strategies. Finally, a periodic evaluation of the tactics and plans through re-forecasting should occur to determine what adjust-ments are needed keep the organization on track. (See box below.) Rich Padula, director of fi nance at First Midwest Bank, has helped the bank evolve into this full-cycle enterprise perfor-mance management process. “Our executive team develops a three-to fi ve-year strategic plan that starts with goal-setting and a vision of where we want to be in the future,” he says. “Th is is overlaid on a projection of our current momentum and the operating environment we expect to face, so that we can identify and size the gaps and then develop strategic alternatives to address them. We then push this down a level in the organization, communicating our vision, goals and high-level strategy with each of the line of business teams so that they can develop a tactical plan to carry out our strategy and achieve our long-term goals. Once those tactical plans are developed, an operating budget is created, which acts as our baseline for driving short-term per-formance accountability as well as monitoring our progress in achieving our long-term goals.” Padula continues. We continu-ally re-forecast based on feedback from the business lines to determine what adjustments are needed to not only meet our targets for the year, but more importantly to keep us on track with our longer term goals. Th e re-forecasting assumptions and results feed right into our planning process for the next year.” Th e performance management process needs to start with the strategic plan that provides clear direction, specifi c business and performance goals and organizational alignment. Before establishing annual budgets for the institution, it is imperative that the executive and senior management teams work through a sound strategic planning process. Th is process should include both qualitative and quantitative elements such as a baseline fi nancial forecast, specifi c strategic goals and the evaluation of multiple initiatives and scenarios that will enable the attainment of those goals. Once agreed upon, the strate-gic plan, including the key performance and fi nancial metrics, should be communicated across the organization and act as the guiding force for the budgeting process. Th is enables the organization’s line-of-business managers to view the budget as First Midwest Bank Financial Performance Improvements From 2010 to 2014: b; 167% increase in net income. b; 144% improvement in return on equity. b; 27% growth in loans. b; 17% organic growth in the balance sheet. a more specifi c, tactical plan that they develop and own in order to achieve the overall performance goals. Padula and First Midwest Bank have developed a highly collabor-ative operation that joins the fi nance department and line of business managers throughout the entire process. Padula explains, “When we rolled out the new process, we started by assigning divisional fi nan-cial offi cers, basically mini-chief fi nancial offi cers, to partner with each line of business. Th eir function is to provide insight and analysis of operating performance and help drive improvement. “Th is partnership forced a discipline that has ultimately pro-vided our managers with an understanding of their key drivers of performance and a view into how their individual lines of business contribute to the overall performance of the organiza-tion and execution of its strategy,” says Padula. Th is broader view has enabled each area to more eff ectively participate in the planning and budgeting process.” Th e combination of the more engaged line of business man-agers and the DFOs results in more thoughtful, thorough plans and budgets with better buy-in and accountability. Part of this increased accuracy and accountability comes from utilizing a cash-fl ow based budgeting approach for the balance sheet and related interest-income forecasting. Padula states that “in the old days, we just looked at last year and saw that we in-creased our balances by 3 percent in a certain area, so next year we would target something higher like 4 percent growth. Our lead-ers were hard pressed to accurately forecast as they didn’t have the appropriate information around pay downs, maturities, and the impact of line fl uctuations. Now our managers are held to new loan volume targets, runoff and prepayment numbers, specifi c pricing spreads, etc., providing signifi cantly more accuracy and accountability throughout our business plan.” A process that links the strategy to the development of busi-ness plans and an operating budget, and includes ongoing eval-uation and reforecasting of both business and market variables, supports these goals. Padula says First Midwest Bank con-tinually strives to improve its process by employing consistency throughout the organization; alignment between behaviors and organizational goals; a focus on employees; and establishing a foundation for decision making. “We look at this as a continuous process,” says Padula. “We have a framework to set orga-nizational vision and goals, assess our operating environment including our own strengths and weaknesses, and then develop strategies, initiatives and fi nally a tactical operating plan and budget to meet those goals. We then utilize the same tool set and information to track our performance against our plans and make adjustments as needed.” Bryan Ridgway is senior solutions engineer and Kenneth M. Levey is vice president of ﬁ nancial institutions for Axiom EPM, which provides ﬁ -nancial planning and performance management software for ﬁ nancial institutions. For more infor-mation, visit www.axiomepm.com.