In recent years, companies have turned to business performance management (BPM) to gain a better understanding of their internal operations and boost financial performance. However, launching an initiative and making sure that it succeeds requires a coherent strategy, substantial resources and an ongoing commitment. Increasingly, businesses understand that it's beneficial to factor ROI projections into the upfront business case for BPM and tie financial metrics into BPM processes and systems.

But although many companies say they plan to include ROI calculations in their BPM business case, in the end very few actually do so. "The reason is that while the benefits of BPM are substantial, they are very difficult to quantify upfront," says Craig Schiff, president and CEO of BPM Partners in Stamford, Conn. "How do you measure better decision-making or anticipate the revenue opportunities or cost savings that BPM will help you identify?"

"Most companies don't try to calculate the ROI because there are simply too many variables involved to do so effectively," adds John McMahan, a senior advisor and finance practice leader at The Hackett Group in Atlanta. "But there's no question that companies which execute BPM properly generate significant ROI from a variety of different areas." According to Hackett Group research, world-class BPM performers see dramatically higher equity-market returns than typical companies in their industry and much lower operating profit volatility. A key part of these benefits comes from improved cash flow, better forecasting and planning, and deeper insight into the business.

Risk management is another area in which the best BPM performers reap major benefits. "For example, one company we work with found itself facing a massive product recall," says McMahan. "But because they had built contingency plans, they were able to very quickly determine the recall's projected impact on revenue, incentives and profitability. In short order, they had a new business plan in place, had set new incentive targets for key employees and adjusted their guidance to the Street.

"If this company didn't have rolling forecasts in place and a highly disciplined approach to event-driven change, the problem could have driven their stock price right off a cliff and perhaps even forced them out of business," McMahan adds. "Instead, they took a hit, but very quickly rebounded."

A Strategic Approach

To achieve financial gains through BPM, companies must focus heavily on strategy and tactics rather than tools and technology. "Finance professionals must step beyond the transactional box and focus on providing actionable information for decision-making," says McMahan. "The analytic component is central to the concept of creating value and achieving success with BPM."

Building a business case for BPM is essential. Too often, McMahan says, executives promoting the concept aren't clear about how it will affect the organization. They expect senior management to adopt BPM simply because it makes sense.

Schiff contends that organizations can achieve ROI in four primary areas: consolidating systems, better managing data warehouses, leveraging analytic applications and improving budgeting systems. While each area can provide gains and ROI on its own, the sum is usually greater than the individual parts.

What's more, as an organization achieves success in specific processes, it often discovers opportunities to expand BPM and use it in new and valuable ways. For example, what begins as a drive to improve consolidation processes may branch out to become a way to manage cash flow cycles across global operations. An initiative that sets out to tackle budgeting may lead to business-process improvements in procurement or supply-chain management.

BPM can deliver huge benefits within the finance function, but many organizations eventually apply it to other areas of the business, including sales, operations and supply-chain management.

Viasys Healthcare, a Conshohocken, Pa.-based manufacturer of medical instruments and health-care equipment, has built upon its initial BPM success on several fronts. The $510 million company (2005 sales) has offices in 11 countries and manages 50 reporting units worldwide. Approximately 43 percent of its sales come from markets outside the United States. In 2001, it embarked on a BPM initiative to gain control of data streaming in from subsidiaries and branch offices that use disparate systems and data formats. Using a system from Cartesis, Viasys Healthcare has crunched its consolidation period from 25 minutes to 2 minutes and trimmed its monthly closings from three weeks to one week.

Faster financial analysis has saved time and money, but, more importantly, it has helped the company become more strategic and meet global compliance demands. With those initial successes in place, Viasys Healthcare has tackled other tasks -- for example, improving its understanding of unit pricing and analyzing the impact of currency fluctuations on profitability.

While the company has trimmed costs and reduced head count in some areas, the biggest gain is that decision-making is now strategic rather than reactive. "We're able to make better business decisions more quickly," says assistant controller Matthew Gualtieri.

Pitfalls to Optimization

Tough challenges related to understanding business conditions can prevent companies from optimizing BPM. Parson Consulting reports that 30 percent of S&P 500 companies in the United States miss analysts' forecasts by more than 10 percent. "Accurate forecasting has proven elusive, even as companies have adopted BPM systems," observes Todd Schreiner, director of Parson Consulting's strategic finance practice in Chicago. "Today, finance executives are looking to understand what drives the business and how the organization can change course or adjust to external events. Many executives are only beginning to understand the full scope of BPM."

Best-practice companies typically ensure that a CEO or CFO spearheads the BPM initiative. They establish a clear definition for BPM upfront and work to create buy-in on KPIs. They deploy the technology in phases and integrate it across the enterprise. And they pay careful attention to human factors. "BPM requires a systematic approach," says Schreiner. "It's not always easy to put a hard-dollar return on the technology investment and the process investment, but you have to try. By substantiating at least part of the investment in dollars and cents, it's a lot easier to justify the so-called intangibles."

Getting an entire organization in sync can prove daunting -- even with a state-of-the-art BPM application in place. "In many cases, the strategic initiatives a department, division or business unit has in place do not match the corporate objectives," observes Paul Stylianou, senior director, planning and decision support, at Biovail, a pharmaceutical company based in Bridgewater, N.J. Stylianou has headed BPM initiatives at Pharmacia and Pfizer as well as at Biovail. "It's essential to break things down to a granular level but focus on the big picture," he notes.

The most valuable KPIs typically revolve around aligning and executing strategy and improving operational efficiency. The Hackett Group reports that best-practice companies in the BPM arena focus on several core areas, including the use of online tools to distribute or access standard reports; shareholder value analysis, to develop strategic plans; forward-looking analysis in performance reports; and embedding nonfinancial information in performance reports.

A Framework For Success

For many organizations, bringing together all of the components of a BPM initiative requires a common management framework to drive results -- for example, the Balanced Scorecard, Six Sigma or an economic value added (EVA) model.

Mueller Inc., a privately held fabricator of metal roofing and building products based in Ballinger, Texas, has built upon a balanced scorecard initiative that it introduced in 2002, turning to BPM software from Cognos to bring metrics into the crosshairs. "We have cascaded our scorecards down to business-unit level," says Mark Lack, manager of planning and financial analysis. "Managers oversee strategy through the metrics that were defined by our balanced scorecard. In fact, managers can track KPIs and view data across various levels of the organization."

Corporate decision-makers can develop a holistic view of their business by establishing clear metrics and ferreting out high-quality data to plug into the BPM tool. Visualization tools such as dashboards and scorecards can help executives understand what the data is about and what clues it offers for running the business more effectively.

One company that has achieved those benefits is Opportunity International, an Oak Brook, Ill.-based provider of small loans to entrepreneurs in developing nations. The organization, which manages more than $256 million in loans and works with 42 partners in 30 countries, has used BPM software to gain a global view of its operations. Each partner operates as a separate legal entity that manages loans independently. In the past, a decimal point error within an Excel spreadsheet could ripple through the organization and wreak havoc on its financial reporting. Advanced reporting capabilities were out of the question, given the disparate data formats and systems used by various parts of the operation.

With the organization growing at an annual rate of 28 percent and more than 900,000 loans already in place, something had to change. So, in mid-2005, Opportunity International made the switch to full-powered BPM. Project leaders pored over internal processes and examined data flows throughout the organization and beyond before implementing BPM software from Hyperion that could manage information from Opportunity International's complex web of offices and partners. After switching on the new systems, the organization began exploring ways to map all of its individual accounts to a central account that it could tap into quickly and effortlessly.

Opportunity International has trimmed its data collection and reporting period from upwards of 45 days to approximately 12 days. "This gives us tremendously more lead time to spot problems and take action," says information service manager Timothy Head. Moreover, the new software has helped the organization gain insight into 120 separate metrics, including return on assets and equity, the number and value of existing loans, portfolios in arrears and at risk, and average disbursed loan size and loan balance.

Making It Stick

One of the biggest obstacles to achieving a high ROI from a BPM project is resistance to change. In a survey by Parson Consulting, 52 percent of respondents admitted that users fall back on the old way of doing things, and 24 percent said that their organization fails to do a good job of communicating desired performance metrics and measures. To be sure, without training, communication, process changes, sophisticated applications and clearly defined objectives, organizational goals will not be met.

Still, a growing number of companies are enjoying success with BPM projects and achieving a level of ROI that would have been unimaginable only a few years ago. The Hackett Group reports that world-class organizations achieve superior performance despite the fact that they spend only about half of what typical companies do in this area. They achieve 45 percent lower business-analysis process costs as a percentage of revenue than typical companies and 53 percent lower planning and performance-management costs. They also operate with an average of 11.4 planning and performance management staff per billion dollars of U.S. revenue. That's 57 percent fewer than their peer-group companies need.

When organizations know what to measure, collect the right information, build a business case upfront and use BPM to ferret out inefficiencies and opportunities, ROI inevitably follows.