Table of Contents

PART 1: OVERVIEW OF ENTERPRISE PERFORMANCE MANAGEMENT 1
1 INTRODUCTION 3


A Dilemma for Accountants 3


Accountants’ Problem of Denial 4


2 ENTERPRISE PERFORMANCE MANAGEMENT: MYTH OR REALITY? 5


Executive Pain—A Major Force Creating Interest in Performance Management 6


What Is EPM? 7


Is EPM a New Methodology? 7


Clarifying What EPM Is Not 8


What Has Caused Interest in EPM? 9


The EPM Framework for Value Creation 10


The EPM as a Continuous Flow 12


A Car Analogy for EPM 13


Where Does Managerial Accounting Fit In? 14


EPM Unleashes the ROI From Information 15


Management’s Quest for a Complete Solution 17


PART 2: MANAGERIAL ACCOUNTING 21


3 DO ACCOUNTANTS LEAD OR MISLEAD? 23


The Perils of Poor Navigation Equipment 23


The Perils of Poor Managerial Accounting 24


The Accountant as a Bad Navigator 24


4 A TAXONOMY OF ACCOUNTING AND COSTING METHODS 27


Confusion About Accounting Methods 27


A Historical Evolution of Managerial Accounting 29


An Accounting Framework and Taxonomy 29


Asking What? So What? Then What? 31


Predictive Versus Descriptive Accounting 32


Co-existing Cost Accounting Methods 33


5 MANAGERIAL ACCOUNTING DESIGN COMPLYING WITH THE CAUSALITY PRINCIPLE 35


Removing the Blindfold With ABC/M 35


Overhead Expenses Are Displacing Direct Expenses 36


Impact of Diversity in Products, Service Lines, Channels and Customers 37


Growing Discontent With Traditional Calculation of Costs 38


Activities Are Expressed With Action Verbs 39


Drivers Trigger the Workload Costs 41


Strategic Versus Operational ABC/M 42


6 STRATEGIC COST MANAGEMENT FOR PRODUCT PROFITABILITY ANALYSIS 45


ABC/M Is a Multi-Level Cost Re-assignment Network 45


Drivers: Resource, Cost, Activity and Cost Object Drivers 48


Business and Organisational Sustaining Costs 48


The Two Views of Costs: The Assignment View Versus the Process View 49


Vertical Axis 50


Horizontal Axis 50


How Does Activity-Based Costing Compute Better Accuracies? 51


Activity-Based Management Rapid Prototyping: Getting Quick and Accurate Results 53


Product Profitability Analysis 54


Two Alternative Equations for Costing Activities and Cost Objects 55


PART 3: STRATEGY MANAGEMENT 57


7 THE PROMISE AND PERILS OF THE BALANCED SCORECARD 59


What Is a Balanced Scorecard? 59


Balanced Scorecards Are Companions to Strategy Maps 60


Measurements Are More of a Social System Than a Technical One 62


Scorecard or Report Card? The Impact of Senior Management’s Attitude 63


GPS Navigators for an Organisation 63


How Are Balanced Scorecards and Dashboards Different? 64


Scorecards and Dashboards Serve Different Purposes 65


Scorecards Link the Executives’ Strategy to Operations and the Budget 68


Dashboards Move the Scorecard’s Dials 68


Strategy Is More Than Performing Better 68


Getting Past the Speed Bumps 69


8 DESIGNING A STRATEGY MAP AND BALANCED SCORECARD 71


Eight Steps to Create a Strategy Map 71


Scorecards and Strategy Maps: The Enabler for EPM 76


PART 4: PLANNING, BUDGETING AND FORECASTING 79


9 PREDICTIVE ACCOUNTING AND BUDGETING WITH MARGINAL EXPENSE ANALYSIS 81


What Is the Purpose of Management Accounting? 81


What Types of Decisions Are Made With Managerial Accounting Information? 82


Rationalisation 82


Planning and Budgeting 83


Capital Expense Justification 83


Make Versus Buy, and General Outsourcing Decisions 83


Process and Productivity Improvement 84


Activity-Based Cost Management as a Foundation for Predictive Accounting 84


Major Clue: Capacity Only Exists as a Resource 85


Predictive Accounting Involves Marginal Expense Calculations 86


Decomposing the Information Flows Figure 88


Framework to Compare and Contrast Expense Estimating Methods 90


Predictive Costing Is Modelling 91


Debates About Costing Methods 91


10 WHAT’S BROKEN ABOUT BUDGETING? 95


The Evolutionary History of Budgets 96


A Sea Change in Accounting and Finance 98


The Financial Management Integrated Information Delivery Portal 99


11 PUT YOUR MONEY WHERE YOUR STRATEGY IS 101


A Budgeting Problem 101


Value Is Created From Projects and Initiatives, Not Strategic Objectives 103


Driver-Based Resource Capacity and Spending Planning 104


Including Risk Mitigation With a Risk Assessment Grid 105


Four Types of Budget Spending: Operational, Capital, Strategic and Risk 107


From a Static Annual Budget to Rolling Financial Forecasts 108


Managing Strategy Is Learnable 108


PART 5: INTEGRATING ENTERPRISE RISK MANAGEMENT AND ENTERPRISE PERFORMANCE MANAGEMENT 111


12 THE INTEGRATION OF ENTERPRISE RISK AND ENTERPRISE PERFORMANCE MANAGEMENT 113


How Do ERM and EPM Fit Together? 113


Is Risk an Opportunity or Hazard? 114


Problems Quantifying Risk and Its Consequences 114


Types of Risk Categories 115


Risk-Based EPM Framework 117


Risk Managers: Friend or Foe of Profit Growth? 118


Invulnerable Today but Aimless Tomorrow 119


PART 6: BUSINESS ANALYTICS FOR ACCOUNTING AND FINANCE 121


13 WHAT WILL BE THE NEXT NEW MANAGEMENT BREAKTHROUGH? 123


The History of Management Breakthroughs 123


Will Business Analytics Be the Next Breakthrough? 124


14 HOW DO BUSINESS INTELLIGENCE, BUSINESS ANALYTICS AND ENTERPRISE PERFORMANCE MANAGEMENT FIT TOGETHER? 127


The Relationship Between Business Intelligence, Business Analytics and Enterprise Performance Management 128


Overcoming Barriers 129


15 CFO TRENDS WITH ANALYTICS 131


Analytics as the Only Sustainable Competitive Advantage 131


Resistance to Change and Presumptions of Existing Capabilities 132


Evidence of Deficient Use of Business Analytics in Finance and Accounting 133


Sobering Indication of the Advances Still Needed by the CFO Function 134


Moving From Aspirations to Practice With Analytics 135


Customer Profitability Analysis to Take Actions 135


Rationalising and Validating Key Performance Indicators in a Strategy Map and Balanced Scorecard 136


Moving From Possibilities to Probabilities With Analytics 137


Fill in the Blanks: Which X Is Most Likely to Y? 139


Increased Employee Retention 139


Increased Customer Profitability 139


Increased Product Shelf Opportunity 139


The CFO Function Needs to Push the Envelope 140


PART 7: HOW TO BEGIN IMPLEMENTING ENTERPRISE PERFORMANCE MANAGEMENT 143


16 WHERE DO YOU BEGIN IMPLEMENTING ANALYTICS-BASED PERFORMANCE MANAGEMENT? 145


Accept That Analytics-Based EPM Is About Integration and Speed 145


Assuming an Enlightened Leadership Team, Then What? 146


Embrace Uncertainty With Predictive Analytics 147


17 A CALL TO ACTION—BUILDING A BUSINESS CASE 149


The Obsession With ROI Justifications 149


Management and the IT Function Can Be Obstacles 150


Is EPM Art, Craft or Science? 151


Balancing a Smart, as Well as a Healthy, Organization 151


The Power of Business Analytics 152


The Future of Analytics-Based EPM 152

About the Author

Gary Cokins is an internationally recognized expert, speaker and author in advanced cost management and performance improvement systems. He is the founder of Analytics-Based Performance Management LLC. Gary began his career with Deloitte Consulting. Next with KPMG Peat Marwick, Gary was trained on ABC by Robert S. Kaplan and Robin Cooper. Gary headed the National Cost Management Consulting Services for Electronic Data Systems from 1996 to 2012 he was a Principal Consultant with SAS, a global leader in analytics software.