Gary Cokins Enterprise Performance Management (EPM) Analytics

1,701 views

Published on

Published in: Business
0 Comments
3 Likes
Statistics
Notes
  • Be the first to comment

No Downloads
Views
Total views
1,701
On SlideShare
0
From Embeds
0
Number of Embeds
8
Actions
Shares
0
Downloads
0
Comments
0
Likes
3
Embeds 0
No embeds

No notes for slide

Gary Cokins Enterprise Performance Management (EPM) Analytics

  1. 1. 1 Enterprise Performance Management (EPM) Analytics Gary Cokins, CPIM Analytics-Based Performance Management LLC Cary, North Carolina USA www.garycokins.com 919 720 2718 gcokins@garycokins.com Balanced Scorecard Institute User Conference Myrtle Beach, SC April1, 2014 Copyright 2012 www.garycokins.com Analytics-Based Performance Management LLC
  2. 2. 2 About Gary Cokins Founder, Analytics-Based Performance Management LLC B.S. Industrial Engineering & Operations Research; Cornell University, 1971 M.B.A. Finance & Accounting; Northwestern University, Kellogg Graduate School of Management, 1974 Previous Associations: - FMC Corporation - Consultant with: Deloitte, KPMG Peat Marwick, Electronic Data Systems [EDS, now HP] - SAS Copyright 2012 www.garycokins.com Analytics-Based Performance Management LLC
  3. 3. 3 Managers who have previously struggled at promoting FP&A, enterprise performance management (EPM) and integrating business analytics (BA) into their decision support systems. Who will benefit from this presentation? Managers who intend to “champion” any or all EPM and BA improvement techniques and need a compelling call to action. Copyright 2012 www.garycokins.com Analytics-Based Performance Management LLC
  4. 4. 4 Key questions What? So what? Then what? Copyright 2012 www.garycokins.com Analytics-Based Performance Management LLC
  5. 5. 5 AGENDA  What is Enterprise Performance Management?  What is Business Analytics?  Eight Pressures that have caused interest in EPM  EPM as a Value Multiplier through Integration Copyright 2012 www.garycokins.com Analytics-Based Performance Management LLC
  6. 6. 6 Drowning in data but starving for information. Copyright 2012 www.garycokins.com Analytics-Based Performance Management LLC
  7. 7. 7 Confusion and Lack of Consensus about EPM Is it human resources PM? Is it alignment, such as strategic or resource allocation? Is it process, productivity and quality improvement? Is it scorecards, dashboards, KPIs and measures? Or … is it all of the above? And even more? Copyright 2012 www.garycokins.com Analytics-Based Performance Management LLC The good news is this …..
  8. 8. 8 What is Analytics-based Performance Management? Analytics-based Performance Management is the integration of multiple methodologies with each embedded with business analytics, such as segmentation analysis, and especially predictive analytics … to achieve the strategy and to make better decisions. Copyright 2012 www.garycokins.com Analytics-Based Performance Management LLC
  9. 9. 9 AGENDA  What is Performance Management?  What is Business Analytics?  Eight Pressures that have caused interest in EPM  EPM as a Value Multiplier through Integration Copyright 2012 www.garycokins.com Analytics-Based Performance Management LLC
  10. 10. 10 Why is business analytics needed? -- by first-to-market (via innovation)? -- by customer loyalty? But how sustainable are these long-term? -- by low-cost and low-price provider? -- Other? How does an organization gain a competitive edge? Copyright 2012 www.garycokins.com Analytics-Based Performance Management LLC
  11. 11. 11 Problem: Generic strategies are vulnerable ! -- cost leadership strategy – other firms lower their costs. -- differentiation strategy – imitation by competitors; changes in customer tastes. The best defense is agility with quicker and smarter decision making using statistics, analytics, and operations research. -- focus strategy – broad-market cost leaders or micro-segmenters invade and erode your customers’ loyalty. Copyright 2012 www.garycokins.com Analytics-Based Performance Management LLC
  12. 12. 12 Confusion and lack of consensus about BA Is it business intelligence (BI) with enhancements? Is it probabilities and statistics, like regression and correlation analysis? Is it the technology of data governance, management and quality? Is it forecasting? Is it optimization equations? Or … is it all of the above? And even more? Is business analytics (BA) a data warehouse? Is it to solve customer or stakeholder issues? Is it data mining with query and reporting? Copyright 2012 www.garycokins.com Analytics-Based Performance Management LLC
  13. 13. 13 Work backwards with the end in mind. Regardless of how “analytics” should be defined, there should be no argument as to its purpose: Better decisions. Better Actions. Analytics’ goal should be to gain insights and solve problems, to make better and quicker decisions with more accurate and fact-based data, and to take actions. Copyright 2012 www.garycokins.com Analytics-Based Performance Management LLC
  14. 14. 14 Improving Performance by Unifying EPM and BA -- BI Reporting consumes stored information. -- Analytics produces new information. -- Enterprise Performance Management deploys Analytics. It is not about monitoring the dials on a dashboard, but rather moving the dials. Copyright 2012 www.garycokins.com Analytics-Based Performance Management LLC
  15. 15. 15 Queries simply answer questions. Business analytics creates questions. Business Analytics – insights and actions Further, analytics then stimulate more questions, more complex questions, and more interesting questions. Most importantly, business analytics also has the power to answer the questions. Copyright 2012 www.garycokins.com Analytics-Based Performance Management LLC
  16. 16. 16 Retail sales and merchandising analytics [markdown and assortment planning] Financial services analytics [risk and loan credit scoring] Pharmaceutical analytics [drug development and clinical trials] Marketing analytics [CRM, segmentation, and churn analysis] Text analytics [sentiment analysis] Financial control analytics [customer payment collections] Fraud analytics [insurance and medical claims] Pricing analytics [price sensitivity analysis] Telecommunications analytics [customer behavior] Supply chain and transportation analytics [route optimization] Manufacturing analytics [warranty claims] Hospital analytics [patient scheduling] Human resources analytics [workforce planning] Banking analytics [anti-money laundering] Police analytics [crime pattern analytics] There are many Business Analytics Domains Copyright 2012 www.garycokins.com Analytics-Based Performance Management LLC
  17. 17. 17 STANDARD REPORTS AD HOC REPORTS QUERY DRILLDOWN (OR OLAP) ALERTS 1 2 3 4 Reactive (Descriptive) Copyright 2012 www.garycokins.com Analytics-Based Performance Management LLC
  18. 18. 18 STANDARD REPORTS AD HOC REPORTS QUERY DRILLDOWN (OR OLAP) ALERTS 1 2 3 4 5 6 7 8 FORECASTING STATISTICAL ANALYSIS PREDICTIVE MODELING OPTIMIZATION Reactive Proactive(Descriptive) (Inferential) Copyright 2012 www.garycokins.com Analytics-Based Performance Management LLC
  19. 19. 19 Copyright 2012 www.garycokins.com Analytics-Based Performance Management LLC A hot topic
  20. 20. 20 AGENDA  What is Performance Management?  What is Business Analytics?  Eight Pressures that have caused interest in EPM  EPM as a Value Multiplier through Integration Copyright 2012 www.garycokins.com Analytics-Based Performance Management LLC
  21. 21. 21 What has caused interest in EPM? 1 Executives frustrations with strategy failure. 2 Increased accountability. 3 More rapid decision making. 4 Mistrust of the managerial accounting system for transparency. 5 Poor customer value management 6 Contentious budgeting – poor resource capacity planning. 7 Dysfunctional supply chain management. 8 Unfulfilled ROI promises from IT systems – lack of integration. Copyright 2012 www.garycokins.com Analytics-Based Performance Management LLC
  22. 22. 22 What has caused interest in EPM? 1 Executives frustrations with strategy failure. 2 Increased accountability. 3 More rapid decision making. 4 Mistrust of the managerial accounting system for transparency. 5 Poor customer value management 6 Contentious budgeting – poor resource capacity planning. 7 Dysfunctional supply chain management. 8 Unfulfilled ROI promises from IT systems – lack of integration. Copyright 2012 www.garycokins.com Analytics-Based Performance Management LLC
  23. 23. 23 What has Caused Interest in EPM? 1) Failure by executives to execute their well-formulated strategy. Copyright 2012 www.garycokins.com Analytics-Based Performance Management LLC
  24. 24. 24 When Dilbert Jokes About It, It is Mainstream Copyright 2012 www.garycokins.com Analytics-Based Performance Management LLC
  25. 25. 25 Vision and Mission Statements Vision & Mission Balanced Scorecard Strategy Mapping A Vision statement answers “where do we want to go? Strategy maps and scorecards answer, “How will we get there?” The strategy map and scorecard are mechanical. They help realize the vision and mission. Copyright 2012 www.garycokins.com Analytics-Based Performance Management LLC
  26. 26. 26 FinancialCustomerInternalProcessLearning Maximize Shareholder Value Generic Strategy Map Architecture Financial Customer Internal Processes Learning & Innovation Copyright 2012 www.garycokins.com Analytics-Based Performance Management LLC
  27. 27. 27 What Measures Matter? KPI Correlation Analysis 27 Copyright 2012 www.garycokins.com Analytics-Based Performance Management LLC
  28. 28. 28 28 Copyright 2012 www.garycokins.com Analytics-Based Performance Management LLC
  29. 29. 29 Thickness of the arrows reflects explanatory power 29 Copyright 2012 www.garycokins.com Analytics-Based Performance Management LLC
  30. 30. 30 What has Caused Interest in EPM? 4) Mistrust of the managerial accounting system and its flawed cost allocations and misleading cost reporting of outputs, products, standard service-lines, channels, customers and outcomes. Copyright 2012 www.garycokins.com Analytics-Based Performance Management LLC
  31. 31. 31 A simple explanation of ABM … that you can explain to your spouse (or boss) tonight. Copyright 2012 www.garycokins.com Analytics-Based Performance Management LLC
  32. 32. 32 Insurance Claims Processing Department The General Ledger View is Structurally Deficient for Decision Analysis. Salaries Equipment Travel expense Supplies Use and occupancy Total $621,400 161,200 58,000 43,900 30,000 $914,500 $600,000 150,000 60,000 40,000 30,000 $880,000 $(21,400) (11,200) 2,000 (3,900) –– $(34,500) PlanActual Favorable/ (unfavorable) Chart-of-Accounts View When managers get this kind of report, they are either happy or sad, but they are rarely any smarter! Copyright 2012 www.garycokins.com Analytics-Based Performance Management LLC
  33. 33. 33 #of Activity-Based View To: ABC Data Base Key/scan claims Analyze claims Suspend claims Receive provider inquiries Resolve member problems Process batches Determine eligibility Make copies Write correspondence Attend training Total $ 31,500 121,000 32,500 101,500 83,400 45,000 119,000 145,500 77,100 158,000 $914,500 Claims Processing Dept Salaries Equipment Travel expense Supplies Use and occupancy Total $621,400 161,200 58,000 43,900 30,000 $914,500 $600,000 150,000 60,000 40,000 30,000 $880,000 $(21,400) (11,200) 2,000 (3,900) –– $(34,500) PlanActual Favorable/ (unfavorable) Claims Processing Department Chart-of-Accounts View From: General Ledger Activity cost drivers #of #of #of #of #of #of #of #of #of $914,500 Each Activity Has Its Own Cost Driver Copyright 2012 www.garycokins.com Analytics-Based Performance Management LLC
  34. 34. 34 Multiple-Stage Cost Flowing Simple ABM Expanded ABM Resources Resources Activities Objects Objects Activities Copyright 2012 www.garycokins.com Analytics-Based Performance Management LLC
  35. 35. 35 ABC/M Cost Assignment Network Salary, Fringe Benefits Direct Material Phone, Travel Supplies Depreciation Rent, Interest, Tax Customers Business Sustaining Products, Services Resources (general ledger view) Work Activities (verb-noun) Final Cost Objects Suppliers (1)DemandsOnWork Costs(2) “CostsMeasuretheEffects” Support Activities Equipment Activities People Activities “cost-to-serve” paths Copyright 2012 www.garycokins.com Analytics-Based Performance Management LLC
  36. 36. 36 $ 30 sales - 28 expenses = $ 2 profit $ 2 profit Unrealized profit revealed by ABM Net Revenues Minus ABM costs = profit More important than a better costing method are its results. Copyright 2012 www.garycokins.com Analytics-Based Performance Management LLC
  37. 37. 37 Activity Costs each activity’s driver quantity unit activity driver cost x (eg. # of registrations) Price/Fee (Revenue) ABM provides insight for the product’s or service’s cost drivers and driver quantities. Work Activities Activity Costs “pile up” into outputs. Copyright 2012 www.garycokins.com Analytics-Based Performance Management LLC
  38. 38. 38 What has Caused Interest in ABPM? 5) Strategic – The shift from being product-centric to customer centric. Copyright 2012 www.garycokins.com Analytics-Based Performance Management LLC
  39. 39. 39 Products and standard service-lines are not the only thing for which accountants should compute costs. What about costs that have nothing to do with products and standard service-lines? The problem with traditional accounting’s gross margin reporting is you don’t see the bottom half of the picture. But what about the Other Below-the-line “Calculated” Costs? Copyright 2012 www.garycokins.com Analytics-Based Performance Management LLC
  40. 40. 40 Indirect expenses Distribution Sales, Marketing, General and admin (S,G&A) Customer + Direct material, Direct labor & Equipment Costs from Sales & Marketing are not Products Channel + Product Copyright 2012 www.garycokins.com Analytics-Based Performance Management LLC
  41. 41. 41 # 1- Customer retention versus acquisition costs. # 2 – Sources of Competitive Advantage – Commoditization leading to service-differentiation. Why Do Customer-related Costs Matter? The Perfect Storm # 3 – From mass selling to one-to-one customer relationships. # 4 – The internet’s irreversible shift of power from sellers to buyers. Copyright 2012 www.garycokins.com Analytics-Based Performance Management LLC
  42. 42. 42 Copyright 2012 www.garycokins.com Analytics-Based Performance Management LLC
  43. 43. 43 CUSTOMER: XYZ CORPORATION (CUSTOMER #1270) Sales $$$ Margin $ Margin (Sales - Costs) % of Sales Product-Related Supplier-Related costs (TCO) $ xxx $ xxx 98% Direct Material xxx xxx 50% Brand Sustaining xxx xxx 48% Product Sustaining xxx xxx 46% Unit, Batch* xxx xxx 30% Distribution-Related Outbound Freight Type* xxx xxx 28% Order Type* xxx xxx 26% Channel Type* xxx xxx 24% Customer-Related Customer-Sustaining xxx xxx 22% Unit-Batch* xxx xxx 10% Business Sustaining xxx xxx 8% Operating Profit xxx 8% * Activity Cost Driver Assignments use measurable quantity volume of Activity Output (Other ActvityAssignments traced based on informed (subjective) %s) Product- related costs Channel & Customer- related costs ABM Customer Profit & Loss Statement Copyright 2012 www.garycokins.com Analytics-Based Performance Management LLC
  44. 44. 44 High (Creamy) Low (Low Fat) Low High Cost-to-Serve Product Mix Margin Very Profitable Very unprofitable Types of Customers Migrating Customers to Higher Profitability Copyright 2012 www.garycokins.com Analytics-Based Performance Management LLC
  45. 45. 45 The spending budget for sales and marketing is critical … but it should be treated as a preciously scarce resource to be aimed at generating the highest long-term profits. This means answering questions like: Which type of customer is attractive to newly acquire, retain, grow, or win back? And which types are not? How much should we optimally spend attracting, retaining, growing, or recovering each customer micro- segment? My “which-type how-much” Hypothesis Copyright 2012 www.garycokins.com Analytics-Based Performance Management LLC
  46. 46. 47 The CFO must now help Sales and Marketing … to better target customers. Segmentation, predictability, churn, offers, deals, risk and uncertainty must be understood in the language of money. A Shift in the CFO’s Emphasis Copyright 2012 www.garycokins.com Analytics-Based Performance Management LLC
  47. 47. 48 What has Caused Interest in EPM? 6) Contentious Budgeting – The budget is typically a fiscal exercise by the accountants that is: (1) disconnected from the executive team’s strategy, and (2) not based on future driver volumes. Copyright 2012 www.garycokins.com Analytics-Based Performance Management LLC
  48. 48. 49 Current Year Budget Year Wages 400,000.00$ Formula = Column B * 1.05 Supplies 50,000.00$ Rent 20,000.00$ Copy down Computer 40,000.00$ Travel 30,000.00$ Phone 20,000.00$ Total 560,000.00$ a b c 1 2 3 4 5 6 7 8 Sheet 1 Spreadsheet Budgeting – It is Incremental !! Copyright 2012 www.garycokins.com Analytics-Based Performance Management LLC
  49. 49. 50 Match the Budget Method to its Category Demand- driven Project- driven Integrated Budget (Rolling Financial Forecasts) Copyright 2012 www.garycokins.com Analytics-Based Performance Management LLC
  50. 50. 51 ABC/M ABP Known ? ? resources work activities cost objects Provides consumption rates NowPast Future ABC/M ABP Predictive Accounting Copyright 2012 www.garycokins.com Analytics-Based Performance Management LLC
  51. 51. 52 ABC/M ABP ? ? Estimated resources work activities cost objects NowPast Future ABC/M ABP Predictive Accounting Copyright 2012 www.garycokins.com Analytics-Based Performance Management LLC
  52. 52. 53 Accounting Treatments and Behavior of Capacity (expenses) NowPast Future Descriptive Predictive unused used sunk fixed variable (adjustable capacity) Traceable to products, channels, customers, sustaining unused Predictive Accounting Copyright 2012 www.garycokins.com Analytics-Based Performance Management LLC
  53. 53. 54 High Low Low High Severity of impact on event occurrence and achievement of objectives probability of an event occurring Enterprise Risk Management (ERM) Assessment Grid 8 10 3 4 5 6 7 19 2 Do not budget Budget Copyright 2012 www.garycokins.com Analytics-Based Performance Management LLC
  54. 54. 55 Recurring expenses Non-recurring expenses Demand- driven Project- driven volume & mix of drivers production and ABP/B strategy map and risk grid Integrated Budget (rolling financial forecasts) Budget method Strategic & risk mitigation projects Match the Budget Method to its Category Copyright 2012 www.garycokins.com Analytics-Based Performance Management LLC
  55. 55. 56 Define and adjust strategy and risk, and create strategy map Create balanced scorecard Identify and manage strategic initiatives Approve strategy risk and capital budget Managerial Accounting (e.g., Activity-based Costing) Derived budget (and rolling financial forecasts) Strategy methods (e.g., SWOT) Manage and improve core processes Financial Modeling KPI dashboard feedback (2) capital budget (3) strategy budget (4) risk budget Operational Modeling (by employee teams)Strategic objectives knowledge = financial information (e.g. $) Strategy Modeling (by executives) priority projects and processes Forecast drivers (e.g. sales) ; develop production plan Traditional and driver-based budgeting (e.g. PBB) Capacity resource plan Driver volumes and mix Results and outcomes Changes and responses e.g., hours, Pounds, # employees (1) Operational budget KPI targets Driver consumption rates Acceptable? Revise plan OK No Yes Linking Strategy and Risk to the Budget Copyright 2012 www.garycokins.com Analytics-Based Performance Management LLC
  56. 56. 57 AGENDA  What is Performance Management?  What is Business Analytics?  Eight Pressures that have caused interest in EPM  EPM as a Value Multiplier through Integration Copyright 2012 www.garycokins.com Analytics-Based Performance Management LLC
  57. 57. 58 Power of Information $ROI Raw Data Standard Reports Ad hoc Reports & OLAP Descriptive Modeling (with analytics) Predictive Modeling Data Information Knowledge Intelligence Optimization The Intelligence Hierarchy Transactional systems (e.g., ERP) “the reptilian brain stem” (breathing, blinking, digesting) Business Analytics and Performance Management “the cerebral cortex” (thinking and decision making) Two types of software are like a brain’s two halves. Copyright 2012 www.garycokins.com Analytics-Based Performance Management LLC
  58. 58. 59 Organization Resources (capacity) Strategy, Mission How Does It All Fit Together? ERP, etc. Customer Satisfaction Scorecards CRM ROI $ Shareholders Supplier Inputs Copyright 2012 www.garycokins.com Analytics-Based Performance Management LLC
  59. 59. 60 Organization Resources (capacity) Strategy, Mission In Summary … first, we energize with good managerial accounting. ERP, etc. Customer Satisfaction Scorecards CRM ROI $ Shareholders Supplier Inputs Managerial accounting Copyright 2012 www.garycokins.com Analytics-Based Performance Management LLC
  60. 60. 61 Organization Resources (capacity) CRM ROI $ ERP, etc. Risk Mgmt., Strategy map, KPIs KPI Scores Feedback Order fulfillment Strategy, Mission Customer Satisfaction EPM is Circulatory and Simultaneous Supplier Inputs Scorecards Targeting needs Shareholder Wealth Creation is not a goal. It is a result! Shareholders Copyright 2012 www.garycokins.com Analytics-Based Performance Management LLC
  61. 61. 62 Organization Resources (capacity) CRM ROI $ ERP, etc. Risk Mgmt., Strategy map, KPIs KPI Scores Feedback Order fulfillment Strategy, Mission Customer Satisfaction Shareholders EPM is Circulatory and Simultaneous Supplier Inputs Scorecards Targeting Shareholder Wealth Creation is not a goal. It is a result! leakage (waste) wasted resources needs Less productivity reduces Shareholder Wealth Copyright 2012 www.garycokins.com Analytics-Based Performance Management LLC
  62. 62. 63 Why has the adoption rate for EPM’s methodologies been so slow? The Buy-in to Performance Management Copyright 2012 www.garycokins.com Analytics-Based Performance Management LLC
  63. 63. 64 Why is the adoption rate so slow? What are the barrier categories? (1) Technical barriers include IT related issues. (3) Design deficiencies include poor measurements or their calculations and weak models and assumptions. (4) Organizational behavior barriers involve resistance to change, culture, and leadership. (2) Perception barriers are excess complexity and affordability. Copyright 2012 www.garycokins.com Analytics-Based Performance Management LLC
  64. 64. 65 The Complete Vision of Performance Management Make the RPM of the EPM and BA gears spin … … better, faster, cheaper … safer and smarter Copyright 2012 www.garycokins.com Analytics-Based Performance Management LLC
  65. 65. 66 From Theory to Practice Your success depends on how well and how fast the right information and intelligence gets to the right people. Copyright 2013 www.garycokins.com Analytics-Based Performance Management LLC
  66. 66. 67 Thank You Gary Cokins, CPIM Analytics-Based Performance Management LLC Cary, North Carolina USA www.garycokins.com 919 720 2718 gcokins@garycokins.com Copyright 2012 www.garycokins.com Analytics-Based Performance Management LLC

×