Corporate performance management helps drive improved results
INSIGHT ARTICLE |
Private equity (PE) firms excel at acquiring, developing and managing high-performing companies. Two critical components to managing a strong portfolio are the portfolio company’s people and the availability of key data points. However, maintaining portfolios of companies with diverse and often outdated businesses processes and systems is a common pain point for many PE firms. Timely data collection and decision-making around financial performance is imperative to PE firms in order to stay ahead of their overall portfolio performance.
One way to address these challenges is by implementing a corporate performance management (CPM) platform. CPM is an umbrella term to describe software applications that automate budgeting, planning, consolidations, and management and financial reporting processes that enable a company to define, analyze and execute strategic goals. An effective CPM platform quickly aggregates financial and operational data from multiple data sources within a business, reducing the amount of time required to collect data and increasing the amount of time available for analysis to drive informed decision-making. CPM leverages both business process and technology to allow management to continually evaluate and assess where the organization is today, as well as to manage and react to changing conditions. CPM allows firms to become more goal-oriented and provides them with a tool for measuring progress toward goals.
Measure results and drive performance
At the portfolio level, CPM can be used to implement better reporting tools, data availability as well as drive a performance-based culture. Building this culture has a profound impact on the people within your portfolio company helping to drive results starting at the lowest levels. An old adage, what gets measured gets done, is aligned directly with CPM by creating department-level financial goals for portfolio companies and then ongoing monitoring of those goals along with overall organizational goals. CPM systems are designed to extract data and convert it into a desired format quickly with limited information technology (IT) involvement and deliver the results back to end users driving the ultimate behavior of achieving established goals captured within the system. This enables rapid evaluation of performance using key metrics, reporting and dashboards.
For portfolio companies, implementing CPM reduces reporting cycle times and enables newly added-portfolio companies to focus on providing accurate data and enhancing business operations versus spending time developing reports to mirror the private equity company requirements. CPM automates budgeting and forecasting which alleviates cumbersome manual data manipulation in multi-tabbed Excel spreadsheets.
Other benefits include:
- Improved comprehensive reporting
- Enhanced financial consolidation
- Speedy and sophisticated budgeting, operational and strategic planning, and forecasting
- Unique snapshot dashboarding, scorecards and advanced analytics
- Reduced risks and cycle time
- Increased data integrity
Questions to consider
To get started, PE companies should weigh CPM solutions that best fit the needs and priorities of the firm as well as its portfolio businesses. During this process, questions to consider include:
- Have you assessed the finance functions of your various portfolio businesses and determined gaps and needs?
- What are the challenges you experience in performing budgeting and reporting activities at the portfolio company level and at the private equity group level?
- Do you have clear reporting and goal tracking that are aligned with your investment thesis?
- Do your portfolio companies provide timely reporting of financials and key performance indicators (KPIs) in order for decisions to be made quickly?
- What are your anticipated future needs related to budgeting, forecasting, reporting, dashboards and more?
After weighing your specific needs, work with objective consultants to help with the process of selecting a CPM solution that will best fit your organization and provide the greatest return on investment. Once you’ve decided on the appropriate CPM platform, implementation is frequently done in a phased approach. This approach typically includes initiation, project planning and design, system design and pilot stage, and set up and training, all of which leads logically to the go-live launch. Implementation timing can take weeks or months given the scope of the project; however, results can be seen quickly due to the many efficiencies uncovered.
Financial reporting optimization via a CPM solution can be transformative for an organization, advancing a PE firm like yours from a reactive, transactional company to a proactive, analytical business. And, in today’s competitive marketplace, that may be the edge you need.
Get more business insights by reading Transforming the budgeting and forecasting process. Questions? Contact us.