The Value of EPM During Market Downturns

Nearly every CFO I've spoken with since last September acknowledges taking a very different posture with respect to spending and investing. Most have radically slashed O&M budgets and have cut deeply into their CapEx plans to accommodate today's anemic growth levels. All companies, however, would admit to taking a more conservative posture with respect to any spending that looks even the least bit discretionary.

So where does (or should) EPM investment fall in this mix? Does it belong in the same category as infrastructure investments that are of obvious high benefit but long term in nature? Should it be viewed as "nice to have", to be done in periods of excess profits and reinvestment? Or is it something more critical to the companies ability to generate value, or more importantly, manage risk in the environment we find ourselves sitting in

For those pondering the same questions, here are a few of my perspectives on why EPM should not only stay on the priority list, but perhaps rise to the very top in terms of executive time and mindspace.

1. Value Realization from EXISTING projects-
For years, all of our companies have had improvement initiative after improvement initiative, program after program, project after project. We've all seen the value cases, and we've all become used to seeing many of these projects receive accolades for being completed on time and under budget, only to generate a fraction of the promised value/ savings promised. Putting the right EPM process in place will immediately force project sponsors to tie improvement initiatives to clear impacts on your KPI's. Once that is done, and you can see the landscape of what is really generating value, you are now in a position to defer (or kill) projects that are not accretive to immediate returns, and start "ringing the cash register" on the the ones that do. Sure, this will have generate long and sustained impact on the culture and a new way of thinking across the enterprise. But it is something that is not too difficult to do with the right process and tools, and something that can and will have immediate and significant impact.

2. Compliance with today's risk/ performance controls-
Starting with SOxley and today's new transparency mandates, and looking forward at IFRS requirements, CFO's and other Company Officers will be on the proverbial "hot seat" for the forseeable future. Unfortunately, the seat only gets "hotter" with further declines and more market uncertainty, just at a time when the cost of adding new controls becomes unbearable. Finding new and less costly ways to achieve compliance is paramount in resolving this inherent conflict.

3. Lowering Administrative Costs-
The cost of management and budget reporting is increasing at a record pace, which is believed by many to be unsustainable. Furthermore, the manual manner through which much of this is coordinated, has decreased the reliability of the information produced. While "cloud" computing has a sexy new connotation today, most CFO'sand CIO's would agree that without a clear architecture, the current web of worksheets, source systems and partial BI layers is unsustainable. EPM focus will begin to clear up this picture by quickly establishing the right architecture (and foundation) on which this will ultimately sit.

Those are three of potentially many arguements for moving faster and moving NOW on EPM as a strategic thrust of the business in 2009. But even more compelling reinforcement for this assertion comes from some recently published benchmarks. According to a recent study from Hackett, world class EPM companies are consistently generating 2.4 times the equity returns of peer companies, a potential lifeboat for a company facing tougher and tougher economic times. These same companies have 20-30 less volitility in profits, and more significant operating returns overall.

But here's the kicker for why you want to do this now rather than later. The very same companies that are achieving the above gains, are also (according to Hackett) doing so at roughly 1/2 the cost for performance reporting and performance management business functions. And they are radically reducing budget complexity and improving information access to end users rather than traditional reporting middle-men. And another nice benefit- a 40% higher reliability in forcasting. Best of all is that when this is in place, the company becomes better able to model and forecast more dynamically, a practice where speed and flexibility are life saving in down/ unpredictible markets.

EPM investments are sometimes significant depending on the end state you want to achieve and your relative starting point. And while the EPM journey of best practice companies can take between 4 and 7 years to achieve full scale competence, results can begin materializing in months. In fact, many would say the first 6-12 months are most vital in creating awareness and a catalyst for real cultural change, with sizable gains occuring all along the way.

Bottom line: EPM can and will add immediate value, mitigate current risks, and save on adminiatrative and budgeting cost in coming years. Starting the EPM journey during a dark time like this may not be the most intuitive answer you want to hear. But starting a journey at night is sometimes the best answer.

-b