Corporate Performance Management — Thinking About Hierarchies Is Thinking About The Vision
Corporate Performance Management (CPM) technology offers a wealth of time-saving, data collection, 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 might 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. Like stacking wooden blocks.
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 might 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?
Consider legal entity and management responsibility, line of business, geographic market, customer, and product/service offering.
Ask yourselves what is the necessary detail and slices of the business to develop and monitor the firm’s financial performance.
You see how hierarchies support building the business and financial plan.
Key question — what are the outcomes you (leadership) seek to achieve, and how will you measure progress toward those outcomes? Not just outputs (a lot of activity) — but did the process, work, or capital initiative — deliver the intended results? How will you measure incremental progress?
Will your model easily support building the financial plan and scenario analysis? Can you collect business assumptions and tie together the business case with financials?
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?
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.
Best practice tip: 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 technology to have a conversation with the data.
