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Best Practices in Selecting Performance Management Software: Finance Searches for Increased Flexibility and Control A post-implementation look at organizations that have successfully re-engineered their performance management processes A report prepared by CFO Research Services in collaboration with Clarity Systems Strategic Budgeting planning Business Performance Forecasting modeling Management Consolidation Decision support and reporting Best Practices in Selecting Performance Management Software: Finance Searches for Increased Flexibility and Control A post-implementation look at organizations that have successfully re-engineered their performance management processes A report prepared by CFO Research Services in collaboration with Clarity Systems 1 CONTENTS About this Report 3 Key Findings 5 Chapter 1: CPM Software—Transforming Financial Reporting by Empowering Users 7 Chapter 2: The Business Rationale 11 Chapter 3: The Implementation Cycle 14 Chapter 4: First Steps—Selecting the Vendor and Creating the Blueprint 16 Chapter 5: Following Through—Development and Go-Live 19 Chapter 6: An Ongoing Process 21 Chapter 7: A Deeper Cultural Change 24 Sponsor’s Perspective 25 FEBRUARY 2005 © 2005 CFO PUBLISHING CORP. 3 ABOUT THIS REPORT In September 2004, CFO Research Services (a unit of CFO Publishing Corp.) launched a research program to explore best practices in selecting and implementing corporate performance management software. Through an interview program, we gathered advice from senior finance executives who had successfully implemented CPM systems within their organizations. The suggestions and recommendations we gathered form the basis of this report. This report presents the findings of our in-depth interviews with senior finance executives at the following 11 companies: ■ Adelphia Communications ■ Aetna ■ Agilent Technologies ■ American Eagle Outfitters ■ Cendant Timeshare Resort Group ■ Colonial Pipeline ■ Erickson Retirement Communities ■ Jane Goodall Institute ■ Jim Beam Brands ■ Russell Corporation ■ Sodexho Alliance Group CFO Research Services and Clarity Systems developed the hypotheses for this research jointly. Clarity funded the research and publication of our findings, and we would like to acknowledge Marc Altshuller for his contribution and support. At CFO Research Services, Eric Laursen conducted the interview program and wrote the report. Celina Rogers and Sam Knox edited the report and managed the project. Best Practices in Selecting Performance Management Software: Finance Searches for Increased Flexibility and Control is published by CFO Publishing Corp., 253 Summer Street, Boston, MA 02210. Please direct inquiries to Lisa Nelson at 617-345-9700, ext. 249 or [email protected]. February 2005 Copyright © 2005 CFO Publishing Corp., which is solely responsible for its content. All rights reserved. No part of this report may be reproduced, stored in a retrieval system, or transmitted in any form, by any means, without written permission. FEBRUARY 2005 © 2005 CFO PUBLISHING CORP. 5 KEY FINDINGS ■ A new generation of sophisticated database applications make it possible to combine a variety of finance functions—including budgeting, forecasting, business modeling, decision support, strategic planning, and consolidation and reporting—into a single integrated platform that allows users throughout the company to enter and extract reports from the same data pool in real time. ■ A performance management system using a hybrid of an OLAP database and one or more relational databases—commonly called a “ROLAP” system—gives users more flexible tools to analyze financial data, while preserving the ability to integrate text notations and itemized transaction information.This speed and flexibility makes analysis easier and more reliable—and gives users more room to apply analytic intelligence when explaining their company’s performance. ■ The core motivation for adopting new performance management software is the same for many companies: a desire to demonstrate with real data how employee’s decisions contribute to the company’s overall strategy, and to make congruent the goals of all the stakeholders within the organization. ■ Some companies that have decided to overhaul their performance management systems are responding to the Sarbanes-Oxley Act's demands for a stronger audit trail and a higher standard of data integrity. The common platform and flexible database structures of performance management systems help companies assign accountability for data reporting to particular individuals, which makes it easier to trace any computation to its source. At the same time, the departure from complex spreadsheet linking formulas makes both information producers and reviewers more comfortable with the numbers. ■ Because IT often doesn’t understand the budget process and performance management, the finance team must participate in the technology discussions when a company adopts a new performance management system. FEBRUARY 2005 © 2005 CFO PUBLISHING CORP. 7 CHAPTER 1: CPM SOFTWARE—TRANSFORMING FINANCIAL REPORTING BY EMPOWERING USERS A new generation of sophisticated, Web-based database applications is changing the way companies look at financial reporting. These corporate performance management applications combine a wide variety of financial functions in a single suite, allowing users throughout the company to enter and extract reports from the same data pool in real time. Faster and easier to use than traditional spreadsheets, CPM systems offer improved information integrity and flow, and, ultimately, enable users to develop analytic approaches tailored to their companies’ needs. To manage construction on an oil-and-gas delivery system, you have to like to travel— and not always to places familiar from tourist handbooks. That means a lot of miles logged on back roads and a lot of time spent in places where Internet connections— if they exist—are not always fast and reliable. Many companies have found Colonial Pipeline is a transport company that delivers gasoline, diesel fuel, and their financial reporting other petroleum-based fuels to communities and businesses stretching from the Gulf Coast to New York Harbor. Its 50 construction managers travel the 5,000-mile system— has been transformed by running projects that range from pipeline expansion to system integrity improvements, performance management to road and river crossings. Snail’s pace E-mail connection times were a major software. problem for Colonial before it put its managers and everyone else who uses its financial data reporting system on a new Web-based platform two years ago. Some of the facilities from which the construction managers found themselves forwarding their monthly capital expense reports “were really slow,” recalls Kelly Nodzak, manager of shared systems at Colonial. “They don’t even have T1 lines out there—they’re on phone lines.” On top of that, Colonial’s old homegrown COBOL-based AS/400 system dated from the 1980s and didn’t allow managers to work offline. But with the new system, they can simply download a template, add in the data on their laptops—“in their truck, if they want,” Nodzak says—then reconnect and upload it. “You don’t have the delay of retrieving and sending each time.” The new performance management software Colonial adopted is a combination of relational databases and a multidimensional OLAP (online analytical processing) database, all on a Web-based platform. It collects data from 150 users, including those construction managers and finance staff. Because it’s not an old-fashioned batched system, it can consolidate all the data into a report to management in minutes instead of overnight, so that last-second corrections on the morning the report is due don’t throw the delivery schedule off by another day. Best of all, says Nodzak, the people in accounting and budgeting can update and roll forward information just as easily and quickly for other types of reports as well. That means they can drill down to the location, district, department, or corporate- wide level to provide real-time information, as needed, about the company’s performance that’s tailored for users at any of these levels. Many companies have similar stories to tell about how their financial reporting has been transformed. Corporate performance management used to be one of those things every company had—but didn’t always know it had. At most companies, the components include budgeting, forecasting, business modeling, decision support (including dashboarding, traffic lighting, and balanced scorecards), strategic or long-range planning, and consolidation and reporting—along with the security measures needed to protect the data. Other functions that are often grouped with these as CPM include: activity-based management, Six Sigma, economic-value- added (EVA) incentive programs, the human resources information system, compliance, business intelligence, workflow, and approvals. FEBRUARY 2005 © 2005 CFO PUBLISHING CORP. Best Practices in Selecting Performance 8 Management Software: Finance Searches for Increased Flexibility and Control Until a new generation of sophisticated database applications was introduced and became available on Web-based platforms, however, many companies never thought of these functions as part of the same overarching system. Now, it’s possible to combine them all into one suite and, with some vendors, into a single integrated platform that allows users throughout the company to enter and extract reports from the same data pool in real time.

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