5 main blocks of the CPM functions

Mainly the CPM applications service two areas. Tactical where they provide more effective management of financial processes, bigger control and transparency and compliance to regulatory requirements. And also strategic, directly belonging to performance management of the organization (performance management).

Experts of Gartner in 2013 updated^[1] the list of the functions which are usually supported by CPM as systems constantly change to meet the requirements of business. According to the updated terminology, CPM systems have tool kits for automation:

• Financial consolidation and closing of results
• Financial management and reporting, disclosure of data
• Budgetings
• Strategic planning and forecasting
• Constructions of models of profit and optimization (Profitability Modeling and Optimization, PM&O)

The main changes of this classification became selection of budgeting from the block of planning and forecasts in separate independent functional unit. The "strategic management" block was replenished with "strategic planning and forecasts".

Financial consolidation and closing of results

The block of functions for financial consolidation and closing of results is fundamental to CPM as gives the audited, all-corporate view of data on income and expenses. These consolidated data form further a basis for the analysis and development of further strategy. Tools of this block allow to correlate with each other, to consolidate, sum up and aggregate financial data on the basis of different standards of calculations and requirements of state bodies. Such tools involve difficult transactional models and are used for audit. In wider option the functionality of this block can include control of internal activity, control of maintaining magazines, management of tax reserves (new area for CPM) and others.

Financial and management reporting, disclosure of data

Processes of disclosure of financial data and the reporting are, as a rule, tightly regulated, CPM systems successfully help to cope with accomplishment of these regulations. The data collected during financial consolidation can be prepared in the form of the structured reports for which removal and display additional resources and presentation opportunities are used. Systems support the different widely used standards of the reporting, such GAAP as well as IFRS. As a rule, it is also about use of special technologies, for example, to support of the eXtensible Business Reporting Language standard (XBRL) as regulators even more often require providing the reporting in this format. CPM applications also deliver the reporting used in the companies by its management.

Budgeting

Within the CPM systems process of budgeting is usually expected the year period. The financial purposes and tasks during budget making are classified, the budget and process of budgeting are completely controlled by the chief financial officer and the relevant service. Implementation of budgeting requires communication with the main accounting system. Budget process acts more as the control mechanism, than functions of strategic planning and forecasting, and for this reason experts of Gartner took out drawing up budgets in the separate block.

Strategic planning and forecasting

In CPM systems planning and forecasting usually consists of creation of financial model on the basis of balance of expenses and income and possible financial flows. Existence of this block is key difference between the CPM systems and other analytical applications which also allow to plan and make forecasts. Here it is not about operational planning or planning of the marketing companies, namely about financial planning, its carrying out and a statement and also maintenance of the document flow connected with this activity.

Planning differs from budgeting in two key aspects. The first, in financial planning more long-term time frames can be considered, it is normal from three to five years. The second: focus is displaced from the budget of the organization on the drivers of business having an impact on financial wellbeing. Planning of finance is more relevant not for financial, and for operations managers. For example, long-term financial models can be used by top managers for assessment of effects of merges and absorption.

Planning can be performed also in more detailed cuts: salary expenditure and plans for hiring, planning of revenue, planning of the capital or planning of costs. Besides, additional tools can help business with creation of more difficult financial models using such factors as the prices, volumes and discounts.

Possibilities of CPM support the difficult forecasting and modeling including extrapolation of new versions of plans and budgets on the basis of comparison of the actual results, the analysis of historical data and application of the analysis like "that if …".

The control block strategy includes both directly strategic planning, and management of the purposes, the systems of indicators and the card of strategy which are closely connected with KPI and also control panels which are used for aggregation and display of different metrics, their analysis, including in an interactive mode.

Constructions of models of profit and optimization (PM&O)

The PM&O block includes functional value analysis (Activity Based Costing, ABC) which can be made for each task (activity) separately. This information can be tried on to different objects, including products, clients and so on to define their profitability. Thus, the organizations can create optimal market offers, optimize also batching and pricing and strategy in sales channels.

Notes