corporate performance management
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Corporate Performance ManagementEssential Building Blocks for the High-Performance Institution
Table of Contents
The Basics: What is Corporate Performance Management? ......................................................... 5
How CPM Works: The Process of Planning to Performance .......................................................... 6
Building the High-Performance Institution: The Benefits of CPM .................................................. 7
The Building Blocks of CPM for the High-Performance Institution............................................... 10
Assembling the Building Blocks ................................................................................................ 17
Making CPM Happen ............................................................................................................... 21
How to Know If You Were Successful ........................................................................................ 21
Putting the "E" in CPM ............................................................................................................ 22
� Corporate Performance Management: Essential Building Blocks for the High-Performance Institution
The adoption of a Corporate Performance Management
discipline can provide tangible, measurable benefits for
those financial institutions that choose to do so. The
payoff is better decisions and greater certainty in the
execution of business strategy. The key to achieving
these objectives is an understanding of what Corporate
Performance Management is, and the order in which
the essential building blocks of Corporate Performance
Management must be assembled. Read this paper to
learn how.
Donald J. Shaurette
Product Marketing Manager
Corporate Performance Management
IPS-Sendero
Executing your institution’s business strategy has become
more difficult over time. Managing credit, interest rate,
liquidity and operating risks is a major challenge on
a good day. Legal, regulatory and compliance issues
further compound this challenge, and that’s before
consideration of other factors like industry consolidation,
new competition, and keeping customers happy. The
information you need to support decisions likely comes
from a multitude of places, may not be consistent, and
doesn’t arrive at the “right” time. The approach for
combining the outputs from your business planning
and measurement activities is probably fragmented and
unsynchronized. In addition, more effort is probably spent
assembling the information than analyzing it.
How do you ensure delivery of financial returns to
your stakeholders? How do you get from planning to
performance? Corporate Performance Management
(CPM) is the answer.
�
The Basics: What is Corporate Performance Management?CPM is a management discipline that frames the
condition, prospects and risks of an institution. The
intent of CPM is to improve overall corporate (institution)
performance by providing the insights required to make
timely, informed, proactive decisions. A discipline such as
this relies on a framework that links together the elements
needed to plan, monitor and manage the business
strategy of the institution, including the performance
measurements (the metrics), and the supporting
technologies that can bring it all together.
In The Strategy-Focused Organization, Robert Kaplan and
David Norton of the Harvard Business School suggest
failure to meet business objectives doesn’t result from bad
strategy; it results from bad strategy execution. CPM,
when properly orchestrated, creates the opportunity to
link business strategy to business execution, helping to
ensure attainment of goals.
A key assumption underlying CPM is that all participants
leveraging the CPM discipline are working from a
common set of data and assumptions about the business.
If the managers of an institution don’t have the same
understanding or interpretation of what drives the
business, or of the data used to describe results, the
information upon which decisions will be based will never
be viewed consistently and comparably.
Be clear on what CPM isn't:
• It's not a technology, but technology is certainly a
component of CPM's deployment.
• It's not a "scorecard" or "dashboard". These are tools
to structure, report and convey performance measures
and their degree and manner of attainment, and can be
used in that capacity as a part of CPM.
• It's not a "reporting" system. Reporting is a component
of CPM, not an end unto itself.
Implementing a CPM discipline is a multi-faceted exercise
that will involve the management of organizational culture
and change, not just the processes and technology that
can link business strategy to business execution.
Corporate Performance Management: Essential Building Blocks for the High-Performance Institution
1 Robert Kaplan and David Norton, The Strategy-Focused Organization, 2001, p. 1.
� Corporate Performance Management: Essential Building Blocks for the High-Performance Institution
How CPM Works: The Process of Planning to PerformancePlanning activities and goals linked to actual performance
measurement and reporting create a "planning-to-
performance" business process. Simply linking the activities
is not enough. CPM requires that the processes be
executed in a fashion that is both adaptive and iterative.
Figure 1 illustrates this process. As the institution executes
its business plans, a feedback mechanism is employed
to compare actual business results with those projected
in the plans, allowing the institution to react to and
anticipate situations or opportunities that vary from planned
objectives. These steps occur on a continuous, "closed-
loop" basis, allowing the institution to adjust and change its
plans, if needed, along with changing business conditions.
The process takes advantage of enabling technologies that
provide for rapid delivery of business critical information. In
addition, these technologies provide capability to include all
participants in the process that can impact plan outcomes,
fostering collaboration and the alignment of goals.
Having all planning-to-performance activities working
within the closed-loop helps maintain focus, limits
distractions and inconsistencies, and reduces potential
points of failure. Without a closed-loop process, planning,
budgeting, profitability and risk measurement, analysis and
reporting are at risk of being executed as disconnected,
standalone activities. When these activities are conducted
on a disconnected, standalone basis, the stage is set for
strategy execution to fall between the cracks.
Figure 1. Diagram of Planning to Performance Process
�
Building the High-Performance Institution: The Benefits of CPMSo why undertake a CPM initiative? If the strategic
and tactical issues you face in running your institution's
business aren't daunting enough, consider how Gartner
sums up the need to adopt CPM: 1) to avoid the risks
associated with failing to comply with government
regulations for reporting, 2) the competitive disadvantage
to late adopters as CPM becomes more widely used, and
3) the pressure to maximize current resource efficiency.2
These precepts are underscored by the complicated nature
of financial services in the 21st century.
Understanding that all financial institutions are not
created equal, it might be difficult to accept the "broad
brush" premise of value that CPM can provide. In fact,
there are many common benefits, in addition to the
overarching value of better, faster decisions and improved
certainty of plan execution, to be realized by financial
institutions of all types:
One Version of the "Truth"
By establishing linkages between all components of
the planning-to-performance cycle, and by relying on a
common set of information through which to continuously
plan, monitor and measure business performance, the
CPM discipline lays the groundwork for reliable decisions
to be made on the basis of interdependent management
processes supported by identical, comparable source data.
The question of "which view of the business is correct?" is
no longer a consideration.
A Business System Optimized for Planning-to-Performance
Cobbled-together approaches for planning-to-
performance can't possibly work as efficiently and
effectively as integrated systems and tools built specifically
for the task.
Take the case of spreadsheets. They are tremendous
productivity tools that have become a mainstay for
many institutions in terms of their execution of planning,
budgeting, reporting and analysis activities. However,
they are less than optimal as a "system" upon which
to base CPM given their inherent shortcomings...they
are cumbersome, difficult to control, and are frequently
inaccurate. For example, consider what can happen when
spreadsheets are used to support the budgeting process...
inadvertent data entry mistakes occur, formulas get erased
or overwritten, whole worksheets get reformatted and
critical elements are deleted, in addition to the many
Corporate Performance Management: Essential Building Blocks for the High-Performance Institution
2 Gartner, Avoid the Fatal Flaws of Business Intelligence and Corporate Performance Management, June 2005, p. 3.
� Corporate Performance Management: Essential Building Blocks for the High-Performance Institution
other error-creating events that can compromise budget
assembly, analysis and decision making. A well-designed
CPM system addresses these risks with embedded tools
that overcome them, while simultaneously leveraging
spreadsheet utilization and familiarity by system users.
Because CPM employs a systems approach intended to
optimize the planning-to-performance cycle, you should expect
meaningful enhancement to underlying business processes:
• They should become more accurate because of the
"controlled" nature of the system.
• Process cycle times should become shorter. Tasks can
be completed more rapidly, and decision making (both
reactive and proactive) should be accelerated because
information is available at the "right" time.
• Process costs should decline because of system efficiencies.
Imagine the business transformation that can occur when
certain activities that now take days can be accomplished
in minutes.
Of great importance is that fact that a CPM system
can foster accountability for planning assumptions
and business results through its architecture. A CPM
system is designed as a common platform possessing
the capability to both "look back" and "plan forward".
Historical results can be consistently analyzed, and the
future can be planned using multiple assumptions and
scenarios. Common data and tools, which in turn drive
common processes and methods, eliminate the ability for
managers to hide behind the reports they would ordinarily
create outside of such a system, and their analysis
and interpretations of that data. Besides, there is no
organizational learning created when business insight is
captured and catalogued in an "outside" system.
Better Governance and Regulatory Compliance
The increasing demands of a diverse group of stakeholders,
each requiring greater accountability around the management
of the institution's business activities, drives a need for greater
focus in this area. A management discipline that is linked and
overarching, and supported by appropriate systems and tools,
can provide the basis for the detailed oversight necessary to
address the many mandates for disclosure and compliance.
An attribute of CPM is that it is a framework, by definition,
that requires the existence of effective internal control
mechanisms to provide the deep business insight needed to
enhance business performance. Processes and policies are
defined and documented as the CPM framework is assembled.
�
Activities around external reporting and compliance can
no longer be managed as an adjunct to the business...
they need to be considered as integral components.
The closed-loop, iterative cycle of CPM acts as an early
warning system, allowing the institution to work ahead
of examinations and reporting deadlines to address
weaknesses before they become real problems, further
laying the groundwork for the execution of strategy.
Improved Transparency into Business Activity
Rarely can data that is inconsistent, incomplete,
insufficient in terms of its detail, or presented at
aggregated levels adequate for providing the level
of understanding necessary to manage business
performance. Further, data of poor integrity is probably
not auditable, nor will it provide directional benefit
regarding the risks facing the institution.
CPM's integrated approach, based on well defined uses for
its supporting information, establishes capabilities that can
expose the relationships that exist between results, the data
that underlies them, and related scenarios and assumptions.
Communication, Collaboration and "Buy In"
Because CPM has the ability to define common goals
and objectives for the institution as a whole, it can
communicate the corporate plan and make it relevant
to the lowest levels of the organization responsible for
planning and strategy execution. This creates alignment
from top to bottom.
It also creates fertile ground for collaboration and plan
"buy in". The planning-to-performance process is an
ideal feedback loop as plans are executed, results are
monitored, and business strategies are adapted to
changing conditions. Consider the value that enhanced,
bottom-up planning would provide in terms of precision
and accuracy in managing balance sheet and net interest
margin in such a collaborative environment.
Michael Coveney outlines the downside of not creating
a collaborative planning process that provides such a
feedback mechanism and "buy in" opportunity in The
Strategy Gap: Leveraging Technology to Execute Winning
Business Strategies. Specifically, employees require an
opportunity to provide input regarding their ability to
implement strategy. Failure to secure support for plans
will result in them not being executed.3
Corporate Performance Management: Essential Building Blocks for the High-Performance Institution
3 Michael Coveney, The Strategy Gap: Leveraging Technology to Execute Winning Strategies, 2003, p. 6.
10 Corporate Performance Management: Essential Building Blocks for the High-Performance Institution
The Building Blocks of CPM for the High-Performance Institution"Rome was not built in a day", and you shouldn't expect
your CPM framework to be either. Building a CPM
framework is a multi-phase process. There are practical
limits in most Institutions as to how rapidly new systems
and management processes can be implemented in a
given period of time. This might suggest that the value
created by CPM could be a long time in the making, but
this is far from true.
Realization of the value that CPM can provide does not
have to be deferred until all data, processes and systems
are linked. It can be attained incrementally as the
"building blocks" are assembled. The key to speeding
along the realization of value is in understanding what
value each building block provides in the context of an
overarching CPM discipline, and the order in which they
should be assembled.
The building blocks of CPM can be defined as the specific
management processes of the financial institution that are
engaged throughout the planning-to-performance cycle,
the tools needed to support them, and the key insights
that are desired that will improve decision making. So
what are these building blocks? For most Institutions,
they'll be the following:
Consolidated, "Unified" Data
Without data, there is no information. Without
information, there is no insight.
The data that supports a CPM discipline will be evaluated
historically, and prospectively. It must draw attention to
causes and effects, as well as support decisions based
on expected outcomes. The degree of insight that a
well deployed CPM initiative can provide will require
deep, transaction level detail. For data to be valuable,
it must be "fresh". It must also be relevant to the
different user audiences that will attempt to leverage
it. Most importantly, it must be consistent. There must
be no variation in how of all data that describes a given
dimension of the business can be interpreted...it must be
the only version of the truth.
The availability of the "right" data to support your
institution's unique performance measurement criteria
(see the Definition of Key Business Drivers below) is a
fundamental building block of CPM. The key linkage for
11
this building block is its correlation with the decisions
CPM is intended to support, and the fact that it must be
optimized for that purpose.
Unfortunately, the needed data this comprehensive
definition often resides in different places, is structured
differently, and needs to be cleansed and transformed
before it is of use.
Data Management and Normalization Tool(s)
Making the data integrated, consistent and common is the
role of this building block.
Considering the diverse nature of information needed
to support the planning-to-performance process, the
disparate systems data may reside in, and the multiple
formats in which it may be created and stored, the
existence of management focus and a mechanism to make
the data useable is required.
CPM takes advantage of tools optimized for integration
with the internal IT infrastructure, or with the technology
platforms delivered by external providers. Tools such as
these may be standalone and take the form of an ETL
(extract-transform-load) tool, or may exist as an integrated
component of another building block of the CPM system
in the form of a data import tool.
Asset/Liability Management Models
Net interest margin accounts for a significant portion of
overall profitability, exceeding 60 to 80 percent of revenue
in many institutions. Planning for and managing how
an institution's net interest margin reacts to unexpected
changes in interest rates is integral to the task of asset/
liability management.
Asset/liability management is tightly coupled with an
institution's execution of its strategic plan (including
decisions around pricing, product mix, size, growth and
structure of the balance sheet). Given these correlations
to institutional performance, it is to be expected that
the tools and processes of asset/liability management
would be a key building block of an effective CPM
system. The native ability of these models to benchmark
current positions and to "simulate" or model alternative,
forward-looking scenarios (e.g., balance sheet and income
forecasting) based on changes in the business (and the
environment in which it operates) solidifies their place in
the closed-loop cycle of CPM.
Asset/liability management models further solidify their
position in the CPM framework given their value as tools
through which to measure risks inherent in the balance
Corporate Performance Management: Essential Building Blocks for the High-Performance Institution
12 Corporate Performance Management: Essential Building Blocks for the High-Performance Institution
sheet, both current and planned. Potential variability of
financial results (particularly for market and liquidity risks)
can be quantified under differing scenarios. The measures
generated by this process provide support for regulatory
compliance and internal risk management activities.
Most institutions already use an asset/liability model in
some form, but they may not have considered their use as
part of a larger, overarching process connected to other
parts of the Institution and their decision processes.
Budgeting and Planning Capabilities (Systems and Processes)
Budgeting and planning capabilities, and the systems
and processes that define them, perform a vital role in
CPM where forward looking plans are quantified. This
building block is critical to establishing management
action, tactical execution, and identifying the need for any
mid-course plan corrections as the closed-loop cycle of
CPM is iterated. The comparison of operating plans, and
their corresponding budgets, with actual results, is the
essential "milestone check" to assess whether business
performance is occurring as planned.
A key focus for this building block relates to the
enumeration of a short-term operating plan for the
institution, including the calculation of net operating
margin based on a defined scenario for the future. This
typically involves the modeling of scenarios (based on
varying management assumptions for the business) as a
precursor to the establishment of the budget itself.
Building the budget for the institution requires the
use of systems and tools optimized for the purpose.
Because the plan (and associated budget) should be
in meaningful levels of detail to manage and monitor
business performance, budgeting and planning tools
must support the design of the institution and its chart
of accounts (with planning units down to the center
level, if appropriate), with the budgeting structure of the
operating plan consistent with the reporting structure in
the operating units. Whether created from a "top down"
(where "global" assumptions are distributed to the
planning unit level) or "bottom up" (where budget details
are prepared at the planning unit level and consolidated
at the institution level) perspective, budget and planning
information is developed at business unit and center levels
to provide needed accuracy and to establish accountability
for the managers of individual budgets and plans.
A unique attribute of this building block is that it has
the potential to involve many participants in the creation
of the plans and budgets themselves. Accordingly, an
13Corporate Performance Management: Essential Building Blocks for the High-Performance Institution
element of this building block involves aspects of the
management of the process...process control, cycle time,
and accuracy...owing to budget inputs, submission and
approval, and adjustment activities spread across the
many participants.
Within CPM, planning and budgeting can become
dynamic and adaptive. As the assumptions underlying the
budget change, and outside of the timing of traditional
budget cycles, the ability to re-forecast potential outcomes
through the manipulation and input of key variables or
business drivers (e.g., volumes and margins) is another
element of this building block. This element supports the
trend towards rolling forecasts as a management tool,
and allows an institution to rapidly respond to changing
business conditions through more proactive, higher-
frequency planning cycles.
Management Reporting Capabilities
Integrated management reporting capabilities should be
considered another fundamental building block of CPM.
These are the management processes and tools through
which insight into business performance is communicated.
This building block relies heavily on its "tool" component.
This building block should be designed with capabilities
that support the relevant linkages between strategy
and execution, with reporting definition becoming a
by-product of the way the institution needs to look at
its business (both internally and externally)...i.e., that
which will serve it best in terms of providing the visibility
to be able to assess and enhance performance. Actual
and proforma financial statements, cash flow projections,
liquidity reports, economic value reports, gap reports,
duration and maturity reports, and variance reports, as well
as audit and regulatory reports, could all be considered
"standards" of the CPM management reporting mix.
Custom report writing and multidimensional reporting using
techniques such as on-line analytical processing (OLAP) may
also be deemed a necessity, based on the complexity of the
institution's business.
The capacity of the CPM infrastructure to provide
reporting based on a single view of the institution's
financial position across complex organizational,
legal, regulatory and geographical boundaries and
structures is also a desired element of this building
block. Consolidation tools can automate the repeatable
processes of rolling up subsidiary units, reducing
manual effort and the potential for clerical error, thereby
1� Corporate Performance Management: Essential Building Blocks for the High-Performance Institution
strengthening internal controls. Information translation
and remeasurement (e.g., valuation of foreign currency
positions) can also be accommodated with
these tools.
Accelerated financial reporting that complies with
regulatory and accounting standards is a goal of this
building block. In addition, the use of appropriate
management reporting tools can actually improve
corporate governance because expanded disclosures can
be made available, and internal controls can be made
auditable and certifiable.
A key tenet of this building block is that reporting
capabilities should be evaluated relative to their ability to
meet the needs of diverse users and stakeholders, and in
terms of their ability to deliver information that is relevant,
exception oriented, predictive and at an adequate level of
detail. Tools that take advantage of enabling technologies
in order to ensure dissemination of information on timely,
flexible and reliable terms are another requisite of the
CPM foundation.
An aim of CPM should be to move from reporting and
analysis cycles that are reporting system or accounting
cycle driven to one that is continuous in nature...
capabilities that provide expedited reporting set the stage
for quick reaction to changing business conditions and
help ensure execution of strategic initiatives. Insight
needs to be acquired and acted upon at the "speed of
business", and not according to an artificially imposed
timeframe or constraint.
Profitability Measurement Capability
This building block provides the institution with the
ability to gain insights about the business from a
variety of cross-sectional views and dimensions. These
views and dimensions will be defined by the nature
of the institution's business, and will generally include
measurements for things such as lines of business and
responsibility centers, products and product lines, markets
and market segments, distribution channels, customers
and relationships, activities, etc. Looking at the business
through this type of lens is important to the CPM
discipline because it can provide visibility into the relative
contribution to profit accruing from various segments of
the business based on insights about a diverse group of
variables such as product pricing, delivery costs, customer
value, resource utilization, as well as many others.
The dimensions of the business for which profitability
measurement is desired must first be defined in a context
that considers the revenues, expenses and capital that can
1�Corporate Performance Management: Essential Building Blocks for the High-Performance Institution
logically be attributed to them. Business rules define how
revenue, costs and capital are allocated and assigned to
the dimensions. For example, measurement of a branch
office's profit contribution would require the assignment
of a portion of net interest margin based on the branch's
sources and uses of funds (facilitated by the use of a
Funds Transfer Pricing tool). Non-interest items, that are
not specifically attributable to the branch, would rely on
allocation rules to assign such things as product costs
based on some methodology (standard costs, activity
based costs, etc.). Capital assignment to the branch
for the measurement of "returns" might contemplate
required fixed asset levels, growth assumptions, and an
adjustment for risk. Collectively, these business rules
would frame "how" the branch's profit contribution is
to be interpreted. These rules must be concisely defined
and consistently applied for the institution to gain the
benefits of the insights that cross-sectional profitability
measurement offers.
A well designed CPM framework provides for historical
analysis of profitability as well as for the ability to simulate
future profitability for the dimensions of interest.
Definition of Key Business Drivers and Measurements
There is no CPM without this building block. You must
determine what should be measured and why.
Key business drivers are external or internal influences
that significantly impact or set direction for the attainment
of the institution's strategic plan. They must be clearly
defined in the context of strategic objectives, and their
impact must provide for the ability to be measured in
financial terms. Proper definition will enable institution
management to focus efforts on those factors critical to
their success. Additionally, application of these concepts
is appropriate for each the various business dimensions
(lines of business, branches, products, etc) for which
performance is to be managed.
Measurements of business drivers are commonly referred
to as key performance indicators (KPI's). KPI's should
be supplemented with measurements of performance
benchmarked to material plan targets. Industry standards
and benchmarks (including competitor data) should be
considered essential comparative measures.
An important distinction must be made between "what"
must be measured, versus "how", and "how much".
Just like the familiar 80/20 rule, it's likely that a fewer
4 Answerthink, Best Practices in Planning and Budgeting, 2003, p. 2.
1� Corporate Performance Management: Essential Building Blocks for the High-Performance Institution
rather than larger number of business drivers account for
real business impact. The key is in tracking the right ones.
Answerthink indicates that leading companies plan and
measure 40 line items, while world-class companies track as
few as 15 items...key measures can get lost in sheer volume
when more line items are tracked with a negative impact
on the speed and quality of decision-making. In addition,
more line items translate into time wasting analysis that has
little business value, and more detail does not necessarily
translate into more precision given the greater chance that
that the numbers will be incorrect.4
In addition to the management reporting capabilities
described above to facilitate performance measurement,
the CPM framework can maximize opportunities for
performance reporting through the use of technology in
the form of "dashboards". Dashboards are tools that
provide a visual representation (graphs are an example)
and simplification of the status of KPI's and other critical
measurements, and bring focus to management processes
by calling attention to specific situations that can impact
business success based on their causes and effects. They
are particularly useful when tolerance ranges around
business driver outcomes can be established, creating a
framework for exception management and analysis of
the KPI's. Of course, these are merely tools to convey
performance status. The hard work of defining what
should be measured must precede the implementation of
the dashboard.
Each of the building blocks described above have the
potential for some or all of their elements to be deployed
during the process of being assembled as a part of an
incremental, value-adding CPM framework. The options
will be the result of management preference (typically
some point of "pain"), or specific organizational need.
However, there are practical guidelines that form the basic
CPM blueprint, and specify the order of assembly.
4 Answerthink, Best Practices in Planning and Budgeting, 2003, p. 2.
1�
Assembling the Building BlocksWhat really contributes to business performance in
your institution? The answer to this question ultimately
will drive the way the building blocks are assembled,
and the speed at which CPM business value will be
realized. At the end of the day, it’s all about strategy
execution…people, processes, systems…and decisions.
Each building block contributes to execution differently,
and co-dependencies do exist. While priorities, resources,
organizational design, product offerings, customer
markets, etc. will vary from institution to institution, there
are immutable truths with respect to assembling the
blocks.
Always keep in mind that a key assumption of CPM is
an integrated, unified view of the business performance.
The goal of the assembly process, therefore, is continued
progress towards this unified view, and the build out
of a “complete”, closed-loop planning-to-performance
business process.
The introduction of change, as well as cultural obstacles,
can act as inhibitors to the assembly process. Different
functional perspectives (e.g., treasury, control, lines of
business, etc.) and priorities can slow progress. The work-
around for this is to engage stakeholders and participants
Corporate Performance Management: Essential Building Blocks for the High-Performance Institution
in the planning-to-performance cycle, and sell them on
the “art of the possible”. Also, don’t forget to consider
the needs of external stakeholders (e.g., shareholders and
regulators).
Assembling the building blocks boils down to a
five-step process:
1. Define the Strategy/Decision Framework for your
institution
2. Define the data needed to support the Strategy/
Decision Framework
3. Implement capabilities to support primary profit and
risk drivers in the context of planning-to-performance
4. Implement planning-to-performance capabilities to
support the remaining profit structure
5. Consider other cross-sectional views and value-adding
insights and add based on business priorities
Why this order of assembly? Simply put, some of the
steps (and the building blocks used in those steps) are
"foundational"...they need to be laid first. Subsequent
assembly steps prioritize and accelerate the acquisition of
value intrinsic to each of the blocks employed.
1� Corporate Performance Management: Essential Building Blocks for the High-Performance Institution
Step 1: Define the Strategy/Decision Framework for Your Institution
Do you define strategic success through traditional financial
measures such as ROA (return on assets) and ROE (return on
equity) only? Do you take an expanded view and employ a
performance measurement methodology such as RAROC (risk-
adjusted return on capital)? Or is a holistic view such as the
Balanced Scorecard your basis for measuring execution of your
institution's business strategy?
Defining the framework through which you will measure
strategy execution and make decisions is the essential first step
in assembling the building blocks. The choice here defines the
parameters around the deployment of the building block that
identifies key business drivers and their measurements.
The value associated with this building block's use at this
stage of CPM's evolution in your institution will be the clarity
and direction that it brings to the planning-to-performance
process...what will be measured, how it will be measured, and
when it will be measured...with a definition of the linkage
back to business strategy and plans.
It is useful to define KPI's in the context of acceptable
ranges, exception levels and tolerances as part of this step.
The tools that can be used to communicate the status of
performance (e.g., dashboards, analytics and reporting
systems) are deployed in subsequent steps.
Step 2: Define the Data Needed to Support the Strategy/Decision Framework
This step addresses the following questions:
• What data do I need to support the activities of the
planning-to-performance process?
• How does the data relate to the Strategy/Decision
Framework?
• How will data be reported and analyzed, and by whom?
• What needs to happen to transform the data into
"information"?
Two building blocks get deployed in this step: 1) the
"data", and 2) data management and normalization
tools. The value associated with the deployment of these
two building blocks is, respectively, movement towards
a single, unified set of data through which to plan and
measure results, and the ability to bring disparate data
sources together to support that aim both initially, and on
an ongoing basis.
1�
Step 3: Implement Capabilities to Support Primary Profit and Risk Drivers in the Context of Planning-to-Performance
With the components of the balance sheet responsible
for a significant portion of institutional profitability and
risk, it is only logical that deployment of the asset-liability
management model building block comes next. In
conjunction with this building block, including the building
blocks that facilitate management reporting and analysis,
and high-level planning and budgets set the stage for
planning-to-performance to be administered on at least
a macro, institutional level. The CPM value that this step
provides, along with these building blocks collectively, is the
institutional-level view of operational planning and results on
an integrated basis, with a simultaneous leveraging of a single,
unified view of data.
This step sets the stage for operational planning and
performance measurement to be executed continuously,
and for the adaptation of business plans based on the
insights gained. It is also appropriate at this step to
take advantage of tools such as graphs and charts, and
dashboards, as a way of improving insights into business
performance through the visual analysis of data.
Step 4: Implement Planning-to-Performance
Capabilities to Support the Remaining Profit Structure
Whereas the previous step closed the planning-to-
performance loop, this step is intended to refine the
capabilities of those building blocks previously utilized.
With balance sheet planning and reporting well
addressed, attention is turned to the remaining profit
structure, with an emphasis on the remaining elements of
the income statement (primarily the components of net
non-interest income).
Opportunities to distribute planning and budgeting
activities, as well as to apply greater focus on
organizational profitability become the priorities of this
step. The "drill down" into individual organizational
and responsibility center plans and budgets adds more
precision, accuracy and predictability than could be
attained at the macro level, identifies resource needs,
and creates accountability for the execution of plans.
Most importantly, individual plans can now be aligned
with strategic objectives. Participants in the planning-to-
performance process are now coordinated.
An added value is the setting of the stage for true two-
way, collaboration in planning and reporting, and for the
"buy-in" of those individuals responsible for delivering
business results.
Corporate Performance Management: Essential Building Blocks for the High-Performance Institution
20 Corporate Performance Management: Essential Building Blocks for the High-Performance Institution
Step 5: Consider Other Cross-Sectional Views and Value-Adding Insights and Add Based On Business Priorities
There are certainly other views and dimensions of the
business that are worthwhile evaluating in addition
to those that are organizationally defined. This step
leverages the components of all the building blocks and
the tools of profitability measurement specifically, to do
just that.
As financial services organizations have organized
themselves around lines of business, each with different
products, customers, delivery channels and geographic
dimensions, the opportunity exists to take a cross-sectional
view of these dimensions as a means of enhancing
business performance as a by-product of enhanced
management insight. This step will need to consider
allocations (of costs, for example) to the dimensions being
analyzed, and require specific capabilities (such as an FTP
tool) to assign value for assets or liabilities originated.
The value of this cross-sectional analysis of activities
is greater understanding of what drives business
performance. This, in turn, leads to better decisions about
resource allocation, resolution of strategic conflicts, and
ultimately better business strategy.
Figure 2. The Building Blocks of CPM
Figure 2 summarizes the building block assembly process
for CPM.
Profitability/"Multi-Dimension" Tools
Management Reporting Tools
Unified and Normalized Data
Strategy/Decision Framework
A/LM ModelsPlanning/Budgets/
Analysis Tools
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Making CPM HappenAdmittedly, implementing CPM can be a broad undertaking.
There are a few things that you can do to move things
along, and insure your success at the same time:
• Get multi-level organizational commitment around
CPM and its use in daily operations.
• As you evaluate solution offerings from CPM vendors,
give strong consideration to the purchase of an
application from a provider who focuses solely on the
financial services industry and its uniqueness. Financial
services is not healthcare or manufacturing.
• Consider ways that you can "future proof" your
investment in CPM right from the start. Choose a vendor
that can support your growth plan and changing needs.
Make sure they have a product vision that supports a
unified view of CPM and the supporting tools (not just
point solutions). Make sure that the technologies to be
deployed are current, scaleable and can interoperate with
your institution's technology strategy.
• Choose a vendor that can assist with implementation
and integration...with appropriate domain (financial
services) expertise.
Depending on your situation, it may make sense not to
do this alone. Taking advantage of resources skilled in
the needs of financial institutions and their performance
management activities is a best practice.
How to Know If You Were SuccessfulAs you undertake a CPM discipline in your institution,
there are questions you should ask yourself to see if you
are making progress and being successful:
• Are better decisions being made? Are decisions more
proactive? If they are still reactive, has your reaction
time been accelerated?
• Have your "predictive" abilities improved? Has there
been a reduction in "surprises"?
• Has previously unidentified profit potential been
realized, costs been avoided, or risk(s) been mitigated?
• Is information being shared more broadly?
• Are the right people sharing the right information?
• Are cycle times for the planning-to-performance process
shorter? Is the process more accurate? Is it more
productive? Are fewer elements of the process left open
to error, or to chance?
• Is the interpretation of information consistent across all
users of the information? Are they drawing the same
conclusions?
• Has decision making become more "two-way"?
• Can your institution more readily make mid-course
corrections in their plans if business conditions so
dictate?
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22 Corporate Performance Management: Essential Building Blocks for the High-Performance Institution
• Are you seeing perspectives of your business that were
missing in the past? Has it become easier to identify the
linkage between business performance measurement
and strategy execution?
• Is your business performance improving?
These questions are excellent benchmarks to determine
if you are on the right track. Remember, CPM is much
more of a journey than an event. The iterative, adaptive
underpinnings of the planning-to-performance process will
always lend themselves to continuous improvement.
Putting the "E" in CPMAcronyms are useful tools. They allow us to take
wordy, important and sometimes complex concepts
and communicate them in an abbreviated, self-
describing manner. CPM is a great example. However,
when properly orchestrated, Corporate Performance
Management's acronym should be amended to "CPM-E".
The "E" is for execution. Strategy execution and superior
performance are the big payoffs of CPM. The planning-
to-performance cycle can be accomplished more quickly,
accurately and at less cost, and provide better insights and
decisions when your institution adopts a CPM framework.
You don't need to wait. The benefits of CPM can
progressively add value to your institution if you assemble
the framework "block by block".
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About IPS-SenderoIPS-Sendero is a business unit of Fiserv, Inc. and a provider
of technology solutions and education for corporate
performance management, including asset/liability
management, profitability measurement and financial
management and planning. Financial institutions of
all types use IPS-Sendero products and services to
help manage balance sheet risk, measure and manage
profitability, develop budgets and forecasts, and produce
information needed for sound decisionmaking. More
than 3,400 organizations in 56 countries have licensed
7,800 IPS-Sendero products through the company's
headquarters in Atlanta and its global offices.
Corporate Performance Management: Essential Building Blocks for the High-Performance Institution
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