The Concept Of Corporate Corporate Performance Management Cpm Accounting Essay

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Abstract

In this research paper we will be introducing the concept of corporate corporate performance management (CPM) and its relevance to an organisation as a strategic tool. The benefits it will bring to an organisation and how it can be differentiated from other performance management techniques. We will also be describing in detail the business aspect and technical aspect and architecture of operational, tactical and strategic Corporate Performance Management. This paper also states how CPM comes under the functionality of business intelligence (BI) and how it manages monitoring and measuring an organization's performance with the help of according to key performance indicators (KPIs) of an organisation such as revenue, return on investment (ROI), overhead, and operational costs.

Corporate Performance Management

Corporate Performance Management (CPM) is defined as a framework which enables organisation, automation and monitoring activities of key business metrics and drivers which are responsible better business performance. It links various processes in a company for example strategic planning, budgeting, forecasting with operational and financial reporting.CPM empowers businesses to understand, monitor and influence their business performance by using basic methods and tools.

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It adds up for organisations to utilise CPM in order to drive their business in today's market ofmajor competition, globalisation and increasing demands for better stakeholder returns. Despite all these reasons companies find it hard to implement systems which compliment their business and align personal performance to corporate strategies. This results in unsatisfactory results and inefficient performances. To be successful top management must improve their decision making processes and reengineer the required business processes. CPM comes through on these demands by:

Delivering the right information to the right person based on roles in the form of business intelligence in a customised manner.

It links the company's strategy with performance metrics and distributes these metrics and resulting analysis company wide.

It integrates the company's informational assets throughout the company's value chain

It enables integration of analytical tools and technologies within the key process of the business to encourage individual performance

Every process of the value chain right from manufacturing to human resources,Finance to sales is covered by CPM and it takes the aggregated data from operational and financial consistently and presents functional results against performance metrics which were defined by the company.Top managementutilises this information at their enterprise level which they use to evaluate the situation and decide on the appropriate corrective action where and when required.

CPM Environment

A well functioning and efficient CPM environment is made of the factors listed below

Speed - flexible decision making and faster response to real time stuations

Business Intelligence - It enables the organisation to use the data as an asset by converting it to information. It gives the organisation an competitive edge in all sectors of the value chain.

Strategic focus - they key performance metrics are measured accurately and give the exact picture of the impacts of the strategies implemented by the company.

Accountability - It enables a visible flow of information and enforces individual accountability. Compensation or benefits is directly related to an individual's performance.

R.O.I of information - by converting qualitative and quantitative data into information and using it to check performances and understand it enables the organisation to forecast variations and help take better

Collaboration - collaboration of various partners throughout the value chain allows business analysis to be carried out end to end.

CPM Framework

The diagram below explains the framework of CPM.

Starting with the definition, evaluation and communication of strategy, specific targetsare set for operational management and compensation packages linked accordingly.Operational metrics are established at financial, customer, supply chain, humanresource and environmental levels and performance is constantly monitored. Bestpractice is adopted as appropriate to control cost, optimise sales, reduce working capital,etc. Management report back against strategic objectives on a regular basis, allowingstrategic analysis of performance and a re-evaluation of targets. Throughout theprocess, there is on-going collaboration between executive management and operationalstaffs, ensuring targets are understood, monitored, executed and where required, tacticsmodified. Likewise, there is on-going communication with business and external partners,ensuring governance is respected and customer and supplier service optimised.

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CPM incorporates functions such as Score carding, Consolidation, Forecasting

, BI, Budgeting and strategic planning.

It initiates with the strategic plan of a company .It offers tools to enable the management plan and map out the company's strategic plan. In reality employees of a company are not fully aware of their company's or the (CSF's) critical success factors which provide a base to the organisations success.

SCORECARD

The purpose of doing a scorecard model is to audit strategy related performances. It monitors if your method of working is the correct and beneficial to the company. The 'balanced scorecard' model was developed by Drs. Robert Kaplan (Harvard Business School) and David Norton in the early years of 1990's. The balanced scorecard approach helps identifying the errors and faults or earlier used management style or methods of working and a clear perception as to what the key performances. Kaplan and Norton describe the balanced scorecard process as: "The balanced scorecard retains traditional financial measures. But financial measures tell the story of past events, an adequate story for industrial age companies for which investments in long-term capabilities and customer relationships were not critical for success. These financial measures are inadequate, however, for guiding and evaluating the journey that information age companies must make to create future value through investment in customers, suppliers, employees, processes, technology, and innovation." In this method it is suggested that the organisation must be viewed from four different perspectives. For each of the four perspective metrics and measures must be developed and related data must be collected to analyse them.

The Learning and Growth Perspective

The Business Process Perspective

The Customer Perspective

The Financial Perspective

Metrics should be SMART - Specific, Measurable, Actionable, Relevant, and Timely. If the metrics are not specific then the data will be vague and they it can be interpreted in various ways. Metrics which are not accurate and difficult to measure must not be utilised. You should not choose metrics that are can't be measured accurately or take a huge effort to obtain. Actionable metrics are metrics which can be reverted back to the specific team which is being measured. Relevant metrics are metrics which are linked to the company's strategy. It should also be realised that the metrics must be real time and should not took too long to report. Ideal time for accurate information must be aimed to be couple of days and not lead to weeks.CPM enables you to achieve this goal.

Budgeting and Forecasting

Budgeting although essential is considered a waste of time and resources in many organisations. In the current economy and fluctuating market the budget becomes outdated by the time it is completed and ready and a lot of effort and time goes into creating the appropriate budget for an organisation. Budgets are mostly based on complicated spreadsheets and are subjected to manual errors. CPM speedens up the process of creating a budget and also provides improved accuracy which helps the company in audit purposes also. It also helps in providing better forecasts based on the historical data of the organisation with better accuracy and is more time and cost efficient.

Consolidation

Large organizations can face problems with their consolidation process. Accountants often struggle for weeks in putting together multiple levels in their organization using Excel. Adjusting entries need to be replicated more than once for each level. A change in a subsidiary company may require more changes at each level in the process. While intercompany eliminations cause delays, accountants settle the differences between them. Spreadsheets are sensitive and not shared with all the employees and specific employees are in charge. There are many links across a spreadsheet and incase any error occurs it could result affecting the linked data as well.In case of any change in data it is a mammoth job to redo it again and it also makes it difficult for accounts and top management to drill down to specifics. In this area CPM is extremely handy and consolidation is a critical component in CPM. It is also compliant with Sarbanes-Oxley.

Business Intelligence

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Another component of CPM is Business Intelligence (BI). Previously known by different names such as Executive Information Systems and Decisions Support Systems, BI has been around for many years now. The process of converting data into useful information that can be used for decision making, is called BI. Bi can be complex using OLAP (Online Analytical Processing) or it can be as simple as creating a report every Monday morning. OLAP allows the organization to closely examine data across various different dimensions and a drill down option for more detailed information. 1 OLAP cube can be used to view the information in various ways rather than generating a large number of reports. The rows and columns can be easily changed using drag n drop functionality on different dimensions. A dimension could be an object which could have different levels for drill down. Ex - region dimension --> city, customer.

Value Addition to Business with CPM:

CPM adds value to an organisation by maintaining its focus on the development, implementation and continuous monitoring of the organisations strategic plans. The focus on the strategy is maintained through all the management processes including contribution of individuals. CPM focuses on the execution of the strategic plan.

Ernst and Young, conducted a survey which stated certain analysts are of the opinion that execution of the plan is more relevant than the strategy itself. Due to the advancements in technologies in the recent years organisational performance can be greatly enhanced The improvement in performance was also mirrored in there share prices which fared much better than those firms who did not have a performance management system.

CPM uses a complete holistic approach to the implementation and monitoring of the organisation's strategy. It merges methods and tools like scorecards, and activity based management; specific measures and metrics that are used only for those methodologies, processes, which are the activities and procedures followed by organisation in order to monitor and implement the performance of the corporation and finally IT, systems which mix methods, measures, and processes into a consolidated enterprise-wide management system.

Although CPM is a single application it is differentiated from other performance management approaches since it leverages on the best business practises along with the right technology which aid the top management make the required decisions to create and implement a business strategy.

CPM allows top management to answer crucial questions implementing and monitoring strategy.

A CPM system facilitates a closed-loop process which begins at the current state of the organisation and maps out its future plans, the to-be scenario and all the steps which should be followed in order to reach there, targets which must be maintained along with allocation for resources which will help you achieve you those targets. After the strategy of the organisation is decided and implemented, with the help of systems it monitors the performance of the plans .It provides understanding of defaults and errors if they occur. The systems are flexible to accommodate alternatives on which decisions can be based. This is the final step which the loop closes and starts again at the point of the organisations current scenario and which direction it wants to lead.

CPM application follows the implementation of a strategy by integrating budgeting, forecasting, consolidation, reporting, and analysis throughout the organisation and its different levels. It supports implementation of strategy to financial and non financial assets of an organisation. A CPM application allows top management to communicate the decided strategy through the middle and top management of the organisation. It enables employees of the organisation to maintain their focus on the major issues and important data rather than losing their focus with the immense data available in the organisation.

Gartner predicts that organizations that effectively deploy CPM solutions will outperform their industry peers, and that all enterprises should understand the implications of CPM and immediately start building their strategy

CPM Challenges

Optimal results can be obtained only if each step of the CPM framework is integrated seamlessly. Companies face problems and issues when it comes to delivering the required right information in a constant format against targets which are already defined on continuous on-timely basis. Reporting of non-financial information in a comprehensive and quick format is also a challenge for many companies. The company using delivery tools such as operational planning, information delivery, cost & profitability analysis, forecasting and management reporting must know whether the tool would deliver for the company and can it assess current limitations in delivering same. Companies should also question whether it identifies and implements solutions in delivering the rightful processes.

Taking strategic planning as an example, the most commonly asked question is how can a company increase its linkage of business strategy so that it effects the overall financial performance. Due to lesser financial performance and lack of strategies to achieve targets, the tasks are hard to deal with. However, this can be dealt by developing financial and non-financial targets, planning & budgeting and also by integrating strategic plans which would give improved results and increase financial performance

Limitations of Current Systems.

• Management Reporting: Data in an organisation is stored in various systems and in different formats. This arises a regular need for adhoc analysis.

• Performance Measures: There are innumerable measures and not all are target based and most of them are focussed on financial aspects. They are also not very effective in making reporting hence they do not give required results.

• Consolidation & Operational Planning; there is a lot of detail and iterations with drivers

• Forecasting: Bad and poor assumptions are made on the basis on insufficient or flawed data. They are heavily dependent on spreadsheets and have little understanding of te metrics which drive the business.

• Cost Analysis: It has limited capability to analysis the costs and not enough knowledge on the important cost drivers.

• Profitability Analysis: The cost of each process is not distributed and understood across all levela and it is not evenly levelled across the various products either.

• Information Delivery: There is poor integration with results in duplicity of data and increases time and costs of a process.

Conclusion

Corporate Performance Management is a framework, which can be used in an enterprise to optimise their processes by effective decision making. It links strategic planning, budgeting, forecasting andmodelling with operational and financial reporting. It also connects all the actors across the value chain of a company. The benefits of CPM focus more on the incentive system like management is rewarded based on delivering against initiatives designed to deliverstrategic objectives. A seamless, visible framework is a major challenge, but by emphasising on the shortcomings of each tool and process the organisation can be successful in it enterprise wide performance.