Budgeting, Forecasting and Reporting..the terms CFO’s need to know

budgeting forecasting and reporting

February 2020

If you’re a CFO or Financial professional and confused by the terminology and acronyms used around the Budgeting, Planning, Forecasting and Reporting platforms available to businesses then you’re not alone.  At bi5 Solutions we speak with professionals just like you on a regular basis and have realised how few know what these different terms mean, and differences exist between them.

So, to help we decided it was time to put together a list of the main terms you’ll hear when talking about Budgeting, Forecasting and Reporting…BI, CPM, EPM, and FP&A. But by no means is this list final.  The one thing that is constant in today’s business environment is that of change, and this list will be no different. We will be updating a re-releasing this list as new terms arise, old ones disappear, and definitions change, so make sure you bookmark it..

BI – Business Intelligence

BI, or Business Intelligence, is by far the most familiar acronym out there, thanks largely to a product (almost) of the same name, Power BI.  Some say it’s the ’Umbrella term’ for all of the others, but this is where we find the biggest misunderstanding.  BI is predominantly (or only) about visualisation of the data. That is graphs and charts (ie. Dashboards) that add a further dimension to the numbers that are usually presented in Spreadsheets.

In many of the most popular BI solutions these visualisations are generally displaying historical data. This data could take many forms and be collected across the many the different ‘systems’ that exist throughout the business. ERP, Supply Chain, HR, Maintenance and so on. Whilst these systems do offer standard and some customisable reporting, it is often difficult to create user specific reports, and even more so with data stored across systems.

When you look at the market-leading BI products like Power BI and Tableau for example, and the way they promote themselves, they are all about presenting data in a better way.

And for some, that is exactly what they are after, pretty charts and nice dashboards.  However often the questions we get asked about BI systems are not, in fact, the realm of BI platforms, that is data-entry capabilities and what-if and scenario planning, important considerations when looking to invest in a Budgeting, Forecasting and Reporting platform. These belong to one of the following …so let us introduce….

CPM – Corporate Performance Management

CPM software is primarily about addressing the Planning, Budgeting, Forecasting and Reporting functions within your business.  It is primarily used in Finance departments and therefore focused on finance-related data. CPM systems are a much more capable replacement for existing Excel-based budgeting processes and provide functionality for better collaboration, workflow, integration and process that Excel was never designed to do, as we discussed in an earlier blog

CPM software has a back-end data store where relevant data from the various source systems is collected and integrated on a scheduled or as-needed basis.

A  key difference between BI and CPM is that CPM tools provide for Data entry which facilitates many functions like Driver-based budgeting and forecasting, what-if and scenario planning.  Pure BI tools currently available do not have a native data-entry capability to allow for these more advanced processes.

The majority of CPM software platforms available today include both a reporting and visualisation (ie. BI)  component for graphical scorecards and dashboards, in addition to their Planning, Budgeting and Forecasting function.

Corporate performance management (CPM) as a term was originally coined in 2001 by Gartner, the US-based IT research organisation responsible for a lot of these acronyms. Gartner describes CPM as “an umbrella term that describes the methodologies, metrics, processes and systems used to monitor and manage the business performance of an enterprise”.  However, with the increasing requirement for agile enterprise planning, Gartner have dropped the term since 2017 and reclassified it into, “financial planning and analysis (FP&A)” and, “financial close” to reflect two significant trends – increased focus on planning, and the emergence of a new category of solutions supporting the management of the financial close.

Next in the list is CPM’s ‘replacement’….

EPM – Enterprise Performance Management 

CPM can be thought of as the precursor to EPM, in fact for many the terms are used interchangeably.  However, as time moves on and business Budgeting, Forecasting and Reporting requirements change so does the terminology, and sometimes purely for change’s sake.

Whereas CPM was mainly associated with largely Finance only functions, and a top-down driven process, EPM provides a much more agile Planning, Budgeting and Forecasting processes whilst also including Operations and other areas.

In the words of our favourite IT research organisation Gartner, EPM is defined as “the process of monitoring performance across the enterprise with the goal of improving business performance. An EPM system integrates and analyzes data from many sources, including, but not limited to, e-commerce systems, front-office and back-office applications, data warehouses and external data sources.”

EPM systems ideally manage organisation-wide planning, reporting and analysis (there is that overlap with BI as mentioned earlier).  It helps to bridge the planning silos that exist within a business and make planning a much more collaborative process.

At bi5 Solutions, we break it down into the following steps,

  • Data collection and historical analysis
  • Strategy Formulation
  • Organisation level target setting (aligned with Strategy)
  • Business Unit target setting (aligned with Organisation target)
  • Business Driver target setting (aligned with Business Unit target)
  • Measurement, management and re-forecasting

Different businesses have different needs and different strategies, and it is these which will determine how they leverage and utilise an EPM system within their organisation, but all businesses have a need for an EPM/CPM system.

We’ll now look at one of the new terms stemming from CPM mentioned above…

FP&A – Financial Planning and Analysis

To most people in Australia, hearing the words “Financial Planning” brings immediate thoughts of retirement planning. FP&A, however, is something quite different and is a term that is gaining a lot of traction globally.

As we’ve mentioned, Gartner has dropped the term CPM and now use FP&A and Financial Close as the grouping terminology for these software tools.

As the name suggests, FP&A starts with Financial Planning. This is the foundation for the success of any business and provides the plans by which the controller can capture, analyse, and plan the important financial aspect of their business. These could be aspects such as liquidity, maximising profitability, or increasing value to shareholders.

Then there is the A, the Analysis, that is the analysis of the actual situation.  By analysing the actual situation and comparing with the target/plan for financial objectives, we can arrive at a financial forecast.

FP&A is the intersection between finance and corporate management. It comprises all management measures for coordination within the finance division, and the intersection between finance and the service division.

FP&A also includes financial consolidation, enabling precise group reports, fast financial statements and comprehensive financial control.

There are many similar definitions out there however the common theme is about Finance acting as a Business Partner rather than a servant of the business.

Having covered the above we’ve decided we should also give a quick description of the most common system type of system out there, one that ‘all’ businesses would have.  That is…

ERP – Enterprise Resource Planning

An ERP system is quite different from all of the above, and not technically part of a Budgeting, Forecasting and Reporting solution. But we at bi5 Solutions often get asked during a CPM/EPM implementation if it means they can get rid of their ERP system, so we thought it a good idea to quickly cover ERP.

ERP, Enterprise Resource Planning, is a term coined by Gartner back in 1990 and stemmed from inventory management and control in the manufacturing sector. Today ERP systems comprise other back-office functions like accounting, HR, procurement, project management to name a few.

They are primarily transactional systems which essentially ‘capture’ your day to day data, and are the main management tool used by your business to manage it’s day-to-day business activities.

Whilst the majority of EPM/CPM systems out there are essentially a customisable back-end (database) and front-end (user interface), which can be customised to do ‘almost’ anything, replicating your ERP system is not one that we would advise.

An EPM/CPM system would not replace your ERP system, but it would be an additional string to your bow, arrow in your quiver. EPM/CPM systems are specifically designed to be complementary to such ERP systems, and together with BI systems they enable you and your business to plan, budget, forecast and report and analyse ..to give you the intelligence you need to make better decisions.

 

 


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