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A beginner's guide to financial performance management

by Leah MacMillan, Vice-President, Product Marketing, CognosMonday, January 21, 2008

No matter how good a company's products or services, unless the company is successful financially, it is doomed. Because, in the most basic sense, financial success is business success.

Business history is littered with stories of companies that had innovative products and visionary ideas, yet couldn't translate those assets into sustainable success in the marketplace.

In today's business environment, with global competitive pressures and increased regulatory scrutiny putting finance departments under greater pressure than ever before, achieving that all-important financial success demands effective financial performance management.

What is "financial performance management"?

What is "financial performance management"? And how does it differ from the various other species of performance management that analysts and vendors have been discussing for the last several years?

As the name suggests, financial performance management (FPM) is an office-of-finance-focused subset of the broader performance management field.

Ventana Research describes FPM as a specific set of capabilities that includes "defining their company's key performance indicators, formulating strategic plans and forecasts, handling performance reporting, and increasing finance operational efficiency and execution company-wide." 1

Adding on to finance's full plate

For the office of finance, of course, these FPM functions are in addition to the traditional financial processes needed to run the business. That is why the Cognos vision for FPM embraces both the expanded capabilities outlined above by Ventana, and those traditional duties that finance must perform in any large organization.

The Cognos vision focuses on the relationship between three distinct, but related financial processes:

  • Close, consolidate, and report
  • Plan, forecast, and control
  • Analyze and optimize

 

Close, consolidate, and report

The close, consolidate, and report process is perhaps the most fundamental and essential of finance duties. However, it involves a set of tasks that has long been burdened by slow, manual, spreadsheet-based procedures. 2

FPM solutions allow finance to automate the entire close process, from data collection to financial consolidation to output. Data is brought together from diverse entities and divisions into a single, statutory-based view. The result is a shorter close cycle, with greater accountability and the assured data integrity needed for compliance.

Plan, forecast, and control

"Time and time again, our clients tell us they want performance management processes to provide actionable advice."
– AMR Research

Innovative FPM solutions for the plan, forecast, and control process enable finance to practice high-participation, high-frequency planning.

The organization can then adapt quickly to changing conditions, instead of following the dictates of a rigid annual budget. In addition, FPM capabilities such as scenario modeling and rolling forecasts allow finance to help senior management anticipate and prepare for what's ahead.

Analyze and optimize

Finally, the activities needed to analyze and optimize financial performance give finance personnel the insight to help business managers drive profitability and growth initiatives.

While FPM makes its home in the office of finance, its effects are felt throughout the organization.

FPM solutions for financial analysis address the root causes of variations in financial performance. And, once the causes are understood, FPM helps optimize performance, to make the best of whatever the external circumstances may be.

Why Cognos for FPM?

As analysts at AMR Research commented recently, "time and time again, our clients tell us they want performance management processes to provide actionable advice and trigger workflows across their application portfolios so that users can take remedial – or preventive – action rather than simply report history."

That is precisely the promise of FPM solutions from Cognos.

While FPM makes its home in the office of finance, its effects are felt throughout the organization. Cognos FPM enables finance to advise operations about the financial consequences of business events quickly, and helps guide operations in their decision-making, so that decisions are aligned with the organization's overall strategy.

Scalability, responsiveness, interactivity

Cognos FPM combines data scalability with ease of use, responsiveness, and interactivity. Finance personnel can interact with large data sets while making data and business structure changes in real time.

It's also worth noting that the recent addition of Cognos TM1 (formerly Applix TM1) to the Cognos product suite furthers our ability to support the full range of FPM processes in organizations large and small. With its high performance read-write capabilities, TM1 provides a unique real-time approach to consolidating, viewing — and editing — enormous volumes of multidimensional data.

Helping CFOs foster growth and performance

For CFOs striving to foster growth and performance in their organizations – while simultaneously ensuring compliance – FPM solutions from Cognos enable that continuous alignment of resources and opportunities that is critical to meeting strategic objectives.

Smart companies seek competitive advantages wherever they can be found. And financial performance management is what allows finance organizations to identify those advantages and compete – and succeed – in today's business environment.


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