ERP or EPM….which should you do first?

As a Finance Professional, at some point in your career you will be part of an Enterprise Resource Planning (ERP) implementation. Those that have experienced one will tell you that it will be expensive, and time consuming, and possibly stressful, but if it’s done right it can be very transformative, and deliver significant value to your business through the improvements in your data and processes.

Very often the upgrade of an accounting or ERP system forms part of a bigger digital transformation project, where the other significant component is the implementation of an EPM (Enterprise Performance Management) solution.  It is here where bi5 Solutions is generally involved in the discussions, and the one thing we have picked up over the years is business uncertainty as to if they need both, and what the correct order should be.

When we talk to businesses about EPM and CPM (Corporate Performance Management), if they’re not currently in an ERP implementation process, there is often one in the pipeline, where it has generally been for a few years already.  No matter how pressing the need for upgrading their ERP, the business has often deferred the decision on platform and implementation several times, citing the time, effort and costs involved.

The deferral of an ERP implementation often further delays the digital transformation project, as the general view is that the ERP is the backbone and must be done first.  But we are here to say that is not always the case, and in many situations it makes more sense for ERP to not be first.  Why?  Well first let us look at the two systems.

Are ERP and EPM the same?

The short answer is no, ERP (Enterprise Resource Planning) has as its primary focus transactional processing, and transactional data, with end users being those who process transactions. EPM (Enterprise Performance Management) and its related CPM (Corporate Performance Management) are more of a managerial tool, with the focus on managerial information and data.

So what exactly are they?  Let’s look at each one in more detail.

ERP Systems – business operations

At their simplest, ERP systems are about operational efficiency. ERP systems help organisations run their operations and related processes, and it does this through automating transactional processes and flow.

For those that remember, the precursor to ERP systems were Manufacturing Resource Planning (MRP) systems, which as the name suggests were specific to manufacturing businesses.  In the 1990s the term ERP first came into use to extend the capabilities of MRP systems beyond just manufacturing businesses to encompass any ‘enterprise’.

ERP is generally referred to as a category of business software. They are most commonly a suite of integrated applications which businesses use to collect and store their business activity data. You’ve most likely been exposed to ERP platforms even if you didn’t know they were an ERP platform. They can help automate and track the below processes:

• Finance and Accounting
• Project Management
• Manufacturing
• Supply Chain Management
• Order Processing

The objective of modern-day Enterprise Resource Planning software systems is to help automate and integrate as many processes as possible across the enterprise, with the aim of improving efficiency in transaction processing and operations, whilst also providing increased accuracy and consistency across multiple functions of the business.  More recently ERP systems have added user experience as a key focus of development, with some even encompassing visualisations and metrics, in addition to their core transaction processing function.

EPM systems – business management

Where ERP (Enterprise Resource Planning) is about operational efficiency, EPM (Enterprise Performance Management) and CPM systems are focused on improving the management processes within businesses.  They are primarily used by management in the reporting and planning functions of an organisation to support management processes. Every business wants to see its results, and results are the outcome of decisions made by management, but how do you know if management decisions are actually improving business performance?  Through their ability to collect, integrate, and aggregate data from many disparate systems across your organisation (think ERP, CRM, HCM, IMS, HSE), EPM systems help to manage the processes of planning, monitoring and management of financial and operational results and performance, using both financial and operational data.

The lower your businesses organisational complexity, the lower your need for EPM. However as complexity increases, so does the benefits of an EPM system.  As you introduce additional product lines and groups, expand into multiple operations, regions, geographies, or currencies, your complexity increases, and this can impact the way data flows around the organisation. As your transactions increase, be that in type, details, or number, without the correct tools in place management’s ability to analyse all of this data and make decisions is limited.

Some of the key management processes EPM/CPM systems can help organisations automate include:

• Month End Close and Consolidation
• Financial Reporting
• Management Reporting
• Strategic Planning
• Rolling Budgeting, Planning and Forecasting – Financial and Operational
• Financial and Management Reporting
• 3-way modelling
• Analytics and Scenario Modelling

 

Is EPM a subset of ERP?

If you’ve ever started on the ERP software journey you’ll likely have heard a vendor say their products has inbuilt EPM (and BI) capabilities.  So does that mean EPM is a subset of ERP?  Quite simply no. Whilst some ERP software does have some EPM capabilities, as outlined above, ERP and EPM platforms are used for quite different things.  The end users of each will often be different, and the usage of each will be different.  You may be able to enter your budgets into your ERP, but can it do anything more than a simplistic budget? Can it do cashflow timing, driver-based budget entry, multi-level overhead cost allocation?

ERP and EPM are complementary

For those that don’t have an EPM solution a simple way to think of them is;

‘Enterprise Performance Management (EPM) will systemise the things that you currently do in Excel spreadsheets with data from your Enterprise Resource Planning (ERP)’

Both these software systems overlap. By now you hopefully understand that not every business will need an EPM and ERP solution. The more complex your business the more value you will derive from an EPM solution, because it adds an additional layer of information and analytical capabilities to your ERP.  In that sense they are complementary, without the transactions processing of the ERP there won’t be the data to report, analyse, and budget on.  Conversely, without EPM you will not be able to analyse your data fully and thoroughly, to compare performance against budgets and plans, and make decisions and allocate capital to improve your organisation’s performance.

Which comes first, ERP or EPM?

Understandably, any implementation of large systems designed to improve operational efficiency, such as ERP’s, are disruptive.  Anything that changes operations and processes will be disruptive. So how can you make sure it is as disruptive as possible? And if EPM and ERP are different, yet complementary, which should come first?

Organisations will generally prioritise ERP implementation, get the ERP in and then look at the EPM.  From organisations we’ve spoken with this is often driven by concerns that an EPM implementation needs a set ERP/structure to work off, and any change to ERP platform in future will incur additional costs to change the EPM. Sometimes EPM is not even considered as they have been sold on the idea that the ERP can do it all.

Hopefully you now understand that EPM is not a subset of ERP, and to get the full benefit of an EPM implementation you need a dedicated EPM system. However needing a ‘set in stone’ ERP to work off is rarely the case, and if your consultant says it is then we’d recommend finding a different EPM implementation partner.

A modern EPM solution is solely interested in data from the ERP. The structure of the data it is interested in can, and will, change over time. New accounts will be added, new entities, business units, products will be added, reporting formats and structures will change, these are all likely at some point with your ERP, and the EPM platform must, and will, accommodate that.

So not only do you not need to wait for your ERP implementation before commencing your EPM implementation, if you implement EPM applications before your ERP solution it may actually help keep time and cost down with your ERP implementation, which would make for a much happier CFO and finance department.

Below are the key points as to why we at bi5 Solutions always recommend organisations do EPM first, and how that can actually speed up your ERP implementation?

Cleanse your data with an EPM solution

One of the main reasons for an ERP implementation failing, or running over, is to do with the data.  There is no point in spending time and money on implementing a new ERP system to then go and put ‘bad’ data in it when you conduct your data migration process.

Cleansing the data post go-live is much more difficult and will take you longer than doing it before go-live. Post go-live there is much less urgency to correct the data, which is often why there is bad data there in the first place.  Depending on the quantum of incorrect data this can have impact your ability to use it for decision making later on.

EPM systems are often the first place that incorrect data it identified. There is barely an EPM implementation that we’ve done where the additional level of detail and analytics provided by the EPM platform hasn’t identified a data issue in the source/ERP system.  Often it is historical and hasn’t been picked up previously, sometimes it’s current and on-going and has been hidden or lost amongst the rush to get month end finished.

Migrate data with ease

Sometimes migrating data between your old and new platforms may be managed manually and require manual entry, or if you are lucky it can be loaded in via a batch file.  This is generally done at a point in time, where an opening balance is brought as the starting point of the new ERP. With an EPM platform already connected to your existing ERP this process can be streamlined. No more extracting from your ERP to Excel spreadsheet and then manually modifying it.  With an EPM platform your transactional data can be loaded directly into the EPM, any transformations or mapping between old and new accounts processed, and then written directly to a SQL DB, or extracted to a flat file (csv/xlsx) in an appropriate structure for batch loading into your new ERP.

Validate processes and historical data with an EPM solution

Once migrated to your new ERP, the data must be validated to ensure that totals match and that the processes have been set up correctly in your new ERP.  This can be a very manual and time-consuming process, often done in Excel. It is very likely you will need to continue until data and business processes have been validated, and the longer it takes to validate, the more you will need to validate.

The advanced analytics possible with a good EPM solution make them ideal for use in data validation, as they can provide high-level to transactional level detail within the same screen at the click of a button.  This enables you to identify high level numbers which may look incorrect, and then quickly drill down to see the transactional level detail that makes up those numbers.  There you can identify which transactions are incorrectly reporting and set about fixing them.

When it comes to matching or validating against historically reported numbers, with an EPM solution you can run multiple CoA’s (Chart of Accounts), in multiple hierarchies, and across multiple reporting formats and structures.  This capability allows you to load data from both your existing ERP and new ERP into the one EPM system, and report side by side in the same format, old or new. With data reported side by side you can very quickly see where new ERP data is not matching that previously reported.

Maintain historical data and reporting

When data is migrated as part of an ERP implementation you’ll normally only populate an ‘opening balance’ in your new ERP.  Your old ERP may have contained several years of data, but there’s a good chance that will all disappear when you migrate the data.  When that data goes so does your ability to analyse historical trends and patterns or compare multi-period values.

By implementing an EPM solution first all that historical data is captured and stored within the EPM platform’s central database, and will remain that way regardless of your future ERP movements.  As long as that data is there you will be able to report on it, and the flexibility of EPM solutions will enable you to view that historical EPM data in any new reporting format.

EPM will help identify your ERP requirements

As part of an EPM implementation there is often a roadmap put together. The aim of this roadmap is to identify all the data, integrations, and analytics that the organisation would like, so that the EPM solution can be developed accordingly. In doing so, multiple areas of the business must consider what information or metrics they would like to see, and what analytics they would like to have, in an ‘ideal’ solution.

Once this roadmap is developed it’s not unusual to find gaps in their current data. Where the metrics and analytics that one department has identified isn’t actually possible because the relevant information or detail isn’t capture within the ERP.

It is often not until the analytical piece is considered, that the real requirements of the ERP are determined, and it is often not until the first or second iteration of the EPM analytics where managers start to understand what is possible. It is not until managers use EPM for their analytics and budgeting that they start to identify other areas or analytics that they would like.  If this is not identified until after an ERP implementation has commenced it can be very difficult, if not impossible, to capture this data or detail in the ERP without adding significant time and expense.

EPM has a faster time to value

While an ERP implementation can take multiple years, a well-scoped and planned EPM project can take as little as a couple of months to go-live.  It is this fast development time that allows your EPM solution to be implemented while you’re still settling on your ERP upgrade process. Once you start your ERP journey your EPM solution is ready to assist with the items identified above, and with its flexibility new reports from the new ERP can be quickly developed and rolled out, ensuring you get more than just operational efficiency from your ERP implementation from the get go.

 

Even if you have already started along your ERP journey, it’s not too late to implement EPM software.  Not only will it provide all the benefits of an EPM software solution into the future, such as budgeting, forecasting, financial consolidation, financial close, reporting and analytics, as outlined above it can also help to ensure your ERP implementation project is a success.

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