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Student Publications
Author: Richard Adams
Title:
Business Performance and Information
Technology Management Term
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Introduction
Business performance management (BPM)
is a set of processes that help
organizations optimize their
business performance. It is a
framework for
organizing, automating and analyzing
business methodologies, metrics,
processes and systems that drive
business performance.
BPM is seen as the next generation
of business intelligence (BI). BPM
helps
businesses make efficient use of
their financial, human, material and
other
resources.
History
An early 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 and full knowledge of
one's
enemy's strengths and weaknesses.
Lack of either one might result in
defeat. A
certain school of thought draws
parallels between the challenges in
business and
those of war, specifically:
collecting data
discerning patterns and meaning in
the data (analyzing)
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responding to the resultant
information
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 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 continued
to rely on intuition.
In modern businesses, increasing
standards, automation, and
technologies have
led to vast amounts of data becoming
available. Data warehouse
technologies
have set up repositories to store
this data. Improved ETL and even
recently
Enterprise Application Integration
tools have increased the speedy
collecting of
data. OLAP reporting technologies
have allowed faster generation of
new reports
which analyze the data. Business
intelligence has now become the art
of sieving
through large amounts of data,
extracting useful information and
turning that
3
information into actionable
knowledge.
In 1989 Howard Dresner, a research
analyst at Gartner , popularized
"Business
Intelligence" 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 is built on a
foundation of BI, but marries it to
the
planning and control cycle of the
enterprise - with enterprise
planning,
consolidation and modeling
capabilities.
The term "BPM" is now becoming
confused with "Business Process
Management", and many are converting
to the term "Corporate Performance
Management" or "Enterprise
Performance Management".
What is BPM?
BPM involves consolidation of data
from various sources, querying, and
analysis
of the data, and putting the results
into practice.
BPM enhances processes by creating
better feedback loops. Continuous
and
real-time reviews help to identify
and eliminate problems before they
grow.
BPM's forecasting abilities help the
company take corrective action in
time to
meet earnings projections.
Forecasting is characterized by a
high degree of
4
predictability which is put into
good use to answer what-if
scenarios. BPM is
useful in risk analysis and
predicting outcomes of merger and
acquisition
scenarios and coming up with a plan
to overcome potential problems.
BPM provides key performance
indicators (KPIs) that help
companies monitor
efficiency of projects and employees
against operational targets.
Metrics / Key Performance
Indicators
For business data analysis to become
a useful tool, however, it is
essential that
an enterprise understand its goals
and objectives � essentially, that
they know
the direction in which they want the
enterprise to progress. To help with
this
analysis key performance indicators
(KPIs) are laid down to assess the
present
state of the business and to
prescribe a course of action.
More and more organizations have
started to speed up the availability
of data. In
the past, data only became available
after a month or two, which did not
help
managers react swiftly enough.
Recently, banks have tried to make
data
available at shorter intervals and
have reduced delays. For example,
for
businesses which have higher
operational/credit risk loading (for
example, credit
cards and "wealth management"), A
large multi-national bank makes KPI-related
5
data available weekly, and
sometimes offers a daily analysis of
numbers. This
means data usually becomes available
within 24 hours, necessitating
automation
and the use of IT systems.
Most of the time, BPM simply means,
use of several financial/nonfinancial
metrics/key performance indicators
to assess the present state of the
business
and to prescribe a course of action.
Some of the areas from which top
management analysis could gain
knowledge by using BPM:
Customer-related numbers:
o New customers acquired
o Status of existing customers
o Attrition of customers (including
breakup by reason for attrition)
Turnover generated by segments of
the Customers - these could be
demographic filters.
Outstanding balances held by
segments of customers and terms of
payment - these could be demographic
filters.
Collection of bad debts within
customer relationships.
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Demographic analysis of individuals
(potential customers) applying to
become customers, and the levels of
approval, rejections and pending
numbers.
Delinquency analysis of customers
behind on payments.
Profitability of customers by
demographic segments and
segmentation of
customers by profitability.
This is more an inclusive list than
an exclusive one. The above more or
less
describes what a bank would do, but
could also refer to a telephone
company or
similar service sector company.
What is important is:
KPI related data which is consistent
and correct.
Timely availability of KPI-related
data.
Information presented in a format
which aids decision making
Ability to discern patterns or
trends from organized information
BPM integrates the company's
processes with CRM or ERP. Companies
become
able to gauge customer satisfaction,
control customer trends and
influence
shareholder value.
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Application software types
People working in business
intelligence have developed tools
that ease the work,
especially when the intelligence
task involves gathering and
analyzing large
amounts of unstructured data.
Tool categories commonly used for
business performance management
include:
OLAP -- Online Analytical
Processing, sometimes simply called
"Analytics"
(based on dimensional analysis and
the so-called "hypercube" or "cube")
Score carding, dash boarding and
data visualization
Data warehouses
Document warehouses
Text mining
DM -- Data mining
BPM -- Business performance
management
EIS -- Executive information systems
DSS -- Decision support systems
MIS -- Management information
systems
SEMS -- Strategic Enterprise
Management Software
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Designing and implementing a
business performance management
program
When implementing a BPM program, one
might like to pose a number of
questions and take a number of
resultant decisions, such as:
Goal Alignment queries: The first
step is determining what the short
and
medium term purpose of the program
will be. What strategic goal(s) of
the
organization will be addressed by
the program? 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).
Baseline queries: Current
information gathering competency
needs to be
assessed. Do we 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?
Cost and risk queries: The financial
consequences of a new BI initiative
9
should be estimated. It is
necessary to 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.
Customer and stakeholder queries:
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 are the
quantitative / qualitative
benefits? Is the specified
initiative the best way to increase
satisfaction for
all kinds of customers, or is there
a better way? How will customer
benefits be monitored? What about
employees, shareholders, and
distribution channel members?
Metrics-related queries: These
information requirements must be
operationalized into clearly defined
metrics. One must decide what
metrics
to use for each piece of information
being gathered. Are these the best
metrics? How do we know that? How
many metrics need to be tracked? If
this is a large number (it usually
is), what kind of system can be used
to
track them? Are the metrics
standardized, so they can be
benchmarked
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against performance in other
organizations? What are the industry
standard metrics available?
Measurement Methodology-related
queries: One should establish a
methodology or a procedure to
determine the best (or acceptable)
way of
measuring the required metrics. What
methods will be used, and 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?
Results-related queries: The BPM
program should be monitored to
ensure
that objectives are being met.
Adjustments in the program may be
necessary. 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?
References
Wade, David and Ronald Recardo,
Corporate Performance Management
Butterworth-Heinemann, 2001 ISBN 0-.
87719-386-X
Mosimann, Roland P., Patrick
Mosimann and Meg Dussault, The
Performance Manager. 2007 ISBN
978-0-9730124-1-5
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