Why EPM? How?..

This article will resume the way SAP EPM define their various products and show some recommendations for projects:

SAP Strategy Management

• Management strategies (Vision and Mission)
• Establishment of strategic map
• Monitoring indicators (KPI, KRI, Triggers…) above
• IT Independent

SAP Profitability and Cost Management

• Reports profitability by different actors in the business
• Reports of different types of costs
• Implementation of financial models based on the financial rules
• Economic Value Added

SAP Business Planning and Consolidation

• Creation and monitoring of budget
• Rolling forecast
• Financial consolidation and / or other
• Modeling for important aspects
• Reports no difference , only reality

               EPM

How companies must integrate these solutions?
The order must be in the form of a pyramid, Strategy Management, Profitability and Cost Management and Business Planning and Consolidation.

It is noteworthy to mention that there are cases where the order is in reverse order: better implement and achieve the objectives better suited to the culture of the company.

Is There a difference between different software houses offering EPM ?
Reality and experience indicate that beyond the software house, the successful implementation 50 % will be related to the expert that promotes and makes recommendations at the time of the design of the solution. The remaining 50 % will depend on the health of ERP system, alternative systems and core business system.

In many cases these projects seem as a whole and worked in proper order can reach an implementation period of about 1.3 years for three (3) solutions. However, sometimes this time becomes 3 times larger.

Let us know why happen:
When starting a project, the client tends to focus on their current need, the expert does not expect to understand the impact into the solution could happen when not considering future options such as EVA estimate, cost of capital by product, etc. This new changes to currently implemented models creates a second phase of unexpected changes. THIS IS WRONG

The expert must make really business consultancy to client and customer should understand that this is the first step to implement a best in class solution model; it is an integrated solution EPM and as such should have all participation of CFO / CIO of the company.

The best way to participate in these projects is through open and conversational sessions with the client. Much more difficult is to find Fixed-price projects whose requirements do not lead to changes in the future.

The measurement of the main indicators of the company must be present in all areas of EPM; the measurement should be possible from a financial point of view. Finally it is the shareholder who reviews them.

Focused with the aim of keep informed to senior management and shareholder then, establishing a priority order in discussions with the requirements requested by the customer in order to anticipate changes. A classic example is EVA (economic value added), which measures the result of the management of the business and therefore what size the cake has increased or decreased.

Another practical example is the WACC (weighted average cost of capital), which is requested by auditors and lenders.  Make click for more information about EVA:  http://www.investopedia.com/terms/w/wacc.asp

We must do more consulting business!

In this case I propose to start with a consulting business framework as the following:

We need to use different methodologies and business tools to implement solutions related to EPM concepts. Is not only a “AS-IS” vs “TO-BE” design.

After all, it can be concluded that this type of projects are not based only in a technical vision, but on a vision that is more related to business consulting in initial stage. How Data must be moved, migrated, transported or any other aspect is not a problem bigger than model a financial vision when the main goal of the project is automate a Strategic / Financial Process as budget. This is the bigger mistake on failed projects, more time than expected, cost consumer, re-evaluation. Sometimes cheaper à expensive.  

My recommendation is to address these projects with a separate aspects below a framework that involve: Financial processes, technological base, agents and consumer.

Daniel Juvinao

Twitter: @danieljuvinao

BANKS PERFORMANCE

BANKS PERFORMANCE

To improve  banking operations It's important to adapt their processes to respond to internal and external users in shorter times.

Generally, there is a tendency to compare financial results between different regions. The impact on net interest income becomes the results comparative metrics which, do not necessarily represent the real money market impact on balance because is in a different context in terms of regulations , customers and culture.

The Latin America region, banks have adapted to use specific applications, not always performed by appropriate advisory team, so It makes dificult to have applications to bring a full range of banking services available in a region, if these applications are not in context and do not provide appropriate solutions, which are not oriented to real customers needs. These solutions usually are sold and forced to be adapted rather than being adopted , thus generating more work, major changes, more cost and more effort , issues which ultimately may also be more frustrating due to longer time invested in its implementation.

Investments oriented to operational improvements based on reducing decision making time, must be supported by best in class teams in the industry, where low tolerance to failure must be implemented because it affect banks financial results in different ways (customers, delinquency , operating errors ... finally returns and profitability).

How can be defined the profitability of a bank in practical way so it is involve simple process improvements and technological support?  

Must be defined the priorities of a commercial bank, where main clients in Latin American, has specific consumer expectations, culture, and needs which are substantiated on the current environment.

Regulatory impact on financial margin requires greater analysis, and a management team oriented towards financial efficiency.

Lets see an example:

Analyze whether the performance indicators are representative in circumstances where the environmmet  is volatile. Some indicators such as Bad Debt can be transformed into Bad Debt under assesment, where the assets are adjusted to market risk + risk inherent to the own portfolio. An example: From a risk perspective, an in-customer is low risk, same out-customer is high risk, it is an overall good customer?

How can this point be achieved without technological support? How can we achieve reorienting technology to support to functional experts at work, so they can take proactive tinking and make assertive business decisions? One of the most important aspects for considering these changes is time of response, which is crucial to obtain valuable information that let analysts answer the following questions.

What it is the CFO, asking for, when arrives to your office?

• It is the liquidity level within the tolerance margin?

• Is the transactional cost being optimized?

• How are the costs vs. income, expenses, revenues, gross margin, etc.?

• Pool rate is appropriate to the opportunity cost?

What’s the CMO ask?

• How is the customer level satisfaction for each channel?

• Has improved customer profitability?

• Has changed customers loyalty, retention rate?, queries?

What's the CIO ask?

• Does the platform operating 24x24?

· Which are the top reasons affecting delinquency level?, economical environment reasons?

• Are risk assessments and compliance polices applied?

• ...

To answer some of these questions, have been developed some solutions that let redirecting functions from the technological support to the functional expert, letting IT Team focus to maintaining the operation of the systems available 24x24.

It is vital for the banking operation to adjust the response in shorter time; we should not talk about researches cross regions; in our region, we have to see how banks adapt the use of targeted applications with an appropriate equipment and with appropriate consulting. It doesn’t makes any sense to have all banking solutions available if does not have the right consulting and functional team working together for finally satisfied customer’s needs. The Investments based on operational improvements for the reduction of time in the decision making must be supported by the best ones in the industry, no opportunity is given to failure, because as we saw earlier, this issues directly affects bank financial results by different angles (customers, delinquency, operational errors, and finally profitability)

What prospects solutions do we have available on Market?

A set of solutions that allows answering all the questions outlined above and many more ... EPM Enterprise Performance Management and Business Intelligence, both designed to create a view integrated and consistent of the different angles listed above. https://help.sap.com/boepm/

1. So, how is defined profitability in banks?

As ROA, ROE, Margin, Spread (%) and any ratio that connect cash flow or net income to the resources invested

2. What about profitability by branch?

First, in order to be profitable, there must be continuity in the operation and innovation process in the branch; in this case, we measure quantitative effects (customer assets, deposits, gross interest income, fees, expenses, costs, etc.) and qualitative effects (customer service) that impact the overall result of the bank. They are (branches) almost self-sufficient entities that distribute products and services.

If we look at the portfolio of EPM (Enterprise Performance Management), we would find a solution that will allow us to model this vision of profitability; a tool for example as SAP PCM (Profitability and Cost Management).

Other solution is SAP Business Objects, which allow you to create logical cubes with ETL process that will leave us assign costs, expenses and income to a particular type of branch.

Let’s take a view:

A.      SAP PCM

PCM provides a more intuitive and focused interface to be used by the finance team, so it is a more flexible tool that can be used independently of the IT team to create profit/cost models.

It can be integrated with DB SAP and Non-SAP.

BENEFITS

There is a higher quality in the reports of profitability and costs in different dimensions, due to  SAP PCM eliminates the distributions of income, costs, expenses and investments layers and iterations which is done through a large volume of data and dimensions. Example:

• Customer profitability.

· Customer Net revenue

• Customer Service satisfaction.

• Profitability per branch.

• Cost per serving.

• Logistics costs.

• Costs per transaction: back, middle and front office.

• Customer value, over the time.

• Economic Profit (Economic Value Added) by cost object.

Several alternatives to issue information, either on own web reports, emission data to other databases and data warehouse or business intelligence tools whether or not SAP.

In relation to the model and financial process

• Management of the financial model independently of the IT area.

• Flexibility to handle various versions of the financial model (Actual, Budget,

Prognosis, Economic Value Added).

• Provides the simulation scenarios based on indicators planning and continuous forecasts.

• Reports of errors and warnings of calculation, which allows to the owner of the model to have better control of calculations, and maintain safety and reliability of the information that is provided to users.

• Execution of calculations with a large volume of data in a short time (this point it is certainly a great differentiator).

B.      SAP BUSINESS OBJECTS

Other solution is Business Objects, which allow you to create logical cubes with ETL process that will leave us assign costs, expenses and income to a particular type of branch.

It’s possible to create indicators as KPI, KRI, and other performers to track the branch profitability. We must incorporate some predictivity potential with Predictivity Analytics to make a best practice and become a successfully branch management.

Do you think this it is possible?

This article is dedicated to the profitability and cost management, in future articles will be analyzed the different EPM solutions that deal with Planning and Strategy, including more details.

Daniel Juvinao

Banking: Customers View - Q&A Part II

The Bank is good performing with current Banking Core, and then what do you suggest we need to improve?

In this case, transactional Core business is good supported but is this information available to CFO, COO, CMO, CEO….?

What about information visibility to managers and when is available to make decisions?

So, from my experience, this is the order of things you need to focus in order to support Directors and Managers to conduct appropriate decisions on time:

a.       Strategy Vision (Try to understand why your company need to perform this process
b.      Financial Vision (Where  money come from and what is going to be used for)
c.       Operational Vision (Understand your macro chain processes and evaluate their pensiveness to a and b points.
d.      Risk Vision (In any step of your vision, focus in: operational risk, credit risk, market risk, free risk, franchise risk and cross border risk, translate to figures and triggers)
e.      Shareholder vision (What do they expect from their capital)
f.        Competitive vision (Understand your market share and position in your peer group)
g.       Market Vision (Understand what your company wealth is producing for market)
h.      Working Capital (Do we need a plan career, a valuable position, avoid competitor stolen, provide training on specialist matters and culture)

Once you have evaluated these eight points, you need to answer from top down way, what IT can offer for your company.

Check de following picture I do for you:

 

As you can see, try to focus yourself in the company and start to interact with peers to find an appropriate sponsor to improve numbers and performance.

How can I convince the company that actually needs to implement a solution to improve my team performance?

It’s not an easy way to convince your boss, but I suggest four points to at least he thinks about it

1.     KPI Based, use your team KPI performance and calculate how much you think can improve with a new solution
2.        Objectives Based, measure not reached objectives and probes you can reach this year with the new solution.
3.       Vision & Mission based, align your point 1 and 2 with your boss Objectives and CEO Vision into a special RFP. Include a functional rationale a business rationale, and an Overall better performance due to better deliveries to other areas.
4.        Resources Based, use a capacity plan with your current team and create a cost plan that allows you to define the need to hire external resources.

 Be prepared to defend your proposal!

How can I make a capacity plan to actually convince my boss?

You should actually think like him to start a proposal. So, to convince your boss, you need to include her experience and skills as your adviser to your proposal, next try to mix your objectives with her feedback.

Next, answer five questions to him:

1. Who
2.  How
3. When
4. Where
5. Risk & Opportunities

At this point, only you need your teams cost by hour, sizes your subordinates’ occupancy % and demonstrate they are at least 85% working.

Next, calculate how many hours do you need to do not interrupt your current service and how many labor hours you can use to continue in compliance with your current KPI.

In other words, you can work in your usual job as the new project, even without altering your current performance.

Finally, translate to numbers, hours, weeks and occupancy%