Scenario-Based Enterprise Performance Management (EPM) is a process for organizations to consider alternative future views on a continual basis. The objective is to include this process into the every-day management of the organization. This enables the organization to much better deal with enhancing volatility, uncertainty and risk. Scenario-Based EPM helps manage risk and uncertainty by thinking about alternative future views against which approaches and tactics can be checked. This allows much better choice making as specific events and both short and long-term trends alter with greater frequency.
Scenario-Based EPM counts on modern-day technology (modern data storage facility / business intelligence and data analytic devices; enterprise resource planning systems; enterprise content management systems; customer relationship management systems), super data crunching, and data scientists to efficiently do scenario analysis on an ongoing basis. Technology vendors that offer broad corporate-performance-management (CPM) suites should be thought about by organizations seeking to implement a Scenario-Based EPM strategy.
Components of Scenario-Based EPM
Process: Organizations need to ensure that their current EPM processes are built around key drivers of business value, and concentrate on the most volatile and material elements of the business.
People: Leadership commitment in program sponsorship, organizational discipline and mindset modification are required. Data experts trained to work with modern data technologies, large data sets, and use sophisticated statistical techniques to different scenarios are helpful.
Technology: Technology is a major enabler of Scenario-Based EPM. Companies need to move away from using spreadsheets as their main planning tool to take advantage of sophisticated software that enables better scenario planning.
The goal is to create and build a data storehouse / business intelligence (BI) architecture that provides a flexible, multi-faceted analytical ecosystem for each unique organization. A traditional BI architecture has analytical processing first pass through a data warehouse. In the new, contemporary BI architecture, data reaches users through a multiplicity of organization data structures, each tailored to the type of content it contains and the type of user who desires to eat it.
The data revolution (big and little data sets) provides considerable improvements. New tools like Hadoop allow organizations to cost-effectively consume and analyze large volumes of semi-structured data. In addition, it complements conventional top-down data delivery methods with even more flexible, bottom-up techniques that promote predictive or exploration analytics and rapid application development.
Scenario planning is a strategic planning method used to make flexible brief and long-term plans. Scenario planning might involve aspects of Systems thinking, specifically the acknowledgment that many factors could incorporate in complex means to produce at some time unexpected futures (due to non-linear feedback loops). Systems believing used in combination with scenario planning leads to possible scenario plot due to the fact that the causal relationship between factors can be demonstrated. In these cases when scenario planning is integrated with a systems thinking approach to scenario development, it is in some cases described as structural dynamics. Business Planning and Forecasting describes the set of activities where business is planned against the strategy and what forecast activities or results of the organization could occur from operational execution during a particular period.
Enterprise Performance Management (EPM) considers the visibility of operations in a closed-loop model throughout all elements of the enterprise. There are a number of arising domains in the EPM field which are being driven by corporate initiatives, scholastic study, and industrial methods. These include:.
- Strategy Formulation.
- Business Planning and Forecasting.
- Financial Management.
- Supply Chain Effectiveness
Stages of EPM Process
The six stages of the closed-loop EPM process model are:.
- Strategy Development
- Strategy Translation
- Organization Alignment
- Operations Planning
- Learning and Monitoring
- Testing and Adaptation
Scenario Capability in EPM
Incorporating a scenario capability into an organization’s Enterprise Performance Management processes requires seven steps:
1. Identify the key factors that can have a material impact on the organization. For example, consumer products companies may look at gross domestic product growth and consumer spending, airlines at oil prices, global manufacturing companies at exchange rates and freight costs, and financial services companies at consumer credit quality, rate of interest and asset prices.
2. Specify relevant scenarios (typically three to four) that describe a range of future operating environments. For example, what if oil prices average $75 a barrel, $110 a barrel or $140 a barrel?
3. Agree on a baseline scenario that will be used to develop/review strategy, set targets and develop operational plans and budgets.
4. Develop strategic plans, targets, action plans and spending plans using the baseline scenario.
5. Develop alternative views of targets, plans and budgets under each scenario. Identify the major impacts and changes under each scenario.
6. Identify relevant triggers and corresponding tolerance ranges for each scenario.
7. Whenever developed causes / tolerances are surpassed– suggesting a new scenario ends up being efficient– adjust techniques making use of the previously established strategies and generate a brand-new forecast reflecting the modification in scenario and the modifications in tactics.
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