Whitepaper Business Performance Measurement For Success
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This document discusses implementing an effective business performance measurement (BPM) framework. It begins by noting that there is often a gap between the theory of BPM and its practical measurement and implementation. The key is to start by closing this information gap. It then outlines a BPM framework including defining key performance indicators, collecting underlying operational data, analyzing data in a data warehouse, and presenting metrics and reports. Both business and IT need to work together to define measures, collect and analyze data, and ensure the results are used for action. With the right collaborative approach, a BPM framework can deliver real benefits like improved decision making, integrity of information, and efficiency. However, success requires addressing practical challenges and gaining
Whitepaper Business Performance Measurement For Success
- 1. Business Performance Measurement For Success Effective, Realisable and Usable Business Performance Information to Increase Your Business Intelligence Quotient Alan McSweeney
- 2. Business Performance Measurement For Success Contents Business Performance Management..................................................................3 The Data and Information Gap........................................................................3 The Data, Information and Action Cycle..........................................................5 Benefits of Effective Business Performance Management .................................5 Designing and Implementing a Successful Business Performance Management Programme ......................................................................................................6 A Business Performance Management Measurement Framework......................7 Operational Business Performance Management Framework............................9 Summary and Next Steps............................................................................... 10 Measuring business performance and presenting the resulting information for action is one aspect of achieving business success. This whitepaper defines an approach to implementing a measurement framework to improve your Business Intelligence Quotient (BIQ). Implementing business measurement can be hindered by practical issues such as the all too common gap between the theory of effective business performance management and the measurement of information needed to enable this and the systems and processes to achieve it. Closing the information gap is often the first step in implementing business measurement. Realism and pragmatism are needed when implementing a measurement framework. There are many practical issues to be addressed. Real success from implementing measurement is achieved by business and IT working together collaboratively. Business commitment and sponsorship is vital. There is little benefit in creating a complex measurement and reporting infrastructure without it being used to deliver real business benefits. Together business and IT must productionise BPM and embed its use in the business. Page 2
- 3. Business Performance Measurement For Success Business Performance Management Business Performance Management (BPM) is an umbrella term for a well- defined collection of processes that assist organisations optimise business performance. The techniques that exist, are well-proven and supported by a wide range of effective software. It is not the intention of this paper to provide details on these techniques. The objective of this paper is to identify a practical approach to using performance measurement to achieve business success. There is all too frequently a gap between the theory of effective business How important are budgeting, performance management and both the measurement of information needed to forecasting and reporting to the enable this and the systems and processes to define, collect, manage and enable success of your business? access to information. This gap is the first practical hindrance to implementing successful measurement. The reasons for the gap are two-fold: 1. The business does not know or define what measurements and indicator metrics are to be provided 2. The information technology infrastructure does not exist to collect data to enable the measurements to be generated Source: BPM Forum The business imperatives for BPM include: • Dynamic and challenging business conditions • Greater expectation of value from clients • Changing competition and business models • Automation driving higher speed business • Need to reduce costs and do more with the same or fewer resources • Greater need for business transparency The purpose of this whitepaper is to define a framework for closing this gap from both sides. It is only through collective action and co-operation How agile and adaptive are your that effective IT systems will deliver effective information. It describes an budgeting, forecasting, reporting overall structure for improving your Business Intelligence Quotient and analysis processes? (BIQ). The Data and Information Gap Within most organisations, there is a noticeable information gap. The key issues common to many organisations are: • Timely access to information • Access to accurate and complete information • Access to information at an appropriate level of detail Source: BPM Forum • Inconsistent and patchy information from various business systems and units Page 3
- 4. Business Performance Measurement For Success The core information requirements of any organisation are accuracy, completeness and timeliness. All too frequently some or all of the following statements are true: • The data is there but getting access to it is complicated or not possible • Finding and collating data across different information sources is often very difficult • Performance data is not available quickly enough to act on it effectively • There is excessive information that conceals what is really needed or How satisfied are you with important your company’s ability to • Some of the information required is simply not being captured respond to change? The range of information required varies but includes key measures such as: • Overall financial performance • Overall operational performance • Performance of partnerships and • Performance relative to alliances competition • Product and service line • Delivery of profit and value to profitability clients • Client profitability • Client satisfaction • Client acquisition and retention • Staff performance Each of these metrics should be available consistently and quickly and at a Source: BPM Forum high-level and then be available to be analysed to an appropriate level of detail. The metrics need to be defined by the business and must be appropriate and useful. How do your actual expenses compare with your budget? Source: BPM Forum Closing the information gap is an essential pre-requisite to implementing effective and usable Business Performance Management. This is the responsibility of both the business and IT working collaboratively. Page 4
- 5. Business Performance Measurement For Success The Data, Information and Action Cycle The data, information and action cycle within the overall Business Performance Management Framework consists of three elements: 1. Data refers to the source figures and numbers. It is the raw material for On a scale of 0 to 100, where analysis. The data gap is the absence of the tools and operational 100 is the best, how do you processes to consistently collect, store and manage the data and make rate the financial IQ of your available tools to perform analyses. company or organisation? 2. Information is the value extracted from the raw data. The information gap is the absence of insight caused by the lack of defined metrics and indicators and their timely and accurate availability and usability. 3. Action is the need for operational business processes to ensure that the information presented is used and acted upon. Source: BPM Forum What is the level of anguish and frustration associated with The Data, Information, Action cycle means that there must be a budgeting in your organisation? continuum from collecting the raw data to using it effectively. The process to achieve this must be embedded in the organisation. Benefits of Effective Business Performance Management The core benefit of successful Business Performance Management is a greater focus on value added activities such as business decision support rather than the collection, reconciliation, and preparation of financial and business data. A balanced performance measurement system: • Promotes focus and alignment, enables communication, enables and Source: BPM Forum encourages people to modify their behaviour in a way which is consistent with corporate goals. • Is comprehensive and contains key measures from all operational areas including financial and non-financial measures, indicators of past results and conditional forecasts of future performance and metrics encompassing the areas of time, cost and quality Page 5
- 6. Business Performance Measurement For Success The specific detailed benefits include: What factors most impact your Data Analysis and • Supporting informed and quality decisions company's level of alertness? Reporting Facility • All data consistent and integrated with financials • Actuals integrated with budget • Graphical analysis and trend data readily available • Flexible reporting to support investigation Improved Integrity • One version of the truth • Integrated data validation • Business ownership of relevant data • Reconciliation within and between data sources Enhanced Efficiency • Improved use of resources • Reduced time spent on non-value added activities • Streamlined reporting There are genuine business benefits to BPM when it is implemented Source: BPM Forum successfully. Designing and Implementing a Successful Business Performance Management Programme Achieving a successful BPM programme requires buy-in from both business and How would higher levels of IT. It is not just a matter of buying and implementing software. Successful alertness help differentiate your BPM requires that the business defines what measurement and associated company? source data are needed. The software tools are a small part of the overall project. In implementing BPM, it is important to be practical and realise that there may be a real data and information gap as described above. BPM can be a major initiative so it is important to start small and with a practical focus. Some of the key success factors for achieving BPM are: Management Management sponsorship at the beginning is important to Sponsorship ensure the project is allocated the resources needed and there is a willingness to overcome resistance to change. The sponsor should have commitment, authority and respect required to drive the project. The Right Team This is ideally a cross-functional, collaborative team of capable, committed people. Both business and IT staff should be on the team. The business owners should drive the project. Define the Define what is required to be measured and the raw source Measures data needed to create these measures. Source: BPM Forum Planning A well-planned approach delivers benefits throughout the life of the project and ensures success. Data A data infrastructure – data warehouse, data load tool, data Infrastructure marts, is a key piece of IT infrastructure. Quality of Gaining an effective understanding of what is required and Analysis what is available is important. Frequently too much detail detrimentally affects delivery. Software Appropriate, functional software that can deliver both on Page 6
- 7. Business Performance Measurement For Success initial and future requirements. Iterative Delivery Deliver initial high-level results quickly – ideally within 3 months. Repeat and extend thereafter. Manage Change Recognise and manage the change associated with adopting BPM and the impact this will have or be perceived to have on people. Education Provide training to begin to build support for the BPM initiative. Advertise Success Advertise what has been achieved to create awareness and acceptance of the BPM approach and encourage further initiatives. It is important to be pragmatic and realistic in your approach to implementation. You need to address the practical issues such as the information gap as well as implementing the appropriate technology infrastructure. Business commitment and sponsorship is vital. A Business Performance Management Measurement Framework At a very high level, a BPM measurement framework involves a hierarchy of activities: What are the leading factors requiring you to modify business processes and introduce applications? The concept of a Scorecard has existed for a considerable amount of time. Commonly a Scorecard consists of a set of relevant performance indicators across a set of views of different dimensions of organisation activity: • Business and financial dimension Source: BPM Forum • Customer or client dimension • People and internal process dimension • Organisational health dimension Page 7
- 8. Business Performance Measurement For Success Together these four dimensions combine to form an overall picture of the business. The Scorecard is the headline indicator. Business and Do you have the ability to get Finance real-time views into the state of critical business processes? Organisational Customer Health and Client People and Internal Source: BPM Forum Processes The business must be able to drill down into the detail of any performance indicator to gain insight and diagnose problems. What are the obstacles to quickly Developing an effective Scorecard typically includes four processes: modifying core business processes? • Translating the business vision into operational goals • Communicating the vision and link it to specific performance • Business planning • Feedback and learning, and adjusting the measurement accordingly Ensuring BPM and Scorecard success means: • Ensuring clarity and that it is linked to overall business strategy • A balance of measures and indicators • Quality business analysis and management of issues during the development process • Sponsorship and acceptance of the Scorecard as a management tool Source: BPM Forum The Scorecard defines the “What” of BPM and is specified by the business. Now IT must define and enable the “How” and the associated operational processes. Together business and IT must productionise BPM and embed its use in the business. Page 8
- 9. Business Performance Measurement For Success Operational Business Performance Management Framework The logical components of an operational BPM system consist of a number of layers and their individual constituent parts: 1. Operational Data Data needs to be available from a variety of sources Sources across the operational business systems and from In what way would real-time external data sources. operational data improve 2. Data Extraction The process for extracting, normalising and business outcomes? Facility transforming data needs to be automated. This is commonly referred to as the ETL (Extract, Transformation and Load) component. 3. Data Warehouse The DW is the corporate data store - single, consistent and with information stored over time. Implementing a data warehouse facility requires significant involvement of and input from IT. 4. Data Models and This reflects the input of the business in defining what Metrics is being measured and what metrics are being generated. This is where input from the business is vitally important. 5. Business This software layer provides analysis, reporting, Intelligence mining and data access facilities. This is commonly Facility off-the-shelf software from a variety of vendors, customised to suit requirements. 6. Business and This optional component stores information for Source: BPM Forum Subject Area Data specific business areas into separate data stores for Marts ease of access and use. 7. Specific This element of the overall implementation allows Operational business specific detailed analysis to be performed. Business and This type of analysis focuses on identifying and Process Analysis resolving operational issues and trends. 8. Scorecard View This presents the high-level scorecard view of the agreed performance indicators. 9. End-User Access to End-users will have appropriate access to information Reports and Data – from viewing to access to analysis facilities. Analysis Page 9
- 10. Business Performance Measurement For Success How burdensome/time- This view of an Operational Business Performance Management Framework consuming is the budgeting will help to identify the individual components required of an overall system process currently? and to recognise those components that may already be partially or completely in place. Source: BPM Forum What are the top three pitfalls that derail, delay or disrupt your budgeting process? Surrounding the operational framework of BPM must be a commitment to ensure that the information presented is used and acted upon. There is little merit in creating a measurement infrastructure without it being Source: BPM Forum used to deliver real business benefits. Summary Page 10
- 11. Business Performance Measurement For Success The successful implementation of Business Performance Management can deliver real business benefits, especially in today’s challenging business environment. Effective performance management is not just about numbers. BPM is the logical evolutionary next step for organisations looking for ways to drive business performance. Any BPM programme and initiative should be benefits-led: identification, measurement and realisation of benefits is basic to success. Success cannot be measured purely on factors such as delivery on time and on budget. That excludes the realisation of actual benefits. There is a real information gap within most organisations. BPM can fill this gap. Producing the scorecard pack or report is the start of the process and not the end. Software tools are a means to an end not the end in themselves. You should What are the reasons you will select a tool based on what is required and not what is available. put more effort into budgeting and planning? Successful BPM requires organisational change. Sufficient education for the use of BPM software and how BPM can be used to improve roles in the organisation is important to allay people’s concerns about the impact of a BPM programme on them personally. It is crucial that business and operational objectives are part of the scope from the start of an implementation of BPM. There may be a significant investment required in IT infrastructure to ensure that BPM systems operate effectively. IT involvement is therefore important. There is a demand from the business for BPM so the right supply will be welcomed. Success is based on a mix of long term vision and short term wins. Source: BPM Forum Page 11
- 12. Business Performance Measurement For Success For more information, please contact: [email protected] Page 12