EPM and ERP compared: what role do they play in finance transformation? - SystemsAccountants

Estimated reading time: 4 minutes EPM and ERP compared: what role do they play in finance transformation?

While Enterprise Resource Planning (ERP) and Enterprise Performance Management (EPM) are both software systems that potentially play a major role in financial transformation, and allow organisations to put data at the centre of their decision-making, they are in fact quite distinct systems, with few areas of overlap. Employed shrewdly, they perform different, yet complementary functions that together can accelerate an organisation’s performance.

Broadly, ERP obtains and structures transactional data, helping to coordinate the company’s resources, producing real-time operational data. EPM on the other hand provides analysis and a user-friendly interface to help managers gain insights and report on their business.

What is ERP?

Businesses implement ERP to automate many operations that used to be manual, increase data transparency, and establish a single source of truth rather than discrete data silos. Designed to record transactions and keep track of resources within an organisation, the system obtains and structures data on materials wherever the organisation interacts with them – from ordering to procurement, and from supply chains to delivery. It also includes a ledger that collates all data from disparate ledgers like accounts payable, and accounts receivable, and purchasing.

The data from ERP helps leaders find efficiencies and optimise processes and resources within the business, and this is where it can overlap with some areas of EPM, for example with financial planning and decision-making. ERP implementation can be a lengthy process, often taking many months, if not years in larger organisations, to complete.

ERP systems are an essential component of digital transformation, particularly of the finance function. To understand ERP systems in more detail, read this.

What is EPM?

According to Gartner, EPM refers to “the process of monitoring performance across the enterprise with the goal of improving business performance.” While some smaller organisations might rely on spreadsheets for budgeting and planning functions, these often prove unwieldy as a company grows. That’s where EPM solutions can come in. They integrate and analyse information from multiple transactional systems – including ERP systems, e-commerce systems, budgeting and planning solutions, data warehouses, and external data sources.

They then use analytical tools and artificial intelligence to identify trends and patterns in the data that allow managers to assess current performance, monitor processes, and optimise decision-making. EPM implementation is usually less time-intensive than for ERP, usually taking anywhere between two and six months.

According to Verified Market Research, the EPM market was valued at $5.8 Billion (USD) in 2021 and is projected to reach $10.1 Billion by 2030. That equates to a compound annual growth rate of 6.5% from 2022 to 2030.

One driver behind the growth in EPM solutions is their ability to develop data-driven insight that businesses can deploy to improve performance—essential in today’s dynamic, competitive business environment. They are also foundational to digital transformation, particularly of the finance function, as they connect operational data, such as transaction history, with the business’s strategies and goals.

The EPM process typically follows several steps. To start, the EPM software accesses financial and operational data from the business units and information systems across your enterprise, such as the sales and inventory systems. Using the analytic capabilities of the EPM solution, you can build business models and plans. As your organisation executes against its plans, the EPM software can monitor new transaction data and compare performance against the models and objectives, to highlight adjustments that could further improve performance.

EPM’s capabilities are key in today’s rapidly changing business environment. They include:

  • The ability to automate month-end financial closes and account reconciliations from separate business units.
  • The ability to replace unwieldy, fallible, and disjointed spreadsheets with a single planning solution that offers an enterprise-wide view of performance to inform decision-making.
  • The ability to drive profitability by providing insights gained from the EPM solution to evaluate drivers of costs and margins and optimise profits and opportunities.

What role do they play in financial transformation?

Of the two systems, ERP is perhaps more foundational to financial transformation. This is because it involves a more top-to-bottom restructuring of the organisation’s data – and that’s reflected in the increased time it takes to implement.

EPM is still a valuable transformational tool though. Managers armed with EPM can enhance their control over budgeting, planning, and modelling. They’re also assisted when it comes to compliance with regulations.

Still, while both ERP and EPM are powerful systems when implemented astutely, neither will have the intended impact on financial transformation if they aren’t built on digital-first cultural foundations. This must be spearheaded by a leadership with a clear vision, and supported by a talented team that understands the strategic objectives and possesses the right combination of skills.