MGS 8020 Business Intelligence Business Performance Management Nov 20, 2014

1. MGS 8020Business Intelligence Business Performance ManagementNov 20, 2014

2. Business Performance Management Agenda BPM Methodologies BPM Architecture and Applications Appendix

3. Business Performance Management (BPM) Overview BPM A real-time system that alert managers to potential opportunities, impending problems, and threats, and then empowers them to react through models and collaboration BPM and BI Compared BPM is an outgrowth of BI and incorporates many of its technologies, applications, and techniques / BPM is part of the daily work of managers BPM is an enterprise wide strategy that seeks to prevent organizations from optimizing local business at the expense of overall corporate performance Summary of BPM processes BPM encompasses a closed-loop set of processes that link strategy to execution in order to optimize business performance, which is achieved by: Setting goals and objectives Establishing initiatives and plans to achieve those goals Monitoring actual performance against the goals and objectives Taking corrective action

4. Business Performance Management (BPM)The Big Picture Business Strategy 1. Balanced Scorecard: Financial Customer Internal Business Process Learning & Growth Business Objectives Business Metrics Key Process Indicators 2. Strategic Improvement Goals: Based on Key Process Indicators Tied to Business Metrics Business Analysis: Workout Sessions Catalyst Sessions Leadership Planning SOAR Planning 3. Prioritize Opportunities 4. Identify Specific Projects, Resources Service/ Process Design Strategic Initiatives Process Improvement Lean/ Waste Reduction Just Do It Design for Six Sigma Master Black Belts Black Belts PMO MBB, BB, PMP Lean Thinking Black Belts Green Belts Kaizen BB, GB or Trained Team Ldr Six Sigma Select Tools Trained Team 8-D, KT Problem Solving BB, GB or Trained Team Ldr Core Six Sigma Black Belts Green Belts 8-D, KT Problem Solving BB, GB or Trained Team Ldr

5. Strategize: Where Do We Want to Go? Strategic planning Tasks common to the strategic planning process: Conduct a current situation analysis Determine the planning horizon Conduct an environment scan Identify critical success factors Complete a gap analysis Create a strategic vision Develop a business strategy Identify strategic objectives and goals Critical success factors (CSF) Key factors that delineate the things that an organization must excel at to be successful in its market space Strategic vision A picture or mental image of what the organization should look like in the future

6. Strategize: Where Do We Want to Go? Strategic planning Strategic objective A broad statement or general course of action prescribing targeted directions for an organization Strategic goal A quantified objective with a designated time period Four sources for the gap between strategy and execution: Vision People Management Resources

7. Plan: How Do We Get There? Operational planning Operational plan Plan that translates an organization’s strategic objectives and goals into a set of well-defined tactics and initiatives, resources requirements, and expected results Tactic-centric plan—tactics are established to meet the objectives and targets established in the strategic plan (used by best practices organizations) Budget-centric plan—a financial plan or budget is established that sums to the targeted financial values Financial planning and budgeting An organization’s strategic objectives and key metrics should serve as top-down drivers for the allocation of an organization’s tangible and intangible assets Resource allocations should be carefully aligned with the organization’s strategic objectives and tactics in order to achieve strategic success

8. Monitor: How Are We Doing? A comprehensive framework for monitoring performance should address two key issues: What to monitor How to monitor Diagnostic control system A system that has inputs, a process for transforming the inputs into outputs, a standard or benchmark against which to compare the outputs, and a feedback channel to allow information on variances between the outputs and the standard to be communicated and acted upon Pitfalls of variance analysis The vast majority of the exception analysis focuses on negative variances when functional groups or departments fail to meet their targets Rarely are positive variances reviewed for potential opportunities, and rarely does the analysis focus on assumptions underlying the variance patterns

9. Monitor: How Are We Doing? Diagnostic Control System Schematic Business Strategy Critical performance variables Goals Outputs Inputs Process Adjustments

10. Performance Measurement Performance measurement system A system that assists managers in tracking the implementations of business strategy by comparing actual results against strategic goals and objectives Problems with existing performance measurement systems The most popular system in use is some variant of the balanced scorecard (BSC) BSC methodology is a holistic vision of a measurement system tied to the strategic direction of the organization and based on a four-perspective view of the world: Financial measures supported by customer, internal, and learning and growth metrics The drawbacks of using financial data as the core of a performance measurement Financial measures are usually reported by organizational structures and not by the processes that produced them Financial measures are lagging indicators, telling us what happened, not why it happened or what is likely to happen in the future Financial measures are often the product of allocations that are not related to the underlying processes that generated them Financial measures are focused on the short term and provide little information about the longer term

11. Performance Measurement Effective performance measurement Basic ingredients of a good collection of performance measures Measures should focus on key factors Measures should be a mix of past, present, and future Measures should balance the needs of shareholders, employees, partners, suppliers, and other stakeholders. Measures should start at the top and flow down to the bottom Measures need to have targets that are based on research and reality rather than be arbitrary

12. Performance Measurement An effective performance measurement system should help: Align top-level strategic objectives and bottom-level initiatives Identify opportunities and problems in a timely fashion Determine priorities and allocate resources based on those priorities. Change measurements when the underlying processes and strategies change Delineate responsibilities, understand actual performance relative to responsibilities, and reward and recognize accomplishments. Take action to improve processes and procedures when the data warrant it. Plan and forecast in a more reliable and timely fashion

13. Business Performance Management Agenda BPM Methodologies BPM Architecture and Applications Appendix

14. BPM Methodologies Balanced scorecard (BSC) A performance measurement and management methodology that helps translate an organization’s financial, customer, internal process, and learning and growth objectives and targets into a set of actionable initiatives The meaning of balance BSC is designed to overcome the limitations of systems that are financially focused Nonfinancial objectives fall into one of three perspectives: Customer Internal business process Learning and growth In BSC, the term balance arises because the combined set of measures are supposed to encompass indicators that are: Financial and nonfinancial Leading and lagging Internal and external Quantitative and qualitative Short term and long term

15. 1. Financial: How do we look to our shareholders and how should we look? 2. Customer: How do our customers see us and how should we appear? 3. Internal Business Process: What should we do that is excellent and how are we doing? 4. Innovation and Growth: Can we continue to improve and add value through employee and organization innovation and learning? Aligning strategies and actions - BSC enables an organization to align its actions with its overall strategies through a series of interrelated steps: Identify strategic objectives for each of the perspectives (maybe 15 to 25 in all). Associate measures with each of the strategic objectives; a mix of quantitative and qualitative should be used. Assign targets to the measures. List strategic initiatives to accomplish each of the objectives (i.e., responsibilities). Link the various strategic objectives through a cause-and-effect diagram called a strategy map Balanced Scorecard Perspectives

16. BPM Methodologies: Strategy Map A Strategy Map is a visual display that delineates the relationships among the key organizational objectives for all four BSC perspectives Customer Perspective Price Quality Time Function Image Relationship Learning & Growth Perspective Internal Process Perspective Technology Infrastructures Climate for Action Staff Competencies + + Build the Brand Deliver the Product Make the Sale Service Exceptionally Financial Perspective The economic model of key levers driving financial performance Return on Investment Productivity Strategy Revenue Strategy Sources of Growth Sources of Productivity The identification of targeted customer segments and their value proposition The process-focused view of the business using the value chain The intangible assets necessary to drive performance

17. BPM Methodologies Six Sigma A project-based performance management methodology aimed at reducing variation (thus defects) in business process opportunities Lean A value-stream-based performance management methodology aimed at reducing non-value-added waste in a business process opportunities Lean Six Sigma A hybrid methodology combining the business process improvement tools and techniques of Lean and Six Sigma to accommodate business needs in broader range of applications than each methodology can individually accomplish

18. BPM Methodologies Lean Six Sigma The DMAIC performance model A closed-loop business improvement model that encompasses the steps of defining, measuring, analyzing, improving, and controlling a process Limitations of Lean Six Sigma The lack of integration among the various Lean Six Sigma projects across the enterprise The failure to institute the roles required to support the methodology Not every business problem lends itself to the DMAIC approach Six Sigma Limitations of Six Sigma The lack of integration among the various Six Sigma projects across the enterprise The failure to institute the roles required to support the methodology

19. Business Performance Management Agenda BPM Methodologies BPM Architecture and Applications Appendix

20. BPM Architecture and Applications BPM architecture System architecture Thelogical and physical design of a system A BPM system needs three components in order to contribute to the successful implementation of strategy: Database tier Application tier Client or user interface Database tier designs include: Transactional data stores Application data marts Centralized data warehouse

21. BPM Architecture and Applications BPM architecture BPM applications: Budgeting, planning, and forecasting Profitability modeling and optimization Scorecard applications Financial consolidation Statutory and financial reporting BPM user interface The user interface is the bridge between the BPM applications and the end user The Web browser is currently the primary tool for accessing information in a BPM system Spreadsheets are a popular alternative when a rich user interface is needed to support the analytical and computation needs of the user BPM interfaces should provide is guidance to the end user

22. Performance Dashboards Dashboards and scorecards both provide visual displays of important information that is consolidated and arranged on a single screen so that information can be digested at a single glance and easily explored

23. Simplistic sample scorecard Quality Drilldown Productivity Drilldown Skip Dashboard

24. Performance Dashboards Dashboards versus scorecards Performance dashboards Visual display used to monitor operational performance Performance scorecards Visual display used to chart progress against strategic and tactical goals and targets Performance dashboard is a multilayered application built on a business intelligence and data integration infrastructure that enables organizations to measure, monitor, and manage business performance more effectively (Eckerson)

25. Performance Dashboards Dashboard design Three types of performance dashboards: Strategic dashboards Operational dashboards Tactical dashboards “The fundamental challenge of dashboard design is to display all the required information on a single screen, clearly and without distraction, in a manner that can be assimilated quickly" (Few, 2005)

26. Performance Dashboards What to look for in a dashboard Use of visual components (e.g., charts, performance bars, sparklines, gauges, meters, stoplights) to highlight, at a glance, the data and exceptions that require action. Transparent to the user, meaning that they require minimal training and are extremely easy to use Combine data from a variety of systems into a single, summarized, unified view of the business Enable drill-down or drill-through to underlying data sources or reports Present a dynamic, real-world view with timely data refreshes, enabling the end user to stay up-to-date with any recent changes in the business. Require little, if any, customized coding to implement, deploy, and maintain

27. Business Activity Monitoring (BAM) Business activity monitoring (BAM) A real-time system that alert managers to potential opportunities, impending problems, and threats, and then empowers them to react through models and collaboration BAM depends on a wide range of technologies working in concert including: ETL technology Process modelingtechnology Rules engines Messaging servers E-mail in-boxes, portals, dashboards, and Web services

28. Business Activity Monitoring (BAM) Benefits of BAM Real-time data access in a usable format Access to tools to collaborate and model the problem, leading to a quick solution BAM Issues Executives fail to consider the readiness of technology or of the business processes they want to monitor Change management issues are paramount Effective BAM requires working closely with the business units to identify the key indicators (CSF) and analytical techniques that provide reliable early warnings of impending issues Executives must let the responsible managers on the frontlines deal with their problems and issues in a timely manner before reacting

29. Metrics attributes (K. H. Rose, 1995) • Customer-centered • indicators that provide value to customer (quality, dependability, timeliness) • associated with internal work that address system cost, waste reduction, team work, innovation, customer satisfaction • Measure performance across time (trends, not snapshots) • Provide information directly at level they are applied (no further processing) • Linked to business mission, strategy, and actions • Contribute to organizational direction and control • Collaboratively developed by those who provide, collect, process and use the data

30. Example: Business Intelligence Evolution

31. Business Performance Management Agenda BPM Methodologies BPM Architecture and Applications Appendix