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MGS 8020 Business Intelligence Business Performance Management Nov 20, 2014

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Title: MGS 8020 Business Intelligence Business Performance Management Nov 20, 2014


1
MGS 8020Business Intelligence Business
Performance ManagementNov 20, 2014
2
Agenda
BPM Architecture and Applications
BPM Methodologies
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
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 organizations strategic
    objectives and goals into a set of well-defined
    tactics and initiatives, resources requirements,
    and expected results
  • Tactic-centric plantactics are established to
    meet the objectives and targets established in
    the strategic plan (used by best practices
    organizations)
  • Budget-centric plana financial plan or budget is
    established that sums to the targeted financial
    values
  • Financial planning and budgeting
  • An organizations strategic objectives and key
    metrics should serve as top-down drivers for the
    allocation of an organizations tangible and
    intangible assets
  • Resource allocations should be carefully aligned
    with the organizations 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?
Business Strategy
Diagnostic Control System Schematic
Critical performance variables
Goals
Outputs
Process
Inputs
Adjustments
10
Act and Adjust What Do We Need to Do
Differently?
  • Hackett Groups benchmarking process divides
    planning and management reporting into four
    subprocesses
  • Strategic planning
  • Operational and financial planning
  • Reporting
  • Forecasting
  • Each subprocess is evaluated in terms of five
    dimensions of efficiency and effectiveness
  • Strategic alignment
  • Partnering
  • Process
  • Technology
  • People and organizations

11
Act and Adjust What Do We Need to Do
Differently?
  • The Hackett Groups benchmarking results indicate
    that world class companies
  • Are significantly more efficient than their peers
    at managing costs
  • Focus on operational excellence and experience
    significantly reduced rates of voluntary employee
    turnover
  • Have hybrid sourcing strategies that combine
    shared services and outsourcing
  • Provide management with the tools and training to
    leverage corporate information and to guide
    strategic planning, budgeting, and forecasting
  • Closely align strategic and tactical plans,
    enabling functional areas to contribute more
    effectively to overall business goals
  • Paucity of analysis
  • The overall impact of the planning and reporting
    practices of the average company is that
    management has little time to review results from
    a strategic perspective, decide what should be
    done differently, and act on the revised plans

12
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

13
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

14
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

15
Agenda
BPM Methodologies
BPM Architecture and Applications
Appendix
16
BPM Methodologies
  • Balanced scorecard (BSC)
  • A performance measurement and management
    methodology that helps translate an
    organizations 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

17
Balanced Scorecard Perspectives
  • 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

18
BPM Methodologies Strategy Map
Financial Perspective
Return on Investment
  • A Strategy Map is a visual display that
    delineates the relationships among the key
    organizational objectives for all four BSC
    perspectives

Productivity Strategy
Revenue Strategy
Sources of Growth
Sources of Productivity
19
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

20
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

21
Agenda
BPM Architecture and Applications
Appendix
BPM Methodologies
22
BPM Architecture and Applications
  • BPM architecture
  • System architecture
  • The logical 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

23
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

24
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

25
Architecture of a Performance Dashboard
Business Architecture
Integrated BI capabilities
Monitoring (dashboards, scorecards, KPIs, alerts)
Analysis (dimensions, hierarchies, slice/ dice)
Planning
Reporting (mgmt, ops reports)
Common BI architecture/ BI platform (security,
metadata, file formats, services)
Common data-delivery architecture (data
warehousing, data marts, distributed queries,
manual)
MGS 8020 Methods of Business Intelligence
26
Simplistic sample scorecard
Quality Drilldown
Productivity Drilldown
Skip Dashboard
27
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)

28
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)

29
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

30
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 modeling technology
  • Rules engines
  • Messaging servers
  • E-mail in-boxes, portals, dashboards, and Web
    services

31
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

32
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

33
Example Business Intelligence Evolution
34
Agenda
Appendix
BPM Architecture and Applications
BPM Methodologies
35
An EIS is
  • An EIS is a special type of DSS designed to
    support decision making at the top level of an
    organization.
  • An EIS may help a CEO to get an accurate picture
    of overall operations, and a summary of what
    competitors are doing.
  • These systems are generally easy to operate and
    present information in ways easy to quickly
    absorb (graphs, charts, etc.).
  • The EIS will allow the executive to drill down
    from any figure to see its supporting data.
  • The executive can select a level of detail (for
    example, sales by state) if further investigation
    is needed.
  • This top down approach should lead to better
    decisions.

36
Types of information executives use
  • Accounting systems that relate revenue to
    specific operational areas are more important
    than traditional accounting systems.
  • Information about markets, customers and
    suppliers is valuable in determining strategy.
  • The information required is often spread across
    several computer systems and located throughout
    the organization.
  • The information used is often short-term and
    volatile.
  • Information that represents key business
    performance indicators (metrics)

37
EIS hardware components
  • An EIS requires no specific or unique hardware.
  • A key issue is to be sure that the EIS
    components optimize and conform to the
    organizations computing resources.
  • The system must be configured so that the
    resources are well-matched to the executives
    using them.

38
EIS software components
  • In contrast to hardware, software is usually
    highly specialized to the problem domain.
  • This specialization is often achieved by using
    off-the-shelf components for the EIS backbone,
    and customized modules to meet specific needs.
  • Lotus Notes is a good example. It can be used
    alone, or can accommodate third-party plug-in
    modules.
  • SAS is another robust system. SAS interactive
    tour

39
EIS limitations
  • Cost a 1991 survey showed an average
    development cost of 365,000 with annual
    operating costs of 200,000.
  • Proportion still holds today, but higher .
  • Technological limitations the EIS needs to be
    seamlessly integrated into the companys current
    IT architecture, so it is a formidable challenge
    to the designer.
  • Organizational limitations the organizational
    structure might not be right.

40
Organizational limits
  • Agendas and time biases the EIS represents
    only part of executives total agenda, and it may
    become easy to be overly reliant on it.
  • Managerial synchronization heavy reliance on
    the timely, ad-hoc, EIS reports may disrupt
    stable, well-established reporting cycles.
  • Destabilization fast EIS response may cause
    the executive to react too swiftly, leading to
    less stability in the organization.

41
EIS may fail because
  • Lack of management support
  • Political problems
  • Developer failures
  • Technology failures
  • Costs
  • Time

42
EIS of tomorrow
  • The intelligent EIS advances in AI technology
    will be deployed in the EIS
  • The multimedia EIS multimedia databases will
    allow future integration of text, voice and image
  • The informed EIS future EISs will make wider
    use of data external to the company
  • The connected EIS high-bandwidth communication
    allows greater interconnectivity

43
Performance Management The Balanced Scorecard
  • Purpose of Balanced Scorecard
  • A method of implementing a business strategy by
    translating it into a set of performance measures
    derived from strategic goals that allocate
    rewards to executives and managers based on their
    success at meeting or exceeding the performance
    measures.

44
Performance Management The Balanced Scorecard
  • Reasons for the Need of a Balanced Scorecard
  • Focus on traditional financial accounting
    measures such as ROA, ROE, EPS gives misleading
    signals to executives with regards to quality and
    innovation. It is important to look at the means
    used to achieve outcomes such as ROA, not just
    focus on the outcomes themselves.
  • Executive performance needs to be judged on
    success at meeting a mix of both financial and
    non-financial measures to effectively operate a
    business.
  • Some non-financial measures are drivers of
    financial outcome measures which give managers
    more control to take corrective actions quickly.
    (Example controls in jet cockpit for pilot)
  • Too many measures, such as hundreds of possible
    cost accounting index measures, can confuse and
    distract an executive from focusing on important
    strategic priorities. The balanced scorecard
    disciplines an executive to focus on several
    important measures that drive the strategy.

45
Incentive Compensation for Executives with the
Balanced Scorecard
  • Executive Bonus Pool is designed as a percentage
    of Base Salary
  • The bonus pool represents potential earnings from
    the bonus for an executive if all performance
    measures are achieved
  • Partial success with meeting performance measures
    results in the allocation of a bonus representing
    a lesser amount of the total potential bonus.
  • Example The bonus pool for a CEO equals 100
    percent of salary. Range of bonus equals 0 to
    100 percent of salary depending on success of CEO
    performance.

46
Example Automobile Company Balanced Scorecard
Reward Matrix for Bonus
  • Category Measure Weighting
  • Financial (50) EVA 25 Unit
    Profit 15 Market Growth 10
  • Customer (20) Customer satisfaction
    survey 10 Dealer satisfaction survey 10
  • Internal (20) Above average rank
    onProcess industry quality survey 10 Decre
    ase in dealer delivery cycle time.. 10
  • Innovation (10) Suggestions/employee 5and
    Learning Emp. satisfaction survey 5

47
The Balanced Scorecard
  • Critical Thinking Questions
  • 1. What happens to the balanced scorecard when
    the strategy changes? (example moving from a
    growth to an extract profits strategy)
  • 2. How should resistance by executives or
    managers to new measures be handled?
  • 3. What if executives or managers sub-optimize
    and only focus on categories in the reward matrix
    with the largest payoff such as EVA and
    Customer Satisfaction?

48
Integration into Strategic Planning
  • Define Key Strategic Performance Metrics
  • Articulate Core Issues and Strategies
  • Identify Strategic Improvement Goals (SIGs)
  • Identify and prioritize specific improvement
    projects to impact the SIGs
  • Create active Lean Six Sigma projects

Define Key Strategic Business Performance Metrics
Articulate Core Enterprise Issues and Strategies
Identify Strategic Improvement Goals
Identify and Prioritize Specific
Improvement Projects
Create Active Six Sigma Projects
49
Key Challenges with Integration
  • Be sure to deploy plans from the top down, so
    that employees understand that top leadership
    vigorously and enthusiastically support Six Sigma
    objectives
  • Put effective communications channels in place so
    that deployment plans and objectives are
    communicated to all parts of the organization in
    clear, consistent, and frequent ways
  • Be certain that you put adequate leadership
    ground forces in place to help Six Sigma project
    teams punch through organizational roadblocks
    from successful project launches to completion
  • Assign specific financial goals to each Six Sigma
    project that the you undertake
  • Put effective training in place

50
Leadership Challenge
  • Disciplined, structured logical techniques, along
    with knowledge sharing with coaches, and
    measurement will bring positive results
  • The results are enhanced if management steps up
    and supports its people
  • The results are even better if management breaks
    down barriers and creates a culture where it is
    unacceptable to have process knowledge and not
    share it
  • The results are phenomenal if management focuses
    the work in areas that are important to customers
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