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IBM Confidently Provide Guidance with IBM Cognos TM1 and What-if Analysis


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Business analysts are continually making recommendations on where the business needs to go by articulating the value/cost of making change vs. doing nothing. What-If Analysis enables confident decisions. We will talk about real customer stories and show a demo of what-if analysis and how it plays a role in the analysis that an organization does when they are unable to accurately identify the business and profitability impact of alternate business scenarios.
Martin Richmond-Coggan, EMEA lead Financial Performance Management, IBM

Published in: Business, Technology
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IBM Confidently Provide Guidance with IBM Cognos TM1 and What-if Analysis

  1. 1. IBM PERFORMANCE EVENTS Smarter Decisions. Better Results. 1
  2. 2. Confidently Provide Guidance with IBM Cognos TM1 & What-if Analysis Martin Richmond-Coggan EMEA Lead, Financial performance Management 16 November 2010 2
  3. 3. A What-If Analysis definition to set the stage Business Problem: Unable to accurately identify the business and profitability impact of alternate business scenarios Sales • By what percentage does marketing need to increase our number of lead over the next 2 months to meet our end of fiscal license revenue? Operations • What-if our labour and distribution costs continue to increase by 10% over the next year, how does this impact our operating and production costs? HR • What-if we reduce our headcount by 10%, would this lower our human capital costs to the desired level? Finance • We have not met revenue targets, what-if we lowered forecasted costs across different groups? What adverse impact, if any, will this have on revenue and how much closer will this get us to our expected margins? 3 IBM PERFORMANCE EVENTS
  4. 4. Agenda • Understand: – Where lack of analytical insight comes from – The What-If Analysis business problems and the Cognos Software solution • Assess: – Understand where What-If Analysis fits in the Cognos Product Portfolio – Solution demonstration: “a day in the life” • Inspect: – Talk about 2 real world customers – Solution capabilities – TM1 • Summarize: – Recap What-If Analysis value – Provide information on where to find more details 4 IBM PERFORMANCE EVENTS
  5. 5. Today brings an explosion in information… … Yet organizations are operating with blind spots Lack of Insight 1 in 3 managers frequently make critical decisions without the Volume of Digital Data information they need Inefficient Access 1 in 2 don’t have access to the information across their organization Variety of Information needed to do their jobs Inability to Predict 3 in 4 business leaders say more predictive information would drive Velocity of Decision Making better decisions 5 IBM PERFORMANCE EVENTS Source: IBM Institute for Business Value
  6. 6. Companies that invest in business insight consistently outperform Revenue Growth EBITDA Return on Invested 5 Year CAGR (2004-2008) 5 Year CAGR (2004-2008) Capital 5 Year Average (2004-2008) 33% > 12x 32% 12.5% more more 11.9% more 9.4% 9.0% 7.3% 0.6% Finance organizations with business insight All other enterprises Revenue Growth: N = 580; EBITDA: N = 435; ROIC: N = 606 Source: IBM Global Business Services, The Global CFO Study 2010 6 IBM PERFORMANCE EVENTS
  7. 7. Business insight is critical for driving competitive advantage “At a time when companies in many industries offer similar products and use comparable technology, high-performance business processes are among the last remaining points of differentiation.” Tom Davenport, “Competing on Analytics” Ten Most Important Visionary Plan Elements Interviewed CIOs could select as many as they wanted BI/Analytics #1 Business Intelligence and Analytics 80% 86% investment to Virtualization 77% 76% improve Risk Management and Compliance 73% 70% competitiveness 71% Mobility Solutions 66% IBM Global CIO Study 2009 Customer and Partner Collaboration 73% 64% Low Self-Service Portals 71% growth 63% Application Harmonization 62% 67% High 70% growth Business Process Management 61% 68% SOA/Web Services 55% 63% Unified Communication 57% Source: IBM Global CIO Study 2009; n = 2345 7 IBM PERFORMANCE EVENTS
  8. 8. How does What-If Analysis support the PM agenda? How are we doing? Scorecards and Dashboards Finance Dashboard shows Store Profitability for current quarter is below plan Sales Why? Reporting & Analytics Report or Data exploration shows the Store is unprofitable due to a particular customer segment and product combination Marketing What If we? Scenario Modeling & Analysis Ran marketing campaigns targeted to our most profitable customer profile in a store’s capture area? Customer HR Reduced our costs by cutting our staff Service and labor hours by 20%? IT/Systems Stopped selling poorly performing products altogether? 8 IBM PERFORMANCE EVENTS
  9. 9. The existing need for analysis • Everyone needs greater understanding to drive better decisions in the organization – All decision makers need insight beyond dashboards and managed reports – Analysts need to inform the organization with insight “How much do we need to increase pipeline or beyond reporting numbers conversion rates to impact sales for poorly performing – Advanced Analysts want to uncover patterns and segments by $X”? – Sales Manager relationships beyond information manipulation • Organizations need to expand the information set they consider for analysis “If we reduced materials and inventory holding costs by 5%, how much would this reduce our total inventory – Analyzing all available information to drive informed costs”? - Operations Manager decisions • Organizations must infuse analysis “If we decreased campaign and promotional spending by throughout decision-making to sustain x%, how much would this impact our lead generation competitiveness numbers”? - Marketing Manager – Ability for all users to analyze information to drive better business decisions – Business users want to self-discover, manipulate “How would a 10% reduction in our sales workforce information, model data to create scenarios potentially impact sales performance”? - HR Manager 9 IBM PERFORMANCE EVENTS
  10. 10. IBM Cognos 10 Analysis Enable individuals to outperform with full range of analysis capabilities • Executives: timely and reliable view of business and take action to drive better business outcomes and decision making • Business managers: single, reliable view of information at their fingertips that can help them focus on issues that need attention and action • Business analysts can quickly and effectively conduct in-depth analysis and share results easily with broader business communities • IT professionals: apply their knowledge, expertise and investment in corporate data to advance the business, rather than having to manage a backlog of requests for information 10 IBM PERFORMANCE EVENTS
  11. 11. What-If Analysis is relevant throughout the entire organization Customer Product Human Sales Marketing Finance Operations IT/Systems Service Development Resources How much do we need to How much do we need to Purchasing & increase pipeline or conversion increase pipeline or conversion Procurement rates to impact sales for poorly Cost Analysis If we reduced materials and If we reduced materials and rates to impact sales for poorly Inventory Management performing segments by $X? performing segments by $X? inventory holding costs by 5%, inventory holding costs by 5%, Revenue Analysis how much would this reduce Cost & Qualityhow much would this reduce IT Efficiency Sales Pipeline Analytics our total inventory costs? our total inventory costs? Profitability Analysis Production & Capacity Customer Profitability Business Efficiency What can a 5% increase What can a 5% increase Distribution & Logistics in revenue deliver to in revenue deliver to Business Sales Results Market bottom line? Can we cut Process Efficiency bottom line? Can we cut Effectiveness Opportunities $2M in SG&A ? What is $2M in SG&A ? What is Plan Variance On-Time Delivery the affect on GM? the affect on GM? Development Competitive Product Organization & Staffing Positioning Milestones Sales Tactics Service Benchmarks & Product Life Compensation Value Market & Customer Cycle Information, Complaints, Feedback Talent & Succession Pricing Claims Product & Portfolio Training & Development Demand Innovation Generation Benefits How would a 10% How would a 10% increase in calls/claims increase in calls/claims If we decreased campaign If we decreased campaign impact our support and impact our support and How much would a X% How much would a X% How would a 10% reduction How would a 10% reduction and promotional spending and promotional spending operational costs as operational costs as increase in portfolio increase in portfolio in our sales workforce in our sales workforce by x%, how much would by x%, how much would well as response times? well as response times? investments narrow our investments narrow our potentially impact sales potentially impact sales this impact our lead this impact our lead portfolio gaps? portfolio gaps? performance? performance? generation numbers? generation numbers? 11 IBM PERFORMANCE EVENTS
  12. 12. Why does the business typically need What-If Analysis? Business Needs Business Value • Build strong business cases – well- • More nimble business, enabling informed changes competitive advantage • Make strategy change grounded in facts • Respond more quickly to internal and • Articulate the value/cost of making external business drivers change vs. staying with the status quo • Optimize business and financial • See the direct impact of scenarios on performance other areas of the business in real time • Strong recommendations to management • Ability to create models and change – leader by making recommendations for assumptions quickly and easily change based on facts and strategic risk- taking 12 IBM PERFORMANCE EVENTS
  13. 13. Example – A day in the life: Retail Company Business Manager Background • Marketing promotions based on “gut • Fluctuation in product sales with little advanced predictability feel” around poorly performing products. • Marketing promotions typically run to increase sales velocity • Standard discounts vs. targeted promotions due to lack of timely of poorly performing products or with excess inventory insight. Current Process • Difficulty answering the ‘What-If’ we discount product X by 5 or 10% - • Legacy BI produces weekly reports with Actual results what type of sales increases can we expect? • Actual and Plan exported into spreadsheet to uncover variance gaps underlying data trends • Models created and tested to understand the impact of Finance Manager specific marketing programs against these trends • Lack of timely insight at product level means Finance struggles with targeted guidance to CFO and LoB. Key Challenges • Analysis accuracy creates issues in • Manual, labor intensive and error prone data extraction and agreements on profitability initiatives. analysis • Plans and Forecasts are often inaccurate with wide variance gaps • Difficult to create new models and test assumptions to Actuals. • Perceived issues with data and assumptions, leads to questioning of numbers and hesitant to make decisions 13 IBM PERFORMANCE EVENTS
  14. 14. Typical processes for What-If Analysis Executive Business Analyst Line of Business Manager 4. Present findings to stakeholders 3. Test different scenarios in the model to understand the corresponding business impact Financial Analyst 2. Develop model and set of assumptions 1. Export the data to a PM Legacy spreadsheet Transaction Warehouses Systems Systems (Relational & OLAP) Sources 14 IBM PERFORMANCE EVENTS
  15. 15. Challenges with the typical process The lack of integrated, end-to-end processes leads to very heavy people costs AND scepticism throughout the Executive Business Analyst Line of Business Manager entire organization • Data collection and extraction is time consuming and error-prone • Disconnected from the data and process used for BI and trending analysis • Multiple scenarios typically require Financial Analyst multiple spreadsheets • Reasoning and rules are buried in cell formulas • Can only share scenarios by sharing PM Transaction Warehouses Legacy spreadsheets Systems Systems (Relational & OLAP) Sources • Performance against large data sets 15 IBM PERFORMANCE EVENTS
  16. 16. Demo – What-If Analysis 1. Monitor and Track Performance 2. Analyze and Identify Performance Gaps 3. Model and Develop Alternative Scenarios 4. Analyze Results and Corresponding Business Impacts 5. Execute Strategy by Updating Scenarios in Plan 16 IBM PERFORMANCE EVENTS
  17. 17. Blue Mountain Business Requirement • Marketing views historical data and perform ‘what-if’ analysis against daily revenue reports to manage its campaign and labor spending more wisely – e.g. If a specific room type isn’t selling well, a manager can look at which variables have remained constant and which ones have changed Solution Capability • ‘What-if’ Analysis from IBM Cognos delivers the means to review the data from a variety of angles to isolate the particular variable that is a drag on sales. – Allows a hotel manager to alter room rates, align them with previous year’s rates, wait out a spell of bad weather, or implement a new marketing campaign featuring the affected area. Benefits • Managers can now determine how to alter their campaigns and labor spending and then provide detailed analysis of which marketing campaigns have had the most impact in driving sales for a particular room type in a given season 17 IBM PERFORMANCE EVENTS
  18. 18. Cici’s Enterprises Business Requirement • Determine more accurately how much food supplies are being used at specific stores in certain timeframes. – CiCi’s tracks item usage and average “tray cost” as they test a redesigned buffet to include a hybrid salad bar and updated stations to reduce waste and increase profits for stores. Solution Capability • IBM Cognos TM1 to determine if trends in usage are making this change a profitable one Benefits • “We can now run through a few “what-if” budget scenarios in a day, and be prepared for questions we think management and investors will ask.” Jessica White, Operations/Financial Analyst, CiCi’s Enterprises 18 IBM PERFORMANCE EVENTS
  19. 19. IBM Cognos TM1 – A better way for What-If Analysis Continuous, effortless, integrated creation and management of business scenarios to support decision-making Single, Complete, Financial Analyst Business Analyst Business User Executive Line of Business Manager Consistent, and Secure View MS Office Search Browser Mobile Email Instant creation of 64-Bit OLAP to business scenarios handle large, with write-back complex data sets Data Integrity, Confidence – integrated with PM PM Transaction Warehouses Legacy Systems Systems (Relational & OLAP) Sources 19 IBM PERFORMANCE EVENTS
  20. 20. Summary What-If analysis as a driver of your decision making process • Create personal scenarios to support unlimited ad-hoc alternatives. – All decision makers need insight beyond dashboards and managed reports – Analysts need to inform the organization with insight beyond reporting numbers – Advanced Analysts want to uncover patterns and relationships beyond information manipulation • Expand the information set considered for analysis – Analyzing all available information to drive informed decisions • Develop scenarios on-the-fly and share them with others for greater collaboration. – Ability for all users to analyze information to drive better business decisions – Business users want to self-discover, manipulate information, model data to create scenarios 20 IBM PERFORMANCE EVENTS