Unlocking Analytics-Based EPM with Gary Cokins

Gary Cokins , the godfather of Enterprise Performance Management (EPM) and the innovative mind behind Analytics-Based Performance Management, shares his philosophy on using analytics to drive EPM.

Here is a peek at what you’ll learn:

• What is EPM?:?? Gary simplifies the definition with a broad mandate.?
• The Eight Forces Driving EPM Adoption: Gary outlines the top challenges compelling CFOs to embrace EPM methods. From the mistrust of traditional cost accounting to the executive frustration with strategy failures, get insights that can transform your finance function.
• Leadership and Behavioral Change Management: Understanding the human factors, including resistance to change and the need for behavioral change management, are key considerations to guide your EPM journey.
• Rapid Prototyping: Discover Gary's approach to bypassing the complexities of implementing activity-based costing. Learn how rapid prototyping can achieve results in just weeks, not months, and get your team on board quickly.
• The ROI of EPM: While calculating a precise ROI may be challenging, Gary suggests that a shift in mindset and faith in analytics-driven decision-making will yield high dividends.

I. What is EPM:?

Enterprise Performance Management is the integration of multiple methods, each embedded with business analytics, such as segmentation analysis, and especially predictive analytics … designed to achieve the strategy by making better decisions. Unlike traditional management accounting, which often focuses on compliance and historical reporting, EPM incorporates strategic management tools, activity-based costing, and dynamic forecasting to drive better organizational alignment and performance.

Regardless of how EPM and analytics are defined, there? should be no argument as to their purpose:

...Better Decisions... Better Actions.

The goals are to gain insights, develop foresight and solve problems that result in better and quicker decisions with more accurate and fact-based data, and to take actions. It is the use of internal and external data to provide a competitive advantage to an organization.

II. The Eight Forces Driving EPM Adoption:

Here is Gary’s list:

1.???? Failure by executives to execute a well-formulated strategy

2.???? Mistrust of the managerial accounting system for transparency and accuracy. Mistrust of the managerial accounting system and its flawed cost allocations and misleading cost reporting of outputs, products, standard service-lines, channels, customers and outcomes.

3.???? Poor customer value management.?? Strategic – The shift from being product-centric to customer-centric.

4.???? Contentious budgeting – poor resource capacity planning. Contentious Budgeting – The budget is typically a fiscal exercise by the accountants that is:

(a) disconnected from the executive team’s strategy, and

(b) not based on future driver volumes.

5.???? Increased accountability.

6.???? More rapid decision making.

7.???? Dysfunctional supply chain management.

8.???? Unfulfilled promises from IT systems – lack of integration.

Gary ranks the top 4 forces for EPM adoption and how leaders can address them

Executive Frustration with Strategy Failure

Executives should be focusing on aligning employee behavior with strategic initiatives. They can also lean in on tools to right their strategic failures. Gary signaled two in particular, Strategy maps and Balanced scorecards.

Mistrust of the Management Accounting System for Accuracy

Gary is a critic of most cost accounting methods, in particular, their ability to accurately assign costs to customers or even business segments. He advocates for Activity Based Costing as a method that reduces the problems normally encountered with disagreements about overhead cost allocations. (in Gary's words, "most overhead allocations are like spreading butter over a slice of bread."). He recommends leaders use a costing method that provides insight into profitability at the level they require.

Poor Customer Value Management

One of the biggest problems in management accounting is the lack of focus on customer profitability. There is plenty of focus on product profitability but to become customer intimate we must understand not only the sales made to our customers but the costs incurred to acquire and retain a customer. Being able to segment customers is one of the first steps to moving from Cost + pricing to Value pricing. For more on how CFOs can impact customer value and pricing take a few minutes to watch this, CFO Talk: Pricing Excellence and the CFO with Lynn Guinn

Poor Budgeting

Historically budgets have been created using arbitrary sales growth figures and cost reduction targets based on the previous periods performance. Gary urges executive to use driver-based relationships for budgeting. He is also a big fan of using rolling financial forecasts and capacity management tools to maintain a forward facing mindset in developing your EPM system. This CFO.University course, Business Planning I: Introduction to Planning , will get you and your team on the same page when it comes to planning.

Many of the concepts in this edition of the Future of Finance Leadership are from an episode of CFO Talk with Gary. You can view or listen to it here, CFO Talk: Analytics Based EPM .

III. Leadership and Behavioral Change Management:

To implement EPM successfully leaders must overcome resistance and manage organizational change effectively.

I think the number one lesson learned implementing these [EPM systems] is that it's got nothing to do with technology. It's got nothing to do with processes. It's got nothing to do with software. It's all about people. - Gary Cokins

A Core lesson: Colleagues resist change due to the fear of the unknown.?? Communication that makes the future more certain will help break down this resistance.

Key resistance concerns that need addressing:

1. The fear that in some way the new system will reveal poor performance on the employee’s part.??

Resolution:? Training and clear communication on the performance requirements post implementation can calm this fear.??

2. Fear of accountability and measurement.?

Resolution: Leaders who face this concern have not adequately trained or communicated with their employees in the past.?? See the resolution above.???

3. Fear of misguided leadership.?

Resolution: See 1 & 2 above

Like any significant system instill, implementing an EPM system is as much about change management as it is technology and learning new skills. The cause of most implementation failures is due to poor or ignored change management practices.

IV. Rapid Prototyping & Interactive Modelling:

Gary is a strong proponent of engaging with a speed-to-results approach for activity-based costing and strategy maps that encourages organizational buy-in from the start.

Here are Gary's steps for rapid prototyping of the strategy map used in EPM :

• Involve the executive team early. This is essential for project leadership and, ultimately, employee buy-in
• Start by creating a high-level model (A SWOT analysis can help here)
• Build an interactive model. Engage stakeholders at all stages to increase the speed to results.?
• Balance additional units of accuracy with the need and cost to obtain the new level of accuracy. "Perfection is the enemy of progress." - Winston Churchill
• Quickly iterate incremental improvements to build a minimally viable EPM system in weeks rather than years.

V. The ROI of EPM

With EPM being " the integration of multiple methods, each embedded with business analytics...designed to achieve the strategy by making better decisions" it includes many moving parts and multiple paths to achieve success. This makes calculating the ROI on building and implementing an EPM system time consuming and difficult to project. Gary's approach to projecting financial returns on EPM is to not waste much time on them; but understand the logic behind connecting disparate parts of the business with data and analytics. The value will becomes obvious.

Faith in analytics-driven decision-making will yield high dividends.

"In fact, when people say, what's the ROI on EPM? I say, Well, that’s relative. Give me the ROI on the general ledger." - Gary Cokins

In Andrew Lee 's CFO Ed Talk, System Implementations can be Successful , Andrew shares tips on how to succeed at large system implementations. His teaching comes from experience.

Explore our other CFO Talks for great CFO-Centric messages from global business leaders. Find solutions to the issues you working in our CFO Talk Library.

VI. Conclusions

Final Remarks on Leadership

?This episode of CFO TALKS, featuring Gary Cokins, reads like a masterclass in EPM. Gary's rich background, coupled with his practical, no-nonsense advice, provides a solid blueprint for finance leaders. It’s not overly surprising that change—human, not technological—is the underlying theme. Adaptation, curiosity, and a readiness to question could be the new currency of success in the finance world.

For those stuck in the comfortable quicksand of outdated practices, consider this your call to action. Whether it’s rapid prototyping, embracing faith-based ROI, or simply adopting a more people-focused approach, Gary's insights could propel your organization into the future. Time to trade in the abacus for an analytics dashboard and steer the company ship through the data-driven seas.

So, next time you think about balking at budget inaccuracies or questioning the value of up-to-date performance management systems, remember Gary's lessons. Jump in with both feet, question fearlessly, and let analytics light the way. The future is bright, and Gary Cokins just handed us a roadmap.

In today’s complex business environment, the best leaders ask the best questions to navigate uncertainty and complexity. This approach encourages a culture of continuous improvement, learning, and innovation. - Gary Cokins

Post Script

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All the Best,

Steve Rosvold

Chief Learning Officer, CFO.University

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