As technology becomes increasingly relevant for finance departments, the terms "ERP (Enterprise Resource Planning)" and "CPM/EPM (Corporate Performance Management)" are getting thrown about more and more. Given that older systems such as Hyperion and BPC have been around for 20 years+, i's worth knowing that these are not new terms. Despite how long they've existed though, there is, however, confusion about the distinction between ERP and EPM tools and how they help.
ERP and CPM/EPM software are different solutions that work together to help businesses run better.
ERP Focuses on Operational Processes
ERP systems, such as Microsoft Dynamics and Workday, are designed to help businesses manage operational processes. The concept actually started in the manufacturing industry with the introduction of Manufacturing Resource Planning and has since been found in other industries with other use cases.
ERPs are now a suite of applications used to obtain, store, manage and interpret data from the many use cases that include but are not limited to:
· Project Management
· Supply Chain Management
· Finance and accounting e.g. General ledgers
What makes ERPs especially powerful is their ability to automate and, more importantly, integrate the different processes in an organisation. It helps companies that may have otherwise had departments operating independently in silos, to become more accurate, efficient and connected in their operations.
What is CPM Software?
CPM/EPM Software focuses on Management Processes. As may be guessed from the name, they help enterprises/firms/businesses manage performance i.e. they link operations to finance.
They do this by collecting, linking and storing data centrally from many different systems (ERPs, CRMs, etc.) i.e. the different operations within the business. As CPM software is around financial performance, the areas it mostly helps automate are around (but are not limited to):
· Budgeting & planning
· Strategic planning
· Financial close & consolidation
· Management reporting
· Scenario modelling
· Profitability analysis
· Statutory reporting
· Extended Planning
· Regulatory Reporting & compliance
· Reconciliations & transaction matching
While it may sound niche to anyone not in finance, the main value is that it can help companies to replace manual processes that are often done in spreadsheets and/or email. This has the benefits of increasing control, data integrity, audit trails, visibility and has the added benefits of freeing up staff time to focus on analysis.
ERP vs. CPM or ERP & CPM:
It should be evident that the two systems are indeed different but also related. ERPs are the essential – the ‘washing machine’. Just as you’d expect a washing machine to wash all of your clothes, ERPs are necessary to execute transactional & operational processes such as collecting invoice data, monitoring stock, etc.
On the other hand, just as clothes can be dried by hanging them up, management activities can be done through spreadsheets & email. However, as your company gets bigger and bigger, this manual process not only becomes relatively time-consuming but will eventually be impractical.
Essentially, as a company grows, it will first invest in core data systems like ERPs and CRMs to run the business and manage the business using the spreadsheets. As these spreadsheets become unsustainable, they will then invest in CPM systems to enable faster management/reporting and better decision making [continuing with the analogy, it is akin to a family first investing in a washing machine as it gets wealthier and only when it is worth it will they invest in a tumble dryer].
A Point About Data:
The current consensus in finance is that data will increasingly lead, or at least aid, finance. In fact a FTSE CFO recently said to me that the training that he sends his staff on is now around data science, rather than refreshing accounting skills.
That is the true beauty of CPM. Modern CPM systems are able to ‘collect, integrate and store’ data from many different systems across multiple entities, divisions and regions. They can integrate this data in a number of ways – whether it’s “one-to-one”, “many-to-one”, on-premise or on-cloud.
Truly powerful systems are also truly analytical. What this means is that users should be able to “drill-down” into detail, analyse granular, operational data and even provide dashboards for analysis.
A good CPM system empowers better reporting & decision making and enhances the value of ERP software.
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As technology becomes increasingly relevant for finance departments, the terms "ERP", "BI" and "CPM/EPM" are getting thrown about more and more.