IBANK, DUE DILIGENCE, OFSAA, EPM, HYPERION

1. Chapter 5
Business Performance Management

2. Learning Objectives
 Understand the all-encompassing nature of
business performance management (BPM)
 Understand the closed-loop processes
linking strategy to execution
 Describe some of the best practices in
planning and management reporting
 Describe the difference between
performance management and
measurement

3. Learning Objectives
 Understand the role of methodologies in BPM
 Describe the basic elements of the balanced
scorecard and Six Sigma methodologies
 Describe the differences between scorecards and
dashboards
 Understand some of the basics of dashboard
design
 Understand the potential uses of business activity
monitoring (BAM)

4. Business Performance
Management (BPM) Overview
 BPM Defined
 Business performance management (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

5. Business Performance
Management (BPM) Overview
 BPM and BI Compared
 BPM is an outgrowth of BI and incorporates
many of its technologies, applications, and
techniques
 BPM is an enterprisewide strategy that seeks
to prevent organizations from optimizing local
business at the expense of overall corporate
performance
 BPM is part of the daily work of managers

6. Business Performance
Management (BPM) Overview
 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

7. Business Performance
Management (BPM) Overview

8. Strategize:
Where Do We Want to Go?
 Strategic planning
 Tasks common to the strategic planning
process:
1. Conduct a current situation analysis
2. Determine the planning horizon
3. Conduct an environment scan
4. Identify critical success factors
5. Complete a gap analysis
6. Create a strategic vision
7. Develop a business strategy
8. Identify strategic objectives and goals

9. Strategize:
Where Do We Want to Go?
 Strategic planning
 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

10. 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

11. Strategize:
Where Do We Want to Go?
 The strategy gap
 Four sources for the gap between strategy
and execution:
1. Vision
2. People
3. Management
4. Resources

12. 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

13. Plan:
How Do We Get There?
 Operational planning
 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

14. Plan:
How Do We Get There?
 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

15. Monitor:
How Are We Doing?
 A comprehensive framework for
monitoring performance should address
two key issues:
 What to monitor
 How to monitor

16. Monitor:
How Are We Doing?

17. Monitor:
How Are We Doing?
 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

18. Monitor:
How Are We Doing?

19. Act and Adjust:
What Do We Need to Do Differently?
 Hackett Group’s benchmarking process
divides planning and management
reporting into four sub-processes:
1. Strategic planning
2. Operational and financial planning
3. Reporting
4. Forecasting

20. Act and Adjust:
What Do We Need to Do Differently?
 Each sub-process is evaluated in terms of
five dimensions of efficiency and
effectiveness:
1. Strategic alignment
2. Partnering
3. Process
4. Technology
5. People and organizations

21. Act and Adjust:
What Do We Need to Do Differently?
 The Hackett Group’s 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

22. Act and Adjust:
What Do We Need to Do Differently?
 The Hackett Group’s benchmarking results
indicate that world class companies:
 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

23. Act and Adjust:
What Do We Need to Do Differently?
 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

24. 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

25. Drawbacks of solely using
Financial Data
 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

26. Effective Performance
Measurement
Basic ingredients include:
 Measures should focus on key CSF’s
 Measures should be a mix of past, present, and
future
 Measures should balance the needs of all
stakeholders (shareholders, employees, partners,
suppliers, etc).
 Measures should start at the top and flow down.
 Targets must be based on facts and reality;
arbitrary measures do not work in the long run.

27. BPM Methodologies
 An effective performance measurement
system should help:
 Align top-level strategic objectives and bottom-
level initiatives (goal congruence)
 Identify opportunities and problems in a timely
fashion
 Determine priorities and allocate resources
based on those priorities.
 Be flexible to adjust measurements as the
underlying processes and strategies change

28. BPM Methodologies
 An effective performance measurement
system should:
 Delineate responsibilities, understand actual
performance relative to responsibilities, and
reward and recognize accomplishments.
 Identify opportunities to take action to improve
processes and procedures based on data.
 Plan and forecast in a reliable and timely fashion

29. 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

30. BPM Methodologies
 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:
1. Customer
2. Internal business process
3. Learning and growth

31. BPM Methodologies

32. BPM Methodologies
 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

33. BPM Methodologies
 Aligning strategies and actions
• BSC enables an organization to align its actions with
its overall strategies through a series of interrelated
steps:
1. Identify strategic objectives for each of the perspectives
2. Associate measures with each of the strategic objectives; a
mix of quantitative and qualitative should be used.
3. Assign targets to the measures.
4. List strategic initiatives to accomplish each of the objectives
(i.e., responsibilities).
5. Link the various strategic objectives through a cause-and-
effect diagram called a strategy map

34. BPM Methodologies
 Strategy map
A visual display that delineates the
relationships among the key organizational
objectives for all four BSC perspectives

35. BPM Methodologies

36. BPM Methodologies
 BSC certification
• BSC Collaborative offers software vendors the
opportunity to have their applications certified
against a well-defined set of criteria
• The application must offer an end user the ability to
view:
1. Strategic objectives from the four perspectives
2. The measures, targets, and initiatives associated with each
objective
3. The cause-and-effect relationships among the objectives

37. BPM Methodologies
 Six Sigma
A performance management methodology
aimed at reducing the number of defects in
a business process to as close to zero
defects per million opportunities (DPMO) as
possible

38. BPM Methodologies
 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

39. BPM Methodologies
 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

40. BPM Architecture and Applications

41. 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:
1. Database tier
2. Application tier
3. Client or user interface

42. BPM Architecture and Applications
 BPM architecture
 Database tier designs include:
• Transactional data stores
• Application data marts
• Centralized data warehouse

43. BPM Architecture and Applications
 BPM architecture
 BPM applications:
1. Budgeting, planning, and forecasting
2. Profitability modeling and optimization
3. Scorecard applications
4. Financial consolidation
5. Statutory and financial reporting

44. BPM Architecture and Applications
 BPM architecture
 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

45. BPM Architecture and Applications

46. 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

47. Performance Dashboards

48. 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

49. Performance Dashboards
 Dashboards versus scorecards
 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)

50. Performance Dashboards
 Dashboards versus scorecards
 Three types of performance dashboards:
1. Operational dashboards
2. Tactical dashboards
3. Strategic dashboards

51. Performance Dashboards
 Dashboard design
 “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)

52. 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

53. Performance Dashboards
 What to look for in a dashboard
• 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

54. 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

55. Business Activity Monitoring (BAM)
 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

56. 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

57. Business Activity Monitoring (BAM)
 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