Implementing and Delivering Value from CPM

Implementing and
Delivering Value
from Corporate
Performance
Management …
The CFO’s Role
Tony Bevacqua
Partner, KPMG LLP

© 2014 Proformative
Introductions
2
• Tony Bevacqua, Principal KPMG
• Bo Poulsen, Director KPMG

Workshop Topics
• Evolving Role of the CFO
• Corporate Performance Management (CPM)
• CPM Defined
• Leading Practices
• Implementing a CPM Solution
• A Framework for Implementation
• Challenges and Critical Success Factors
• Open Discussion /Q&A
• Suggested Reading
3

Increasing Pressure on the Finance Function
5
Finance
Function
External pressures Internal pressures
Globalization
Credit crisis
New rules & regulations
Shortage of skilled staff
Organizational
complexity
Outdated IT
systems
Budget
constraints

Recent KPMG Research
6
―62% of the finance executives expect their Finance
department to have a larger role in developing and
executing business strategy in the next 5 years‖
―Likewise, 50% say they are already able to
contribute well to the company’s long-term
business strategy development
(up from 33% four years ago)‖
The Goal for Many Finance Organizations: Become a Value Add
Business Partner
From Scorekeeper to value-adding business partner

As a Result, the Finance Function is Continuing to Evolve Into a
Leaner More Strategically Focused Organization…
7
Reporting &
Budgeting
Measuring
&
Controlling
Financial
Risk
Shared
Services
Financial
Planning
&
Analysis
Measuring
&
Controlling
Enterprise
Risk
Business
Services
Historical Reporting
and Transaction
Focused Role
Forward Looking
more Strategically
Focused Role
FROM: TO:
Total Cost of
Finance is 1-2%+
of Revenue
Total Cost of
Finance is .6 -
1% of
Revenue

A Model for Driving Value Focusing on 4 Key Roles
8
Decision Support
Enhancing the decision
making capabilities
through effective
information delivery…
Efficient Operations
Providing lean
operations through
standardized transaction
processes…
Strategic Growth
Providing insight into
business performance
to shape organizational
strategy…
Governance
Protecting the
organization’s assets by
maintaining statutory
obligations and managing
enterprise risk …
Value
Driven CFO

Priorities of the Value Driven CFO
Efficient Operations Governance
• Increasing Finance’s
relevance in the
strategic planning
process
• Improving the
organization’s
understanding of
the business model
and value creation
opportunities
• Deploying
integrated
performance
management
processes
Decision SupportStrategic Growth
• Standardizing and
automating
processes
• Deploying common
global ERP
platforms
• Achieving a global
operating model
with high shared
services leverage
• Simplifying finance
data structures
• Implementing
centralized,
automated and
preventive business
controls
• Integrating
enterprise risk
management
capabilities into the
business
• Optimizing Tax and
Treasury functions
• Increasing the speed
of decision making
across the
organization
• Integrating analytics
into the decision
making process
• Providing greater
insight into business
performance
• Upgrading finance
skill sets to be a better
business partner

What Does Recent KPMG Research Tell Us?
10
Our research findings show that
finance executives are ready to:
• Strengthen their
strategy, planning, information
reporting and analytical capabilities
• Empower their finance organization
and their C-level peers to make better
business decisions
• Transform data into intelligence that
enables actionable decisions
• Refine current technology and take
advantage of evolving technology
76% said
The quality of financial and performance data
and analysis available to management
68% said
Management’s access to financial and
performance data
66% said
Our ability to provide detailed financial and
performance data to management
75% said
The F&A organization’s data analysis
capabilities
68% said
The information available to the CFO from
across the business (e.g., ‘one version of the
truth’)
CFOs’ planned improvements…
Source: 2012 KPMG/CFO Research survey of over 350 finance executives

So What Does All This Mean to The CFO?
11
• Pressure to keep increasing value add will continue with priority on
strengthening their strategy, planning, information reporting and analytical
capabilities
• More with less will continue through leaner processes and deployment of
scalable Finance Operating Models
• Role will continue to be further shaped by advancements in technology and
data
• Transforming data into intelligence that enables actionable decisions will
continue to shift toward the CFO’s office
• Increasing demand for higher level skill sets

Corporate Performance Management
(CPM)
12

Corporate Performance Management (CPM) Defined
13
The business processes, policies and cultural
practices an organization utilizes to
develop, monitor and evaluate progress toward
executing business strategy and creating value
• Note; the concepts of CPM are also referred to as Enterprise Performance Management (EPM), Business Performance
Management (BPM), Strategic Enterprise Management (SEM), Strategic Performance Management (SPM) and Financial
Performance Management (FPM) and there are probably others too!

Common CPM Business Processes
• Sales and
Operational
Plans
• Financial Plans
• Capital Plans
• Budgets
Strategic
Planning
Business
Planning
Forecasting
Performance
Reporting
• Strategic Plans
• Plan Assumptions
• Capital Allocation
• Business Scenarios
• Performance
Targets
• Monthly/
Quarterly
Financial
Outlook
• Performance
―Gaps‖ versus
Targets
• Reporting
• Variance
Analysis
CPM requires execution of the following business processes…

Select Leading Practices for Effective CPM
15
1. ―Closed loop‖ performance management cycle
2. Use of top down target setting to link strategy and business
performance
3. Adopt ―Driver‖ based models for forecasting, reporting and variance
analysis
4. Integrated Reporting Models
5. Scenario analysis through predictive analytics
6. Incentive compensation alignment

Leading Practice Consideration – Deploy ―Closed Loop‖
Planning Cycles
16
What does a
―Closed Loop‖
CPM cycle look
like?

What We See in the Marketplace; CPM Process Maturity
17
• Highly manual process
often spreadsheet driven
with low repeatability
• Decision support and
scenario analyses is
reactive and ad-hoc
• Strategy, planning, and
reporting function as an
integrated closed loop process
• Technology enabled process
• Focus is on the forecast and gap
closure
• Analysis is standardized using
operational drivers
• Process and data
standardization achieved
although strategic linkage may
be lacking
• Processes are financially driven
with limited focus on
operational drivers or long term
forecasts
Level Two: Mature
and Standardized
Level Three: Fully
Integrated
Level One: Ad Hoc
and Basic
Degree of
Strategic Impact
Degree of Process Integration

© 2014 Proformative18
0
2
4
6
8
10
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
Baseline
Rolling
Forecast
Target Gap Closure
through:
• Strategic Initiatives
• Management of
Operational Drivers



Targets
established
during Strategic
Plan
Gap
Closure
Gap
Closure
Gap
Closure
Leading Practice Consideration – Top Down Target Setting
Setting targets ―top
down‖ as an
output of the
Strategic Planning
process focuses the
business on closing
the ―performance‖
gap!

Common Inputs for Effective Target Setting
19
―7‖ Key Inputs for effective Target Setting:
• Latest Rolling Forecast
• Prior 3/5 Year Plan
• Current Economic Indicators
• Industry Forecasts
• Competitive Outlook
• External Market Expectations
• Strategic Initiatives/Management Stretch
Debate is good
but avoid
iterations and
never set
unrealistic goals!

How One Organization Applies Top Down Target Setting
20
Group  Region
• Group sets targets for each Region
based on several factors:
Latest Rolling Forecast
Prior 3 Year Plan
Current Economic Indicators
Industry Forecasts
Competitive Outlook
Management Stretch
External Market Expectations
• Annual targets include at a Minimum:
 Revenue
 EBIT
 LGO
Regions 
Markets/Divisions
• Region allocates targets to
Divisions based on several factors:
Maturity of Business
Business Size
Current Economic Indicators
Competitive Outlook
Market Growth Expectations
• Initiatives focused on key
business drivers are developed to
close gaps between targets and the
latest rolling forecast
Markets/Divisions 
Units
• Divisions allocate targets to
units based on several
factors:
Business Size
Growth Expectations
Known Events
• Review of Targets Necessary
to Gain ―Buy-In‖

Leading Practice Consideration – Adopt ―Driver‖ Based Models for
Forecasting Reporting and Analysis
21
Strategic
Objective Driver
Financial
Target; Margin
Financial
Target; Revenue
Growth
Financial
Target;
Operating
Expense
Financial
Target; Capital
Expense
Driver Based
Models can be
used to effectively
align strategic
objectives and
business
performance …

Drivers for Select Industries
22
• New Customer Adds
• Average Rate Per Unit
(ARPU)
• Customer Churn/Churn
Rate
• Number of Sales Orders
• New Customer Conversion
Rates
• Marketing Spend
• Promotional Spend
Telecom.
• Store size
• Days open / hours of
operation
• Population growth
• Program participation rates
• Transactions per day Average
check size
• Pricing strategy
• Employee engagement
• Weather
Retail Consumer Products
• Volume/Units Shipped
• Price/Pricing Flexibility
• Market Growth Rate
• Market Size/Market Share
• Category / Market Growth
• Coupon redemption
• Return Rate / Rebates
• Promotional Discounts
Rate

Driver Based Model Example – Consumer Products Industry
23
Revenue Gross Sales
Forecasted
Demand/
Volume
(Units)
Forecasted
Market Size
(Units)
Historical
Market Size
Market
Growth Rate
Market
Economic
Growth Rate
Market
Population
Growth
Consumer
Usage Rates
Cannibalization
Product
Extensions/
Innovations
Other
Macroeconomic
trends
Historical
Market Share
Forecasted
Market Share
Change (Pct.) Brand Loyalty
Marketing and
Promotional
Spend
Effectiveness
New Product
Introductions
Competitive
factors
Forecasted
Average Unit
Price
Historical
Average per
Unit Price
Price Change
(Pct.)
Package Mix

Driver Based Models; Forecast Examples
24
• Deploys a continuous 12 month rolling
forecast process
• The process relies on key performance
indicators to provide ―early warning ―
signals
• Adopted driver based forecasting model
• Forecasts are based on 8 key drivers
that have the most impact on
performance (e.g. fuel costs)
A leading domestic Airline…
• Eliminated overly detailed spreadsheet
based forecast process
• Determined that a select few drivers
explain 80% of the financial results (e.g., #
of new cards issued, avg. spending per
card etc.) required to estimate revenue
• Utilizes the driver based model to forecast
short, medium and long term performance
A global Financial Services
company…
Source: Beyond Budgeting Roundtable

What Does the Research Tell Us?
25
Which has/would give
your organization most
benefit in improving the
confidence of forecasts?
 Recent KPMG Research; ―Forecasting with Confidence‖ surveyed over 500 finance executives
leading the forecasting process…
 Finance executives in the survey point to five main process areas where improvements need to
be made to enable more reliable forecasting

Integrated Reporting Models
26
Outputs
Reporting Management Process
Scorecard,
dashboards, and
management
reporting
outputs should
be linked with
drill down
capabilities
Daily Weekly Quarterly
Scorecard
Dashboards
Reports
Report
Type
Time
Period
Size of Available Information on
Specific Metrics
Size of Available
Information

Integrated Reporting Models – Driver Based Reporting and
Variance Analysis
27
Traditional Variance Analysis
Units
Plan = 100
Actual = 80
Revenue
Plan = $10000
Actual = $8000
Net Price
Plan = $100
Actual =$100
Driver Based Analysis
Conclusion: We held price stable and lost
market share, we need to adjust our pricing!
Units
Plan = 100
Actual = 80
Revenue
Plan = $10000
Actual = $8000
Net Price
Plan = $100
Actual =$100
Market Share
Plan = 10%
Actual = 16%
Market Size
Plan = 1000
Actual = 500
Conclusion: We doubled share in a shrinking
market, will this market recover?
Revenue Target Missed

Leading Practice Consideration – Scenario Analysis through
Predictive Analytics
28
It is about leveraging
data to dramatically
improve insight and
decision making
capabilities. The CFO
is in a unique position
to drive increasing
value in this space…
CFO of a leading Global Consumer
Products Company

Leading Practice Consideration – Alignment of
Incentive Compensation
29
Key Considerations…
• Decoupling incentives from the annual
budget or financial targets
• Applying incentive programs based on
optimizing company wide performance
• Evaluating results for incentive
compensation purposes over multiple
years
• Apply incentive programs in the context
of relative performance across the
industry and in comparison to peers
To Avoid…
• Negotiated targets that lead to excessive
gaming to meet incentives
• Applying incentives that are too heavily
weighted toward short term/annual
performance
• Applying incentives that are too heavily
weighted on financial outcomes
• Restricting partnering and teaming across
the organization

So What is the CFO’s Role?
30
The role of Finance should be to lead the
introduction and ongoing execution of a
fully integrated Corporate Performance
Management process

© 2014 Proformative31
Autonomous Strategic Alignment
Governance/
Service
Management
Localized, onshore
structure
Integrated Function/
Effective and
Efficient
Organization
Scorekeeper
Business
Partner/Driver of
value
People
Locally specific
Standardized and
optimized
Process
Multiple
tools, fragmented
data
Enterprise Wide
data model /
systems
Technology
Global governance
structure: KPI-driven
Policies and procedure reflect
common
methods, processes, technologie
s, KPIs & reporting
Local (Business Unit)
FP&A reporting into Local
Mgmt / dotted line to CFO
Strong alignment with
CFO (“hard dotted”) –
some centralized some
localized
Integrated FP&A
community – Global
Operating Model
Low degree of standardization
and automation, budgeting and
forecasting effort intensive
Standardized analysis &
transaction monitoring
Rolling, business
owned, fully integrated with
actuals, trending and
predictive capability
Constructive
Challenger, Influencer;
global staffing model
Commentator /
reporter, business acumen
and financial knowledge
Guardian, rule-
based, reactive, ad-hoc
analysis performed by local
support
Standard tools and
applications, on single
design
Fragmented, siloed data, effort
spent on
extraction, manipulation, and
reconciliation.
Standard
systems, interface layer
and recommended data
models
Distributed; siloed
mentality
Basic Progressive Leading
Key Dimensions of the CPM Operating Model
It is About Becoming More Strategic…

A Framework for Implementation
33
Governance / Controls Layer
Identifies the specific controls that are in place to mitigate
operational and financial risks and exposure.
People Layer
Describes how people are organized. Outlines
skills, roles, responsibilities and support activities for each
process area.
Functional Process Layer
Outlines how specific process steps link to functions or
departments that perform the process
Supporting Technology Layer
The applications that are used to enable the
processes, policy compliance, internal controls, and reports.
Data and Reporting Layer
Includes Information requirements to drive key business
insight and optimized decision making
Service Delivery Model Layer
Describes how finance services are delivered. Includes
Shared Service Center and outsourcing concepts.
Key Framework Aspects

Common Implementation Challenges
34
Strategic Prioritization Organizational Alignment Current State Operations Governance & Compliance
Ability to effectively define,
prioritize and plan the
transformation program
Achieving a common vision and
commitment across the finance
function
Lack of a common end-to-end
understanding of current state
operations
Establishing the right governance
structure and framework for the
organization
Information strategy is not
aligned for providing the right
Key Performance Indicators
(KPI’s), metrics, measures
Decentralized and autonomous
business models
Undefined business processes
with unique and/or poorly
defined business requirements
Governance and standardization
of data, systems and processes
across the organization are not
aligned to the information strategy
Securing and justifying
funding of the transformation
program
Securing cross-functional
support from other
organizations such as IT and HR
High degree of system
proliferation, disparate systems
with limited consistency across
redundant and shadow systems
Ensuring alignment with an
increasingly complex regulatory
environment
Maintaining alignment
between the program and on-
going business priorities that
may change
Challenges freeing up the right
talent necessary to enable a
more strategic finance function
Informational and reporting
challenges from poor data quality,
lack of standards, or
understanding of business
information requirements
Addressing impacts on the tax
landscape that may result in
unfavorable tax positions

Critical Success Factor – A Business Integration Approach
A business integrator approach focuses on overall value delivery versus just technology
implementation
Technology Implementation becomes Business Enablement
Systems Integrator Business Integrator
Technology as the driver Business transformation as the driver
■ Technology platform centric
■ Driven by IT
■ Automation focused
■ Success measured by timely deployment of technology
■ Technology is always the answer
■ Poor ROI from many programs
■ Starts with data (report on what I have, not what I need)
■ Target operating model–centric
■ Strategically aligned with business objectives
■ Business led
■ Process focused
■ Value added service delivery
■ Success measured by achieving business value
■ Technology is one enabler of transformation
■ Considers the technology needs within the larger
technology portfolio
■ Analytics enabled
■ Reduce time to value

KPMG Thought Leadership – Current Series
• In late summer and early fall of 2012, CFO Research, in collaboration with KPMG LLP (KPMG), conducted extensive research to find out
how CFOs at large companies are planning to use technology to further their strategic initiatives over the next two years. The Intelligent
Finance Organization (IFO) series consist of a total of eight briefs, reporting research findings from the joint study. CFO Research deployed
an electronic survey to senior finance executives at U.S. companies with more than $1 billion per year in revenue, receiving 358 qualified
responses. We also conducted in-depth interviews with 10 additional CFOs.
Research Summary: Intelligent Finance Organizations
This research summary demonstrates that CFOs are
focused on changing the goals of their finance
organizations: they look to strengthen their strategy &
planning functions, empower their organization with
improved data capabilities, and capitalize on evolving
technology.
IFO Series: The Right Information, in the Right Hands, at the
Right Time
This CFO.com brief is the third in a series that reports findings
related to the widely differing stages that companies are in when
it comes to collecting and processing data quickly, converting it
to actionable information in real time, and delivering it promptly
to the right people—wherever they may be.
IFO Series: The Goal Line is Always Moving
This CFO.com brief is the first in the series that
reports findings related to the continuously
moving goal line that leaders are faced with
when it comes to analytical capabilities, and how
technology plays a huge role.
Please visit the following site for more information on these articles and more
http://www.kpmg.com/US/en/cfo-research/Pages/Default.aspx

Additional Links to KPMG Thought Leadership
39
CFO – Intelligent Finance Organizations:
http://www.kpmg.com/US/ifo
Value Driven CFO White paper:
http://www.kpmginstitutes.com/advisory-institute/insights/2013/value-driven-cfo.aspx

40
Tony Bevacqua
Principal
Financial Management
KPMG LLP
1601 Market Street
Philadelphia, PA 19103
anthonybevacqua@kpmg.com
Tel 267-256-2929
Fax 267-285-4299
Cell 610-613-2511
Bo Poulsen
Director
Financial Management
KPMG LLP
303 Peachtree Street N.E
Atlanta, GA 30308
bpoulsen@kpmg.com
Tel 404-650-
9553
Fax 404-601-
9799

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