CPM & Hierarchies - The Blueprint For Your Business Transformation

Corporate Performance Management (CPM) technology offers a wealth of time-saving, data integration, and accounting functionality. Good, but the hidden nugget - the real value - that CPM delivers - is modeling your business by cleverly using hierarchies.?

Model your business to understand today and envision how the company can operate.

You are already familiar with hierarchies - but a quick refresher.

Look at your calendar:

Days add up to weeks; weeks add up to months; months add up to quarters; and quarters add up to years.

Consider products for sale:

Product SKUs add up to Product Type; Product Types add up to a Product Line; Product Lines add up to a Product Class; and Product Classes add up to a Product Family.

The core of the CPM solution is a model defined by a collection of hierarchies.

You may be thinking, oh, another technical blog - but no!

CFOs, Controllers, and Business Leaders - this is your opportunity to think about how you want to analyze and report today's data. How will you evaluate the business in the future? Are there economic or marketplace events that might change how the company is structured? What are the detailed bits of information, and how do they aggregate to create a broader view of the firm?

Ask yourself what is the necessary detail and slices of the business to develop and monitor the firm's financial performance.

For example, a hotel chain COO, CFO, and local Market Manager must understand the interplay between market offerings (services for sale), customer segments, and geographic market.?

The COO considers it critical to view hotel property operations performance - cost variances, utilization rates, and unplanned vs. scheduled maintenance.? The CFO believes viewing each property type’s operating profitability and cash flow contribution is critical. The Market Manager considers it imperative to understand customer growth and the costs of services.

The brief story introduces a line of business and hotel property hierarchy plus measures (e.g., sales, cost of sales, utilization rate, etc.) and time in addition to product, customer, and geography hierarchies.?

Key question - what are the outcomes you (leadership) seek to achieve, and how will you measure progress toward those outcomes? Not just outputs (e.g., sales) - but did the process, the project, or the capital initiative - deliver the intended results? Measure the effectiveness of initiatives leading to outputs.

Navigating the hierarchies should illuminate performance where work and accountability take place.

Back to the business model: consider each hierarchy as a discussion prompt - how is the business operating by examining each hierarchy independently and as a collection? Does it bring together stakeholders to focus on common objectives??

The model collects relevant actual - financial, and operational - data to report current results. The model looks forward by tying key projects to operative outcomes to financial progress toward the firm’s objectives.

Discussing, debating, and crafting the hierarchies is much more a management conversation about the future state of the business and how we fold today's information into that picture.

Lesson Learned: Stakeholders as your team prototypes the model, schedule a review where you pose questions from your last quarterly close, budget presentation, or board review. Does the model provide the needed insight?

Use the CPM technology to have a conversation with the data.