporate performance management offers more perceptiveness and agility to
enterprises that have already attained a cohesive infrastructure.
Many enterprises have lost the ability to manage
themselves.Why? Because organizational size and
digital complexity now often mask the linkage between
a business decision and its operational consequences.
And the time-tested techniques that once heaped
profits on the company’s bottom line are simply too
sluggish for today’s hyper-competitive businesses.
Decision-makers, no matter how brilliant they
are, cannot grasp the full impact of their choices
without technological assistance. Although business
has always been intricate and cross-functional, only
a few aspects were truly unpredictable. Contrast that
with the daily instabilities of today’s big business:
Fluctuations formerly reserved for international
currency markets now pervade the day-to-day activities
and well-established relationships of commerce.
Against this backdrop, a new technique, corporate
performance management (CPM), promises to deliver
the perceptiveness and agility managers require for
effective decision-making.
CPM presents managers with an integrated,
analyzable view of the entire enterprise. To balance
the enterprise and prevent operating units from
clashing, CPM uses metrics and key performance
indicators (KPIs), underpinned with analytics, to
calibrate management actions with broader enterprise
strategies. CPM unabashedly borrows the best
concepts from management theory, injects causality
into the balanced scorecard, and gives decision-makers
an analytic lens into strategic decisions.
Attaining excellence under CPM will require an
amalgam of new and existing technologies, both
of which are analytic and transactive in nature. CPM
is accretive: Each technical building block increases
the value of each of its predecessors. CPM is flexible:
the methodology can absorb small, medium, or
megadoses of technology, depending on the
company’s available resources. And CPM promises
to be a boom market.
Aberdeen expects CPM-related spending to
approach $5 billion by 2005.
We’ll examine how CPM can be used to manage
an enterprise’s operational strengths and weaknesses.
www.CFOProject.com
Although CPM continually encounters the
intersection between finance and other operational
centers, this article focuses predominantly on
making financial awareness pervasive throughout
the enterprise. Covering the five disciplines of CPM –
corporate objectives, accounting, reporting/analysis,
prediction, and optimization – this article describes a
few of the innovative technologies in each discipline
and offers end-user enterprises a practical guide to
implementing them effectively.
Every organization can point to a competitor
that has recently emerged or re-energized itself
with an innovative technological initiative. It is
clear that modern enterprises can no longer erect
insurmountable barriers to entry, nor rest on their
current competitive advantages. Enterprises face
a stark reality: operate at peak efficiency in every
aspect of the business or give way to others.
‘Organic’ Business
Meeting this challenge head-on requires a solution
that can harness and shift the corporate culture.
CPM entwines strategy and technology into a process
that can transform the entire organization. CPM
approaches business as an organic whole – as the
sum total of processes and individuals. Under CPM’s
guiding principles, an organization will be in top
form only if every employee – from salesperson
to senior executive – is working in top form.
CPM thus requires a corporate culture and
technical platform that presents workers with
the business and financial import of any action.
Helping the enterprise to observe and balance
the actual with potential short- and long-term
effects of decisions, CPM can boost a corporation’s
financial and operational performance by:
• Creating corporate and market knowledge:
Using scenario-driven analysis, metrics, KPIs, and
optimization techniques to discover the most
efficient use of capital resources, including cash,
people, material goods, and intangibles;
• Increasing the quality of business decisions:
Providing role-based information that employees

at each operating unit and level can use
to understand the financial and operational
consequences of possible courses of
action; and
• Reinforcing common goals: Adopting a
common internal language to ensure that
the corporation coordinates its tactical
decision-making processes with overall
enterprise strategies.
Companies can achieve these CPM objectives
by integrating and supplementing five financial
and analytical disciplines – corporate objectives,
accounting, reporting/analysis, prediction,
and optimization (a relatively new financial
discipline). Despite the scope of its vision and the
expansiveness of its IT architectures, CPM is not
intended to supplant the financial functions of
accounting; budgeting, planning, and forecasting;
and financial reporting/analysis.
These traditional techniques establish
CPM’s baseline: the creation of corporate goals
and the financial analysis of operational
strategies. CPM-driven innovations to existing
corporate objectives, accounting, reporting/
analysis, and prediction technologies – as well as
the processes used with them – can include:
• Role-based metrics and KPIs (including
applications that subsume them, such as
balanced scorecard) to establish the context
for measures of enterprise, unit, and
individual performance;
• Reconciliation of data models, either
physically or virtually, to integrate budgeting,
planning, and forecasting technologies;
• Fair valuation of corporate intangibles,
which expands the scope of accounting
by measuring some or all nonphysical
corporate assets;
• Activity-based costing, which breaks down
the true cost of business functions and can
be applied with varying degrees of precision;
• Real-time reporting and event stream
management, which fits CPM into the
day-to-day work processes of company
employees;
• Predictive forecasting, which allows the
enterprise to assess, quantify, and manage
uncertainty by assigning probabilities of
occurrence to various scenarios; and
• Risk assessment, which determines the
potential for loss associated with each
Financial Implications of CPM
planning alternative, on both the operating
unit and enterprise levels.
But optimization technologies are the key
to integrating the financial disciplines, at
both a technical and conceptual level, as
well as arbitrating often-conflicting business-
unit demands. Using multiple techniques to
keep decisions well within special constraints,
optimization finds a best-fit combination of
strategies between the twin poles of risk
and reward.
CPM requires a corporate culture and technical
platform that presents workers with the business and
financial import of any action.
Getting CPM Ready
CPM will most likely enter the enterprise as a
collaborative effort of technology suppliers,
professional services organizations with both
strategy and technology leanings, and the
enterprise’s own IT and management groups.
Companies should not be put off by the
potential scope and breadth of CPM. All CPM
is evolutionary. Carefully planned CPM is
nondisruptive. Moreover, enterprises do not
even need all the pieces of the puzzle to
benefit from CPM.
Firms can separately deploy the technology
building blocks (from different suppliers, should
the enterprise choose) within each CPM financial
discipline to satisfy immediate performance
needs. CPM as a methodology appreciates not
only that every enterprise has a different business
culture, but also that it has different technical
leanings. Deployed incrementally, the CPM
initiative can be self-reflective and develop the
business user’s trust and reliance on its metrics.
Conversely, pursuing predeployment perfection
often tangles the initiative in unneeded
complexity and alienates decision-makers who are
excluded from behind-the-scenes development.
CPM in a Nutshell
To measure, monitor, and manage enterprise
performance in real time, CPM demands a data
model that distills the past, present, and future
BPM: In Practice
of the enterprise. Because business users, not
technologists, typically interact with the CPM
platform, the data model and the tools used for
reporting and analysis must be particularly
framed for nontechnical personnel.
In addition to measurements from a financial
perspective, the tools deliver performance-based
KPIs that map the health of each aspect of the
business and relate how these functional units
affect the bottom line. Elaborating on the
principles of a balanced scorecard, CPM not only
maps the company’s progress toward achieving
nonfinancial objectives, but it also delivers insight
into the drivers of that performance. Although
many financial and business intelligence (BI)
suppliers specifically address CPM with their
offerings, most financial and operational software
can be viewed as a CPM contributor.
Profitable Decisions
CPM provides workers with information that
can escalate the enterprise’s journey along the
path to profitability.“Escalate” is the operative
word. And to speed up decision-refining
analyses, CPM melds both finance and financial
analytics with the operational underpinnings
of the enterprise.
This new combination represents a sea
change; the separation between finance and
operations has polarized many BI technologies.
Most BI suppliers specialize in either operational
views or financial views of the enterprise,
requiring individuals to switch back and forth if
they want to get the fuller picture and to
extrapolate the intersection between these views.
For example, a view from an operational
perspective would present the cost incurred
weblink
For more information about using legacy systems,
see ERP as a Strategic Management Tool: Six
Evolutionary Stages at www.CFOProject.com.
www.CFOProject.com 111
 BPM: In Practice
Financial Implications of CPM
for building a product, whereas a financial view many post-merger hangovers attest to the need
would project the budgeted and actual profit for such a clear vision.
margin of product lines. The two representations
do not show what CPM might reveal at a glance: Augmenting Existing Technology
which product – at the company’s current sales Most enterprises that will find CPM appealing
price and cost of manufacture – is quickly will have already bought into one or more BI
draining profits at $5 a sale. initiatives. CPM builds on this foundation. To
When financial applications work in tandem deliver a true assessment of an enterprise’s
with operational systems, users are able to see the performance, CPM extends the value of other
financial implications of operational performance. strategic data knowledge investments – data
But decision-makers also must look speculatively. warehousing, analytical applications, enterprise
Optimization
(How should we adjust?)
Prediction
(Where could we be in the future?)
Reporting and Analysis
Accounting
(How far along the way are we?)
Corporate Objectives
(Where are we going?)
figure 1 The Five CPM Disciplines Source: Aberdeen Group, October 2002
What are alternative courses of action, and how reporting, and business portals. But CPM adds
will they speed up, or slow down, the enterprise’s the following functionality:
progress? CPM can give tenable answers to these • Accessibility: CPM not only leverages the
and other speculations and questions. data warehouse, but it also hides complexity,
Surrounding workers with metrics, KPIs, guides users through its contents, and relates
and performance measurements that represent detailed subject area information in a way
the enterprise, CPM makes the employee’s role that encourages seamless navigation;
and contribution to the enterprise explicit. By • Metrics that adjust: The CPM methodology
metering the employees’ operating results and discovers the optimal metrics, rather than
relating them to overall profitability, CPM settling for the prebuilt portal-style, a priori
encourages personal accountability. model of the business. As a result, the CPM
The self-reflection that CPM fosters reveals metrics remain relevant to workers;
the company’s true nature to itself. Choice of • Strategic mindset: In addition to its tactical
measurement discloses the mission and the tasks, CPM tackles trade-offs at the highest
guiding principles. This self-scrutiny can be level (for example, the choice between
particularly helpful to companies in the midst increasing revenue and cutting costs to
of mergers. At its simplest potential, CPM can achieve greater returns). Most analytical
help the enterprise map itself against the applications work solely at tactical level
acquired entity. (showing which markets have the most
The delta between the current metrics potential for revenue increases, based on
and what they would be after an acquisition a specific initiative, for example);
describes the stumbling blocks in merging two • Financial focus: CPM reconciles and
corporate cultures and presents an effective prioritizes nonfinancial objectives (such as
game plan for overcoming the hurdles. And those developed in balanced scorecards)
112 www.CFOProject.com
with the universally accepted financial
concepts of net income and cash flow; and
• Predictive posture: CPM automatically
views every past and present event in the
context of the event’s potential effect on
the enterprise’s future. In contrast, reporting
systems typically focus on the present,
and analysts must work hard to extrapolate
future events using the data warehouse’s
present and past data contents.
The Five CPM Disciplines
Although its aims and scope diverge from
other BI projects, successful CPM builds on
BI’s ability to extract, transform, and integrate
important business and transactional data from
a variety of sources. These data sources include
not only the company’s transactional and
financial systems, but also external sources
related to the extraprise, industry statistics,
global events, and financial measures (interest
rates, for example).
While deploying CPM, the enterprise
must align the optimization discipline that
serves as the arbitrating decision engine with
four existing financial analytical disciplines
(see Figure 1):
• Corporate objectives: The budgeting,
planning, and forecasting activities that
are still primarily based on spreadsheets
and intuition but are acquiring more rigor
through the addition of specialized systems
using common data definitions and
deploying role-based business metrics;
• Accounting: Powered by operational
software that builds the general ledger
accounts – and the supporting subsidiary
ledgers, such as accounts payable and
accounts receivable – the accounting
discipline is expanding to account for
intangibles created by the enterprise;
• Reporting and analysis: This includes
a variety of applications and tools for
delivering financial and operational data
to the decision-maker, including the still
important financial consolidation and
reporting financial functions. Traditionally
an extension of a static repository, reporting
is now being applied to live transaction
data via event stream management; and
• Prediction: Prediction addresses the
projection of historical patterns onto current
 BPM: In Practice

Financial Implications of CPM

Internal Metrics/ Revenue Internal Cost Liquidity Profit

OLAP Reporting Dashboard Alerts KPIs Optimization Optimization Optimization Optimization

Data Mart/ Event Stream Data Regulatory External Pricing External Cost Risk Capital Use
Warehouse Management Mining Compliance Reporting Optimization Optimization Optimization Optimization

Reporting and
Optimization
Analysis

Corporate
Accounting Prediction
Objectives

Fair Value Activity- Supply Chain Financial Value Predictive Risk

Accounting Based Costing ERP Forecasting Assessment Budgeting Planning
Management Chain Mgmt.

Accounts Accounts General Internal Financial Industry Strategic

Reconciliation Forecasting
Payable Receivable Ledger Knowledge Modeling Trends Plan

Legend

CPM Financial General-Use BI Tech-Assisted Other Info Operational

Discipline Analytics Tech. Technology Activity Source Technology Data Flow

figure 2 A Detailed View of the CPM Technical Ecosystem Source: Aberdeen Group, October 2002

data, including assessments of seasonal
patterns, customer demand, risk, and
possible worst-case scenarios, such as a rise
in fuel costs or interest rates; this future-
oriented insight enables enterprises – and
their supply chains – to plan for inventory
and production needs.
It is important to remember that each of the
enumerated disciplines is itself a complex
combination of technology and process (see
Figure 2). No single supplier can serve as a one-
stop shop for Aberdeen’s expansive view of
CPM. But a handful of suppliers have stepped
forward with technologies that can play the role
of centerpiece.
Showcasing CPM’s Key Technologies
Although many CPM technologies (budgeting,
for example) are already familiar to the business
user, other types of software are still finding a
place in the enterprise. Activity-based costing
and predictive forecasting are known – but not
well-understood – disciplines (at least in most
enterprises) that CPM will push into enterprises.
Whether familiar or new to users, these
technologies can truly increase the value of
CPM to the organization.
Each technology – budgeting, planning,
and forecasting; fair value; activity-based
costing (ABC); real-time reporting; event stream
management (ESM); predictive forecasting; risk
assessment; and optimization – typically elevates
the value of the tools with which it works in
concert. Some overlap is inevitable, but the
stand-alone value of these tools is significant.
Conclusions
The sheer scope of CPM’s reach distinguishes it
from other corporate self-help methodologies
and technologies. CPM emphasizes the delivery
of critical information to decision-makers – and
the use of performance measures to align actions
with overall strategic goals. Done with deep
thought and strong technology, CPM improves
the productivity of everyone, from individual
workers in departments to the highest levels of
senior management.
If CPM were only a methodology, it would
still be able to push an enterprise along the
path to increased profits. But when CPM’s holistic
philosophy is combined with a comprehensive
technical platform, the true power of this
management system reveals itself – such a
system is able to propagate the best situation-
specific practice to every decision-maker.
But CPM has a catch. It requires what many
enterprises have failed so far to achieve: a cohesive
business and technology infrastructure. Most
enterprises have implemented their technologies
into silos, at the same time creating a divide in
business culture – a business-unit-by-business-
unit sensibility. As a result, management still faces
the task of arbitrating between conflicting
departmental values, with attentiveness to the
good of the corporation and its shareholders.
Numerous methodologies have attempted
to give much-needed balance to the enterprise.
Performance measurement is effective. But
unless the enterprise can cross-compare the
effects of different business functions on the
entire business, performance metrics are only
an incremental gain.
CPM is a study in contrast and an
examination of the pros and cons of every
business decision. Management teams of many
visionary companies have only been able to
dream of implementing such a combined
methodology because they lacked the
technologies to proceed. But companies in all
markets – Global 2000, large, mid-market, or
SME – now have a CPM vision, methodology,
and technology blueprint to measure, monitor,
and manage stellar corporate performance. ■

www.CFOProject.com 113