Business Intelligence (BI) systems can do one or more of the following for you:
(1) Report KPIs and other data, typically in a "dashboard"
(2) Provide analysis of the dashboard figures into greater detail
(3) Provide forecasting facilities to derive forecasts and budgets
These are all things you need to understand, manage, and drive your business.
BI systems will typically support at least a basic form of consolidation, to pull together sub-entities into the whole entity. Conversely you can analyse an entity out to sub-entities. Further analysis out to sub-sub-entities etc is possible in a multi-level cascade. KPIs can be similarly defined in a cascade.
BI systems will also typically allow you to present data and trends in a variety of graphical formats, such as pie charts, trend charts and gauges. The latter is particularly useful to report KPIs against targets.
Types of BI Systems
There are 3 main types of BI systems:
(1) Excel as a powerful tool for simpler situations
(2) Excel as the user interface, with some form of back-end database system
(3) Systems with their own user interface, including a back-end database
Back-end databases are of two fundamental types, with a number of variations:
(a) Multi-dimensional OLAP "cubes", termed MOLAP, which are ideal for many real-life analysis requirements once the dimensions are defined
(b) Relational databases, such as typically used for accounting systems, which are tuned to cater for multi-dimensional analysis, so are often termed ROLAP.
See update (6b) for what's important in selection of a BI system.
(Note: The term "OLAP" stands for "OnLine Analytical Processing". It is a throw back to 1993 when mainframes provided "OnLine Transactional Processing" after the era of purely batch processing. OnLine facilities are now the norm, but the term OLAP has stood the test of time to cover real-time analytical systems.)
Friday, 21 August 2009
Thursday, 20 August 2009
(6b) BI Systems - What's Important in Selection?
Selection of a BI tool is a major decision. Key questions include:
(1) Will the reporting, analysis and forecasting capabilities suit the business, now and in the foreseeable future? This assumes that the KPIs, graphical preferences and other aspects have been suitably defined.
(2) Is the tool easy enough to use and administer?
(3) Is the tool suitable for the size of business in terms of its target market, performance for the data volumes envisaged, and cost?
(4) Is it designed to be developed and modified by a systems accountant in a user department? Or does it need formal programming skills, to be developed by the IT department?
(5) Given the fast pace of acquisitions in the BI market, what is a tool's likely strategic future? Is it likely to thrive or suffocate?
(6) A variety of other aspects, such as implementation and support arrangements
If you would like help in clearly defining KPIs and reporting requirements across the business, or in selecting a suitable BI tool, please contact me - details in my profile.
(1) Will the reporting, analysis and forecasting capabilities suit the business, now and in the foreseeable future? This assumes that the KPIs, graphical preferences and other aspects have been suitably defined.
(2) Is the tool easy enough to use and administer?
(3) Is the tool suitable for the size of business in terms of its target market, performance for the data volumes envisaged, and cost?
(4) Is it designed to be developed and modified by a systems accountant in a user department? Or does it need formal programming skills, to be developed by the IT department?
(5) Given the fast pace of acquisitions in the BI market, what is a tool's likely strategic future? Is it likely to thrive or suffocate?
(6) A variety of other aspects, such as implementation and support arrangements
If you would like help in clearly defining KPIs and reporting requirements across the business, or in selecting a suitable BI tool, please contact me - details in my profile.
Wednesday, 19 August 2009
(7) KPIs and Management Information: Are you getting what you need? On a timely basis?
Let’s think of your business as a money-making machine. What aspects of the machine do you need to be monitoring for the business to thrive?
There are 3 key aspects, all of which support your decision-making:
1. KPIs – frequent reports of key indicators across the business, both “results” and “drivers”
2. FORECASTING – model including cashflow to assess scenarios, spot upcoming problems, and derive forecasts and budgets
3. MANAGEMENT ACCOUNTS – monthly and/or weekly picture, with comparison of performance against forecasts, and analysis down to the detail
Many businesses do not have a full set of this information available on a timely basis. As a result forthcoming problems are not identified, or decisions are made without appropriate knowledge. Running a business like this can be very uncomfortable.
Indeed people who deal with failing businesses despair at how often basic information is missing. So good information can be a matter of survival as much as helping the business to thrive.
Are you comfortable that you are getting the key information you need, when you want it?
IF YOU WANT TO IMPROVE YOUR MANAGEMENT INFORMATION:
There are three key steps:
(1) Defining information needs
The first step is to define what KPIs and management information you and your senior colleagues need, when and in what format. Responsibility needs to be clear for each level of management in each area.
As “what gets measured gets done”, it’s best to define what is reported in the context of your strategic goals and critical success factors (CSFs) if these have been defined.
(2) How should information be provided?
These days a variety of software exists to collect, report and model the information you need. Often referred to as “Business Intelligence” (BI) tools, these range from Excel for simpler situations to mid-range systems, to sophisticated corporate systems.
Can your current tools be used? Or would it be more cost-effective to use a new tool? What’s available that’s suitable for your size and type of business? Would an in-house or an internet-based SAAS solution be more appropriate?
(3) Implement the solution
Turning ideas into reality is an art that needs to cover technical and people aspects. In-house staff need to be closely involved. But help and guidance from outside can be a great help in achieving a worthy result in short timescales.
HOW CAN CAMWELLS HELP?
Camwells has many years’ experience of helping companies with these actions and questions. Clients have appreciated the independent viewpoint and commercially-minded experience. This helps to define appropriate metrics, identify suitable systems, and implement a working solution quickly.
Working with CEOs, MDs an FDs, “Timely, thorough, helped enormously” and “Couldn’t have done it without you!” are typical comments.
NEXT STEP
If you would like to improve your management information, do give me a call to discuss without obligation.
There are 3 key aspects, all of which support your decision-making:
1. KPIs – frequent reports of key indicators across the business, both “results” and “drivers”
2. FORECASTING – model including cashflow to assess scenarios, spot upcoming problems, and derive forecasts and budgets
3. MANAGEMENT ACCOUNTS – monthly and/or weekly picture, with comparison of performance against forecasts, and analysis down to the detail
Many businesses do not have a full set of this information available on a timely basis. As a result forthcoming problems are not identified, or decisions are made without appropriate knowledge. Running a business like this can be very uncomfortable.
Indeed people who deal with failing businesses despair at how often basic information is missing. So good information can be a matter of survival as much as helping the business to thrive.
Are you comfortable that you are getting the key information you need, when you want it?
IF YOU WANT TO IMPROVE YOUR MANAGEMENT INFORMATION:
There are three key steps:
(1) Defining information needs
The first step is to define what KPIs and management information you and your senior colleagues need, when and in what format. Responsibility needs to be clear for each level of management in each area.
As “what gets measured gets done”, it’s best to define what is reported in the context of your strategic goals and critical success factors (CSFs) if these have been defined.
(2) How should information be provided?
These days a variety of software exists to collect, report and model the information you need. Often referred to as “Business Intelligence” (BI) tools, these range from Excel for simpler situations to mid-range systems, to sophisticated corporate systems.
Can your current tools be used? Or would it be more cost-effective to use a new tool? What’s available that’s suitable for your size and type of business? Would an in-house or an internet-based SAAS solution be more appropriate?
(3) Implement the solution
Turning ideas into reality is an art that needs to cover technical and people aspects. In-house staff need to be closely involved. But help and guidance from outside can be a great help in achieving a worthy result in short timescales.
HOW CAN CAMWELLS HELP?
Camwells has many years’ experience of helping companies with these actions and questions. Clients have appreciated the independent viewpoint and commercially-minded experience. This helps to define appropriate metrics, identify suitable systems, and implement a working solution quickly.
Working with CEOs, MDs an FDs, “Timely, thorough, helped enormously” and “Couldn’t have done it without you!” are typical comments.
NEXT STEP
If you would like to improve your management information, do give me a call to discuss without obligation.
Tuesday, 18 August 2009
(8) KPIs – A Matter Of Balance
When putting together a set of KPIs, it makes sense to look at the business in its entirety.
To do this, the KPIs need to provide a balance between:
• Financial and non-financial measures
• Short term and long term objectives
• Lagging and leading indicators (“results” and “drivers”)
• External and internal performance perspectives
This is a referred to as a “Balanced Scorecard”. The concept was originally developed by Kaplan and Norton. The idea is that management should not only be presented with financial information, but metrics and commentary on other aspects important to the health of the business.
Kaplan and Norton originally suggested these should be assessed for four aspects. But it is more useful to consider six aspects that help to drive business performance:
• FINANCIAL RESULTS
o Meeting or exceeding targets and budgets
• CUSTOMER
o Customer satisfaction
o Other aspects relevant to specific industry
• ENVIRONMENT/COMMUNITY (Corporate Social Responsibility)
o Improving relationships with customers to drive sales
o Improving attractiveness of the business to future and current staff
o To cut staff turnover, improve recruitment quality and reduce costs
• INTERNAL PROCESSES
o Efficient and effective
o Leveraging technology
• EMPLOYEE SATISFACTION
o Helps to improve productivity
o Avoids detrimental affects on relationships with the outside world
• LEARNING AND GROWTH
o Increasing expertise and empowerment
Whilst formal customer satisfaction and employee satisfaction surveys may only be carried out every 6 or 12 months, it is possible to monitor performance indicators more frequently. Examples include customer churn rates, customer complaints, employee turnover, and absenteeism.
Depending on the business, specific indicators may be KPIs at Board level. In other businesses, they may be at divisional or departmental level. The art is to develop a balanced set of measures at each level that focus on what is important for that business, bearing in mind the business’s size, objectives and critical success factors (CSFs).
A BI tool tends to be used to provide information on a monthly or more frequent basis, albeit with quarterly and annual totals. BI dashboards are therefore typically restricted to the information which can be collected and presented regularly. Less frequent information can be presented to management outside the BI system.
The overall result is to ensure management at each level see a balanced set of information on a timely basis.
To do this, the KPIs need to provide a balance between:
• Financial and non-financial measures
• Short term and long term objectives
• Lagging and leading indicators (“results” and “drivers”)
• External and internal performance perspectives
This is a referred to as a “Balanced Scorecard”. The concept was originally developed by Kaplan and Norton. The idea is that management should not only be presented with financial information, but metrics and commentary on other aspects important to the health of the business.
Kaplan and Norton originally suggested these should be assessed for four aspects. But it is more useful to consider six aspects that help to drive business performance:
• FINANCIAL RESULTS
o Meeting or exceeding targets and budgets
• CUSTOMER
o Customer satisfaction
o Other aspects relevant to specific industry
• ENVIRONMENT/COMMUNITY (Corporate Social Responsibility)
o Improving relationships with customers to drive sales
o Improving attractiveness of the business to future and current staff
o To cut staff turnover, improve recruitment quality and reduce costs
• INTERNAL PROCESSES
o Efficient and effective
o Leveraging technology
• EMPLOYEE SATISFACTION
o Helps to improve productivity
o Avoids detrimental affects on relationships with the outside world
• LEARNING AND GROWTH
o Increasing expertise and empowerment
Whilst formal customer satisfaction and employee satisfaction surveys may only be carried out every 6 or 12 months, it is possible to monitor performance indicators more frequently. Examples include customer churn rates, customer complaints, employee turnover, and absenteeism.
Depending on the business, specific indicators may be KPIs at Board level. In other businesses, they may be at divisional or departmental level. The art is to develop a balanced set of measures at each level that focus on what is important for that business, bearing in mind the business’s size, objectives and critical success factors (CSFs).
A BI tool tends to be used to provide information on a monthly or more frequent basis, albeit with quarterly and annual totals. BI dashboards are therefore typically restricted to the information which can be collected and presented regularly. Less frequent information can be presented to management outside the BI system.
The overall result is to ensure management at each level see a balanced set of information on a timely basis.
Sunday, 16 August 2009
(9) KPIs – What are the 10 Characteristics of Effective KPIs?
For a set of KPIs to help drive business performance, they must have a variety of characteristics. Some are more obvious than others:
1. RELEVANT – in support of business objectives
2. COMPREHENSIVE – covers all key aspects of the business
3. MEASURABLE – objective measures
4. TARGETED – compare measure to budget or target
5. DEFINED – clear and easily understood
6. COMPARABLE – trends over time, and comparable to other businesses
7. RELIABLE - sufficiently accurate to be trusted
8. TIMELY – appropriate frequency and timeliness
9. COST-EFFECTIVE – worth the costs of collection
10. SUSTAINABLE – can be compiled and reported regularly on an ongoing basis
1. RELEVANT – in support of business objectives
2. COMPREHENSIVE – covers all key aspects of the business
3. MEASURABLE – objective measures
4. TARGETED – compare measure to budget or target
5. DEFINED – clear and easily understood
6. COMPARABLE – trends over time, and comparable to other businesses
7. RELIABLE - sufficiently accurate to be trusted
8. TIMELY – appropriate frequency and timeliness
9. COST-EFFECTIVE – worth the costs of collection
10. SUSTAINABLE – can be compiled and reported regularly on an ongoing basis
Saturday, 15 August 2009
(10) KPIs – What are the Potential Pitfalls?
As mentioned in an earlier article, “What gets measured gets done”. When designing a set of KPIs, you need to carefully consider whether they will be goal-congruent in two additional respects:
1. Will the KPIs encourage any unwelcome behaviour or decisions?
2. How could each KPI be manipulated to give a better result than expected?
Only once these issues have been considered should the KPIs be adopted, calculated and reported. Experienced thought and judgement is required. Two specific issues to highlight are:
KPIs in the form of a fraction or percentage
Particular care needs to be given to KPIs that are in the form of a fraction or percentage, N/D, where the numerator N is divided by the denominator D. Examples include revenue per employee, and ROCE (% return on capital employed, being profit divided by capital).
Whilst in these cases the principle performance measures are revenue and profit, the ratios can be improved more easily by reducing the denominator D. As an example:
Let’s imagine revenue of a business unit is £10m, with some 50 people. Revenue per employee is some £200,000. If staff can be reduced to 40, this produces an immediate improvement to £250,000 per employee, but with no improvement in revenue.
How can headcount be reduced? Two possible ways are out-sourcing and automation. If these actions are good for profits and the business generally, then that is fine. But costs could increase or control be reduced. If chasing a revenue per employee target is likely to drive decisions that would not have been made for usual business reasons, that metric may not be appropriate as a KPI. Such disadvantages need to be considered against any advantages of using that KPI, in the light of any other KPIs that would tend to drive good decisions.
How KPIs are reported
The way a KPI is reported can also have an affect on behaviour. For example a league table is good for the competitiveness of those near the top. But it can be very demoralising for those near the bottom, especially if there are particular reasons for the situation. If and how any league tables are published needs careful thought.
Similar care should be given to how other KPIs are reported.
In Conclusion
So before collecting and reporting a set of KPIs, it is vital to consider whether they will actually be goal congruent overall. How will they affect the decisions, morale and behaviour of the people in the business? And how could each KPI be manipulated? On balance will those KPIs drive improved business performance as intended?
1. Will the KPIs encourage any unwelcome behaviour or decisions?
2. How could each KPI be manipulated to give a better result than expected?
Only once these issues have been considered should the KPIs be adopted, calculated and reported. Experienced thought and judgement is required. Two specific issues to highlight are:
KPIs in the form of a fraction or percentage
Particular care needs to be given to KPIs that are in the form of a fraction or percentage, N/D, where the numerator N is divided by the denominator D. Examples include revenue per employee, and ROCE (% return on capital employed, being profit divided by capital).
Whilst in these cases the principle performance measures are revenue and profit, the ratios can be improved more easily by reducing the denominator D. As an example:
Let’s imagine revenue of a business unit is £10m, with some 50 people. Revenue per employee is some £200,000. If staff can be reduced to 40, this produces an immediate improvement to £250,000 per employee, but with no improvement in revenue.
How can headcount be reduced? Two possible ways are out-sourcing and automation. If these actions are good for profits and the business generally, then that is fine. But costs could increase or control be reduced. If chasing a revenue per employee target is likely to drive decisions that would not have been made for usual business reasons, that metric may not be appropriate as a KPI. Such disadvantages need to be considered against any advantages of using that KPI, in the light of any other KPIs that would tend to drive good decisions.
How KPIs are reported
The way a KPI is reported can also have an affect on behaviour. For example a league table is good for the competitiveness of those near the top. But it can be very demoralising for those near the bottom, especially if there are particular reasons for the situation. If and how any league tables are published needs careful thought.
Similar care should be given to how other KPIs are reported.
In Conclusion
So before collecting and reporting a set of KPIs, it is vital to consider whether they will actually be goal congruent overall. How will they affect the decisions, morale and behaviour of the people in the business? And how could each KPI be manipulated? On balance will those KPIs drive improved business performance as intended?
Friday, 14 August 2009
(11) Exception reporting / RAG analysis
KPIs allow you to focus on what's important in your business. For each KPI you'll set a target, so you can monitor performance against it. For example a gross margin (GM) target of 28%.
To help you quickly identify any problems that need attention, it's useful to adopt "exception reporting". This is where shortfalls from target are highlighted, typically in red. Conversely KPIs that are better than target can be marked in green.
You may also want to set a "stretched target" which is that bit better than the basic target. For example if you aim for a GM of at least 30%, you are more likely to achieve at least 28%. A GM between 28% and 30% would then be regarded as acceptable, but of some concern. This can be marked in amber.
We therefore have a simple example of RAG analysis:
Red - GM under 28%
Amber - 28-30%
Green - over 30%
Looking at the three stages of the bid to revenue process (assuming a business where the target at each stage can be the same):
Furthermore, a good BI system will allow you to drill down to see the numbers with the relevant RAG flag:
(1) At the next level, which might be region or branch
(2) Or drill down to product group or product
(3) Or drill down to salesman
The drill down facility typically requires multi-dimensional analysis, so a form of OLAP tool is required (see posting 6a).
To help you quickly identify any problems that need attention, it's useful to adopt "exception reporting". This is where shortfalls from target are highlighted, typically in red. Conversely KPIs that are better than target can be marked in green.
You may also want to set a "stretched target" which is that bit better than the basic target. For example if you aim for a GM of at least 30%, you are more likely to achieve at least 28%. A GM between 28% and 30% would then be regarded as acceptable, but of some concern. This can be marked in amber.
We therefore have a simple example of RAG analysis:
Red - GM under 28%
Amber - 28-30%
Green - over 30%
Looking at the three stages of the bid to revenue process (assuming a business where the target at each stage can be the same):
Furthermore, a good BI system will allow you to drill down to see the numbers with the relevant RAG flag:
(1) At the next level, which might be region or branch
(2) Or drill down to product group or product
(3) Or drill down to salesman
The drill down facility typically requires multi-dimensional analysis, so a form of OLAP tool is required (see posting 6a).
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