Making BPM Pay Off

Microsoft Corp.’s recent moves into the business performance management (BPM) tools market–with its emphasis on budgeting, planning, forecasting and reporting–has raised the profile of a finance technology sector long dominated by the likes of Hyperion, Cognos and more niche players like OutlookSoft. Now, a new study from The Hackett Group identifies what, intuitively, experts had suspected: There are quantifiable financial benefits from adopting best practice BPM (also known as enterprise performance management, or EPM). In a study of more than 200 large companies, those in the top quartile in both efficiency and effectiveness measures were designated “world class” in their BPM practices. The elite group had, on average, 2.4 times the equity market returns (stock price performance plus dividends) on a three-year average basis than their industry peers and had significantly lower operating profit volatility. “What we’ve shown is a clear correlation,” says James Creelman, senior business advisor at The Hackett Group. “The combination of higher equity market returns and lower year-over-year profit volatility pretty clearly shows that [these] world-class companies share the kind of higher level of control that BPM provides.”

There could be several factors at work, which contribute to that control–both process and automation oriented. Non-technological BPM best practices include the use of top-down budget targeting established by corporate staff, rather than traditional bottom-up targets. Another trend is reducing the number of line items in their budgets. The best practice companies relied on 37% fewer line items than their lower performing peers, and they were 44% more likely to use rolling forecasts, for part or the whole annual budgeting process.