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Why EPM Theory is Backwards: Start with the Budget!
Posted on December 20, 2016
Author: Kirby Lunger, Performance Architects

Many of us are familiar with the “Holy Grail” of enterprise performance management (EPM) solutions: state your organization’s mission and vision; develop a strategy based on these items; develop strategic objectives with measures, targets, initiatives, milestones and owners related to this strategy; and then allocate resources according to the prioritization of these objectives. The linkage between strategy and operations is, therefore, the planning process because this is how most organizations end up allocating resources:

Based on this logic, starting an EPM project means starting with…mission, vision and strategy.  Most organizations already have done some work in this area and when we start talking with their team, they feel like it’s “good enough.”  The next logical place to go is setting objectives, measures, targets, initiatives and owners.  This is often where the “rubber hits the road” and organizations don’t have a well-defined process for tying day-to-day work to the mission and vision.  So what happens?  The primary focus for an organization’s first EPM initiative becomes the planning process.

When I think about the planning process, there are three discrete types of planning every organization performs (albeit using many different formal and informal methodologies): budgeting, forecasting, and long-range planning. As the diagram below depicts, there are two axes that clearly delineate the differences in types of planning: planning perspective and planning duration (timeframe).

Planning perspective relates to the organizational focus of the planner. A more strategic focus includes “big picture thinking” around mission, vision, strategy, objectives, etc., while operational planning focuses on the tactics used to achieve those strategic goals and objectives. Planning duration really means the time horizon of the planning activity.  The budget generally is <12-18 months; the forecast is usually ~3-5 years; and the long-range plan (LRP) is often 5+ years:

This chart depicts how this ties back to the “textbook” EPM process:

When revamping the planning process and solution, most teams start with the need that is closest to their near-term, operational pain points: the budgeting process.  Budgeting generally impacts a large audience, since many organizations are stuck in a situation where they are disseminating and collecting spreadsheets for departments, groups, etc. to budget.  This graphic depicts the first stage we see in most planning initiatives…to fix the broken budgeting process, and to provide basic financial and managerial reporting:

Once the budgeting process is stabilized and automated, the next step is to focus on enhancing planning and reporting capabilities:

Most organizations then focus on explicitly linking long-range strategy and day-to-day operations, generally looking at non-financial drivers that could influence plan outcomes…and along the way, question the assumptions in the “good enough” mission, vision, and strategy statements/plans they ignored during the first few stages of their planning (EPM) initiatives:

What does this mean?  It means that organizations usually start at the opposite end of where they’re supposed to start from a “textbook” EPM approach. In theory, this is not a good idea, because if you’re budgeting spend against a mission, vision or strategy that hasn’t been correctly vetted, this means that you may be spending precious resources on the wrong focus areas!  That said, in practice, unless you have an automated and integrated solution for the planning process, it is not efficient or effective…so starting at the wrong end of theoretical “best practice” is generally necessary. This is one case where “starting small and thinking big” definitely applies.


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