Business performance management

Business performance management is a set of performance management and analytic processes that enables the management of an organization's performance to achieve one or more pre-selected goals. Synonyms for "business performance management" include "corporate performance management (CPM)"[1] and "enterprise performance management".[2][3]

Business performance management is contained within approaches to business process management.[4]

Business performance management has three main activities:

  1. selection of goals,
  2. consolidation of measurement information relevant to an organization’s progress against these goals, and
  3. interventions made by managers in light of this information with a view to improving future performance against these goals.

Although presented here sequentially, typically all three activities will run concurrently, with interventions by managers affecting the choice of goals, the measurement information monitored, and the activities being undertaken by the organization.

Because business performance management activities in large organizations often involve the collation and reporting of large volumes of data, many software vendors, particularly those offering business intelligence tools, market products intended to assist in this process. As a result of this marketing effort, business performance management is often incorrectly understood as an activity that necessarily relies on software systems to work, and many definitions of business performance management explicitly suggest software as being a definitive component of the approach.[5]

This interest in business performance management from the software community is sales-driven - "The biggest growth area in operational BI analysis is in the area of business performance management."[6]

Since 1992, business performance management has been strongly influenced by the rise of the balanced scorecard framework. It is common for managers to use the balanced scorecard framework to clarify the goals of an organization, to identify how to track them, and to structure the mechanisms by which interventions will be triggered. These steps are the same as those that are found in BPM, and as a result balanced scorecard is often used as the basis for business performance management activity with organizations.

In the past, owners have sought to drive strategy down and across their organizations, transform these strategies into actionable metrics and use analytics to expose the cause-and-effect relationships that, if understood, could give insight into decision-making.

History

Reference to non-business performance management occurs in Sun Tzu's The Art of War. Sun Tzu claims that to succeed in war, one should have full knowledge of one's own strengths and weaknesses as well as those of one's enemies. Lack of either set of knowledge might result in defeat.[7] Parallels between the challenges in business and those of war include:

Prior to the start of the Information Age in the late 20th century, businesses sometimes took the trouble to laboriously collect data from non-automated sources. As they lacked computing resources to properly analyze the data, they often made commercial decisions primarily on the basis of intuition.

As businesses started automating more and more systems, more and more data became available. However, collection often remained a challenge due to a lack of infrastructure for data exchange or due to incompatibilities between systems. Reports on the data gathered sometimes took months to generate. Such reports allowed informed long-term strategic decision-making. However, short-term tactical decision-making often continued to rely on intuition.

In 1989 Howard Dresner, a research analyst at Gartner, popularized "business intelligence" (BI) as an umbrella term to describe a set of concepts and methods to improve business decision-making by using fact-based support systems. Performance management builds on a foundation of BI, but marries it to the planning-and-control cycle of the enterprise - with enterprise planning, consolidation and modeling capabilities.

Increasing standards, automation, and technologies have led to vast amounts of data becoming available. Data warehouse technologies have allowed the building of repositories to store this data. Improved ETL and enterprise application integration tools have increased the timely collecting of data. OLAP reporting technologies have allowed faster generation of new reports which analyze the data. As of 2010, business intelligence has become the art of sieving through large amounts of data, extracting useful information and turning that information into actionable knowledge.

Definition and scope

Business performance management consists of a set of management and analytic processes, supported by technology, that enable businesses to define strategic goals and then measure and manage performance against those goals. Core business performance management processes include financial planning, operational planning, business modeling, consolidation and reporting, analysis, and monitoring of key performance indicators linked to strategy.

Business performance management involves consolidation of data from various sources, querying, and analysis of the data, and putting the results into practice.

Frameworks

Various frameworks for implementing business performance management exist. The discipline gives companies a top-down framework by which to align planning and execution, strategy and tactics, and business-unit and enterprise objectives. Reactions may include the Six Sigma strategy, balanced scorecard, activity-based costing (ABC), Objectives and Key Results (OKR), Total Quality Management, economic value-add, integrated strategic measurement and Theory of Constraints.

The balanced scorecard is the most widely adopted performance management framework.

Metrics and key performance indicators

Some of the areas from which bank management may gain knowledge by using business performance management include:

Though the above list describes what a bank might monitor, it could refer to a telephone company or to a similar service-sector company.

Items of generic importance include:

  1. consistent and correct KPI-related data providing insights into operational aspects of a company
  2. timely availability of KPI-related data
  3. KPIs designed to directly reflect the efficiency and effectiveness of a business
  4. information presented in a format which aids decision-making for management and decision-makers
  5. ability to discern patterns or trends from organized information

Business performance management integrates the company's processes with CRM or ERP. Companies should become better able to gauge customer satisfaction, control customer trends and influence shareholder value.

Application software types

People working in business intelligence have developed tools that ease the work of business performance management, especially when the business-intelligence task involves gathering and analyzing large amounts of unstructured data.

Tool categories commonly used for business performance management include:

Design and implementation

Questions asked when implementing a business performance management program include:

Determine the short- and medium-term purpose of the program. What strategic goal(s) of the organization will the program address? What organizational mission/vision does it relate to? A hypothesis needs to be crafted that details how this initiative will eventually improve results / performance (i.e. a strategy map).
Assess current information-gathering competency. Does the organization have the capability to monitor important sources of information? What data is being collected and how is it being stored? What are the statistical parameters of this data, e.g., how much random variation does it contain? Is this being measured?
Estimate the financial consequences of a new BI initiative. Assess the cost of the present operations and the increase in costs associated with the BPM initiative. What is the risk that the initiative will fail? This risk assessment should be converted into a financial metric and included in the planning.
Determine who will benefit from the initiative and who will pay. Who has a stake in the current procedure? What kinds of customers / stakeholders will benefit directly from this initiative? Who will benefit indirectly? What quantitative / qualitative benefits follow? Is the specified initiative the best or only way to increase satisfaction for all kinds of customers? How will customer benefits be monitored? What about employees, shareholders, and distribution channel members?
Information requirements need operationalization into clearly defined metrics. Decide which metrics to use for each piece of information being gathered. Are these the best metrics and why? How many metrics need to be tracked? If this is a large number (it usually is), what kind of system can track them? Are the metrics standardized, so they can be benchmarked against performance in other organizations? What are the industry standard metrics available?
Establish a methodology or a procedure to determine the best (or acceptable) way of measuring the required metrics. How frequently will data be collected? Are there any industry standards for this? Is this the best way to do the measurements? How do we know that?
Monitor the BPM program to ensure that it meets objectives. The program itself may require adjusting. The program should be tested for accuracy, reliability, and validity. How can it be demonstrated that the BI initiative, and not something else, contributed to a change in results? How much of the change was probably random?

See also

References

  1. ↑ "Introducing the CPM Suites Magic Quadrant", Lee Geishecker and Frank Buytendijk, 2 October 2002, www.gartner.com, M-17-4718
  2. ↑ Frolick, Mark N.; Thilini R. Ariyachandra (Winter 2006). "Business performance management: one truth" (PDF). Information Systems Management (www.ism-journal.com): 41–48. Retrieved 2010-02-21. Business Performance Management (BPM) [...] is also known and identified by other names, such as corporate performance management and enterprise performance management.
  3. ↑ Sana Mojdeh (2005-12-20). Technology-enabled Business Performance Management: Concept, Framework, and Technology (PDF). 3rd International Management Conference. pp. 1–9. Retrieved 2010-02-21. Confusion also arises because industry experts can not agree what to call BPM, let alone how to define it, META Group and IDC use the term 'Business Performance Management', Gartner Group prefers 'Corporate Performance Management', and others favor 'Enterprise Performance Management'.
  4. ↑ vom Brocke, J. & Rosemann, M. (2010), Handbook on Business Process Management: Strategic Alignment, Governance, People and Culture (International Handbooks on Information Systems). Berlin: Springer
  5. ↑ BPM Mag, What is BPM?
  6. ↑ The Next Generation of Business Intelligence: Operational BI White, Colin (May 2005). "The Next Generation of Business Intelligence: Operational BI". Information Management Magazine. Retrieved 2010-02-21. The biggest growth area in operational BI analysis is in the area of business performance management (BPM).
  7. ↑ http://ctext.org/art-of-war/attack-by-stratagem/zh?en=on#n20929 paragraph 6.

Further reading

External links

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