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Analytics-Based Enterprise Performance Management

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Analytics-Based Enterprise
Performance Management

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Analytics-Based Enterprise Performance Management

  1. 1. 1 Analytics-Based Enterprise Performance Management Gary Cokins, CPIM Analytics-Based Performance Management LLC Cary, North Carolina USA www.garycokins.com 919 720 2718 gcokins@garycokins.com Copyright 2016 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 2016 www.garycokins.com Analytics-Based Performance Management LLC
  3. 3. 3 Copyright 2016 www.garycokins.com Analytics-Based Performance Management LLC Gary Cokins’ part time role as the IMA Executive in Residence IMA Strategic Finance magazine; December 2013, January 2016; Trend #1 “Measuring and Managing Customer Profitability”; IMA Strategic Finance; February 2016. http://www.imanet.org/ docs/default- source/sf/2016_02/02 _2016_cokins.pdf?sfvr sn=2
  4. 4. 4 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 2016 www.garycokins.com Analytics-Based Performance Management LLC
  5. 5. 5 AGENDA 1) Compelling Needs for Enterprise Performance Management (EPM) 2) Overview of EPM 3) The Rise of Business Intelligence (BI) and Analytics 4) Strategy Formulation and Strategy Management 5) Fact-based Managerial Accounting (with ABC/M) 6) Customer Profitability and Value Management 7) The Shift in ROI’s Source from Tangible to Intangible Assets 8) Accelerating the Rate of Adoption for Implementing EPM Summary, Discussion, Questions and Answers Copyright 2016 www.garycokins.com Analytics-Based Performance Management LLC
  6. 6. 6 Key questions What? So what? Then what? Copyright 2016 www.garycokins.com Analytics-Based Performance Management LLC
  7. 7. 7 Drowning in data but starving for information. Copyright 2016 www.garycokins.com Analytics-Based Performance Management LLC
  8. 8. 8 AGENDA 1) Compelling Needs for Enterprise Performance Management (EPM) 2) Overview of EPM 3) The Rise of Business Intelligence (BI) and Analytics 4) Strategy Formulation and Strategy Management 5) Fact-based Managerial Accounting (with ABC/M) 6) Customer Profitability and Value Management 7) The Shift in ROI’s Source from Tangible to Intangible Assets 8) Accelerating the Rate of Adoption for Implementing EPM Summary, Discussion, Questions and Answers Copyright 2016 www.garycokins.com Analytics-Based Performance Management LLC
  9. 9. 9 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 2016 www.garycokins.com Analytics-Based Performance Management LLC The good news is this …..
  10. 10. 10 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 2016 www.garycokins.com Analytics-Based Performance Management LLC
  11. 11. 11 Long-term Trends in Government A growing impatience by taxpayers and governance boards with waste and inefficiency is leading to demands for evidence of outputs, outcomes, transparency and accountability. “more with less” … “value for money” ... “quality of life” Copyright 2016 www.garycokins.com Analytics-Based Performance Management LLC
  12. 12. 12 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 2016 www.garycokins.com Analytics-Based Performance Management LLC
  13. 13. 13 AGENDA 1) Compelling Needs for Enterprise Performance Management (EPM) 2) Overview of EPM 3) The Rise of Business Intelligence (BI) and Analytics 4) Strategy Formulation and Strategy Management 5) Fact-based Managerial Accounting (with ABC/M) 6) Customer Profitability and Value Management 7) The Shift in ROI’s Source from Tangible to Intangible Assets 8) Accelerating the Rate of Adoption for Implementing EPM Summary, Discussion, Questions and Answers Copyright 2016 www.garycokins.com Analytics-Based Performance Management LLC
  14. 14. 14 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 2016 www.garycokins.com Analytics-Based Performance Management LLC
  15. 15. 15 Isn’t competition ultimately about cost leadership, differentiation, or focus?* -- cost leadership strategy – via improving process efficiencies, unique access to low cost inputs, vertical integration, avoiding certain costs, etc. -- differentiation strategy – via developing products and/or services with unique traits valued by customers. But don’t each of these have risks today? -- focus strategy – via concentrating on a narrow segment with entrenched customer loyalty. * Source: Michael E. Porter’s three generic strategies. Copyright 2016 www.garycokins.com Analytics-Based Performance Management LLC
  16. 16. 16 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 2016 www.garycokins.com Analytics-Based Performance Management LLC
  17. 17. 17 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 data mining with query and reporting? Copyright 2016 www.garycokins.com Analytics-Based Performance Management LLC
  18. 18. 18 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 2016 www.garycokins.com Analytics-Based Performance Management LLC
  19. 19. 19 Improving Performance by Unifying EPM and BA -- BI Reporting consumes stored information. -- Business 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 2016 www.garycokins.com Analytics-Based Performance Management LLC
  20. 20. 20 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 2016 www.garycokins.com Analytics-Based Performance Management LLC
  21. 21. 21 What Pressures Cause Interest in Business Analytics? -- Volatility, uncertainty, risk and clock-speed -- Standardized processes (e.g. ERP, CRM systems) -- Intuition of the potential value of unused structured and text data -- Enormous IT processing power -- Exponential growth in data, users, searches -- Complexity and variables are replacing “gut feel Copyright 2016 www.garycokins.com Analytics-Based Performance Management LLC
  22. 22. 22 Examples of Analytics -- Hollywood celebrities and the film industry -- Sports teams But what about business analytics in mainstream businesses? -- Crime prevention -- music score analysis Will Smith: Independence Day; Men in Black; I, Robot; I am Legend; Hancock Copyright 2016 www.garycokins.com Analytics-Based Performance Management LLC
  23. 23. 23 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 2016 www.garycokins.com Analytics-Based Performance Management LLC
  24. 24. 24 STANDARD REPORTS AD HOC REPORTS QUERY DRILLDOWN (OR OLAP) ALERTS 1 2 3 4 Reactive (Descriptive) Copyright 2016 www.garycokins.com Analytics-Based Performance Management LLC
  25. 25. 25 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 2016 www.garycokins.com Analytics-Based Performance Management LLC
  26. 26. 26 AGENDA 1) Compelling Needs for Enterprise Performance Management (EPM) 2) Overview of EPM 3) The Rise of Business Intelligence (BI) and Analytics 4) Strategy Formulation and Strategy Management 5) Fact-based Managerial Accounting (with ABC/M) 6) Customer Profitability and Value Management 7) The Shift in ROI’s Source from Tangible to Intangible Assets 8) Accelerating the Rate of Adoption for Implementing EPM Summary, Discussion, Questions and Answers Copyright 2016 www.garycokins.com Analytics-Based Performance Management LLC
  27. 27. 27 What has Caused Interest in EPM? 1) Failure by executives to execute their well-formulated strategy. Copyright 2016 www.garycokins.com Analytics-Based Performance Management LLC
  28. 28. 28 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 2016 www.garycokins.com Analytics-Based Performance Management LLC
  29. 29. 29 FinancialCustomerInternalProcessLearning Maximize Shareholder Value Generic Strategy Map Architecture Financial Customer Internal Processes Learning & Innovation Copyright 2016 www.garycokins.com Analytics-Based Performance Management LLC
  30. 30. 30 Vision & Mission Exceed shareholder expectations Improve profit margins Increase sales volume Diversify income stream Increase sales to existing customers Diversify customer base Test new products Target profitable market segments develop new products Optimize internal processes Attract new customers Develop employee skills Integrate systems Learning & Growth Internal Process Customer Financial Copyright 2016 www.garycokins.com Analytics-Based Performance Management LLC
  31. 31. 31 Vision & Mission Exceed shareholder expectations Improve profit margins Increase sales volume Diversify income stream Increase sales to existing customers Diversify customer base Test new products Target profitable market segments develop new products Optimize internal processes Attract new customers Develop employee skills Integrate systems Learning & Growth Internal Process Customer Financial A learning environment stimulates Process excellence Customer intimacy Financial value leads to creating Copyright 2016 www.garycokins.com Analytics-Based Performance Management LLC
  32. 32. 32 A scorecard is more of a social tool than a technical tool. Measurement Period; 1st Quarter Strategic Objective Identify Projects, Initiatives, or Processes KPI Measure KPI Target KPI Actual comments / explanation Executive Team X X Managers and Employees X X their score X <----- period results -------> Who Does What? Copyright 2016 www.garycokins.com Analytics-Based Performance Management LLC
  33. 33. 33 The Key to Scorecards How does everyone answer this single question: “How am I doing on what is important?” The overriding purpose of a strategy map and scorecard system is to make mission and strategy everyone’s job. Strategy Maps and Scorecards provide this answer. Copyright 2016 www.garycokins.com Analytics-Based Performance Management LLC
  34. 34. 34 Scorecard Lessons Being Painfully Learned  Scorecard or Report Card?  KPIs or PIs? Copyright 2016 www.garycokins.com Analytics-Based Performance Management LLC
  35. 35. 35 KPIs (strategic context) Must have targets PIs (operational) With targets Without targets - Trends - Upper / lower thresholds Project-based KPIs Process-based KPIs Scorecard (inter-related measures with cause-and-effect correlations) Dashboard (measures in isolation) Budget & Resource Planning Strategy Diagram Measurements $ $ Frequency of reporting quarterly monthly weekly daily hourly real-time Without targets - drill-down analysis - alert messages What is the difference between KPIs and PIs? Copyright 2016 www.garycokins.com Analytics-Based Performance Management LLC
  36. 36. 36 AGENDA 1) Compelling Needs for Enterprise Performance Management (EPM) 2) Overview of EPM 3) The Rise of Business Intelligence (BI) and Analytics 4) Strategy Formulation and Strategy Management 5) Fact-based Managerial Accounting (with ABC/M) 6) Customer Profitability and Value Management 7) The Shift in ROI’s Source from Tangible to Intangible Assets 8) Accelerating the Rate of Adoption for Implementing EPM Summary, Discussion, Questions and Answers Copyright 2016 www.garycokins.com Analytics-Based Performance Management LLC
  37. 37. 37 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 2016 www.garycokins.com Analytics-Based Performance Management LLC
  38. 38. 38 Direct and Absorption Costing 38 Ideally, all costs should be directly charged, but as variety, complexity, and technology increases, more costs are indirect and shared. Activities Resources Final Cost Objects Project accounting ABC/M ALLOCATIONS Labor Reporting Estimates OUTPUTS, PROCESSES, PRODUCTS, SERVICE LINES, MARKETS, CHANNELS, ORDERS, CUSTOMERS 1st Preference 2nd Preference 3rd Preference Last Resort Cost-Driver Table Work Order Standard Routing, Bill of material Standard costing Activity Driver
  39. 39. 39 A simple explanation of ABC … that you can explain to your spouse (or boss) tonight. Copyright 2016 www.garycokins.com Analytics-Based Performance Management LLC
  40. 40. 40 Cost Components Stages in the Evolution of Businesses IntegratedOld-fashioned Hierarchical Changes in Cost Structure 100% Overhead (indirect expenses) Direct (recurring) Labor Material 1950 2020 Direct 0% Broadly averaged cost allocation was acceptable. Cost errors are large and misleading. The Need for Tracing, not Allocating, Costs Copyright 2016 www.garycokins.com Analytics-Based Performance Management LLC
  41. 41. 41 Customers and Service-recipients Resources Process Costs Output & Outcome Costs inputs This is known. Appropriations, approved budget spending levels But ? But ? The Primary View of Most Managers Copyright 2016 www.garycokins.com Analytics-Based Performance Management LLC
  42. 42. 42 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 2016 www.garycokins.com Analytics-Based Performance Management LLC
  43. 43. 43 #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 2016 www.garycokins.com Analytics-Based Performance Management LLC
  44. 44. 44 The ABC/M Cross - What Questions are Answered? Cost Assignment View (ABC) Process View (ABCM) Resources Resource Cost Assignment Activities Activity Cost Assignment Resource Drivers Activity Drivers © CAM-I 1990 (adapted) Source: The Consortium of Advanced Manufacturing International (CAM-I). Cost Drivers Cost Objects (outputs) What do we spend? Why do we spend what we spend? What do we do? Why do we do what we do? And how much? Who or what do we do it for?
  45. 45. 45 Multiple-Stage Cost Flowing Simple ABC Expanded ABC Resources Resources Activities Objects Objects Activities Copyright 2016 www.garycokins.com Analytics-Based Performance Management LLC
  46. 46. 46 Multilevel Cost Flowing - the Math Support activities $30 Material $10 Product/service activities $15 Products $25 Customer activities $20 Infrastructure sustaining $25 Resource Costs ($70) External Customer/Orders + Sustaining $70 ABC as a total system in this example begins with $70. It then reassigns and accumulates the costs into the final cost objects (outputs) without double-counting. Price data Resources Activities $10 $10 $10 $10 $10$10 $5 $15 $25$45 $25 $15 $30 Cost-driver Table *intermediate activity drivers reassign each activity's cumulative input costs plus its own cost. *Inter- mediate Resource drivers Final activity drivers Final cost objects Copyright 2012 www.garycokins.com Analytics-Based Performance Management LLC
  47. 47. 47 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 2016 www.garycokins.com Analytics-Based Performance Management LLC
  48. 48. 48 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” pathsDirectcosts Copyright 2016 www.garycokins.com Analytics-Based Performance Management LLC
  49. 49. 49 $ 30 sales - 28 expenses = $ 2 profit $ 2 profit Unrealized profit revealed by ABC Net Revenues Minus ABC costs = profit More important than a better costing method are its results. Copyright 2016 www.garycokins.com Analytics-Based Performance Management LLC
  50. 50. 50 Sales $ 31.0 - Expenses 31.5 = prof/(loss) $ (0.5) loss = $ (0.5) More important than a better costing method are its results. Net Revenues Minus ABC costs = profit Copyright 2016 www.garycokins.com Analytics-Based Performance Management LLC
  51. 51. 51 Activity Costs each activity’s driver quantity unit activity driver cost x (eg. # of registrations) Price/Fee (Revenue) ABC provides insight for the product’s or service’s cost drivers and driver quantities. Work Activities Activity Costs “pile up” into outputs. Copyright 2016 www.garycokins.com Analytics-Based Performance Management LLC
  52. 52. 5252 Two Views of Cost --- The Cost Object View Dept. 1 xxxxxxx xxxxxxx xxxxxxx xxxxxxx xxxxxxx Dept. 2 xxxxxxx xxxxxxx xxxxxxx xxxxxxx xxxxxxx Dept. 3 xxxxxxx xxxxxxx xxxxxxx xxxxxxx xxxxxxx Outputs Resources Suppliers Products Orders Customers Sustaining Process Measures X = activities = process = cost drivers $ The Vertical view of Assigning Costs Copyright 2016 www.garycokins.com Analytics-Based Performance Management LLC
  53. 53. 5353 Dept. 3 xxxxxxx xxxxxxx xxxxxxx xxxxxxx xxxxxxx Dept. 2 xxxxxxx xxxxxxx xxxxxxx xxxxxxx xxxxxxx Dept. 1 xxxxxxx xxxxxxx xxxxxxx xxxxxxx xxxxxxx Outputs Resources Suppliers Products Orders Customers Sustaining Process Measures X = activities = process = cost drivers $ Two Views of Cost --- The Process ViewThe Horizontal view of Sequencing Costs Copyright 2016 www.garycokins.com Analytics-Based Performance Management LLC
  54. 54. 54 Supplier (direct material) Key: Enterprise Cost Business Processes Process A Processes include activities that have high to low value-adding content. VA NVA Processes: Six Sigma, Lean Management, and Value Stream Mapping $ $ $ $ $ $ $ $ ABM also provides unit costs of outputs for cost visibility and benchmarking. Copyright 2016 www.garycokins.com Analytics-Based Performance Management LLC
  55. 55. 55 AGENDA 1) Compelling Needs for Enterprise Performance Management (EPM) 2) Overview of EPM 3) The Rise of Business Intelligence (BI) and Analytics 4) Strategy Formulation and Strategy Management 5) Fact-based Managerial Accounting (with ABC/M) 6) Customer Profitability and Value Management 7) The Shift in ROI’s Source from Tangible to Intangible Assets 8) Accelerating the Rate of Adoption for Implementing EPM Summary, Discussion, Questions and Answers Copyright 2016 www.garycokins.com Analytics-Based Performance Management LLC
  56. 56. 56 What has Caused Interest in ABPM? 5) Strategic – The shift from being product-centric to customer centric. Copyright 2016 www.garycokins.com Analytics-Based Performance Management LLC
  57. 57. 57 Value of Company = f(Value from Customers) The only value a company will ever create is the value that comes from its customers – the current ones and the new ones acquired in the future. To remain competitive, one must determine how to keep customers longer, grow them into bigger customers, make them more profitable, serve them more efficiently, and acquire relatively more profitable customers. Source: Don Peppers and Martha Rogers, Peppers & Rogers Group (edited) Copyright 2016 www.garycokins.com Analytics-Based Performance Management LLC
  58. 58. 58 CEO Concerns Confirm this Understanding Most important Moderately important Balancing short-term goals w/ long-term strategy Focusing on core competencies Managing risk on an enterprise basis Using technology for competitive advantage Building a responsive, flexible organization Attracting and retaining skilled workers Responding to regulatory changes Improving productivity Increasing market share Attracting and retaining loyal customers Mean scores 7.62 7.66 7.67 7.8 7.82 7.86 7.93 8.02 8.39 8.95 Source: Gartner, 2011: "Bank CEOs Rate Business & Technology Concerns" #1 since 2002 Copyright 2016 www.garycokins.com Analytics-Based Performance Management LLC
  59. 59. 59 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 making products and delivering standard service-lines? The problem with traditional accounting’s product gross profit margin reporting is you don’t see the bottom half of the picture. So what about the Other Below-the-line “Calculated” Costs? Copyright 2016 www.garycokins.com Analytics-Based Performance Management LLC
  60. 60. 60 60 INCOME STATEMENT Sales $ 100 - Product direct costs -20 - Overhead cost -10 ---------------------------------------------- = Gross profit margin $ 70 What about Costs Below Product Costs ? - selling costs -20 - distribution costs -10 - marketing costs -20 - administrative costs -10 ---------------------------------------------- = Total Profit $ 10 The accountants report these by each product (but they are wrong without ABC). ? We have no visibility of these costs by customer (except in total) ! Copyright 2016 www.garycokins.com Analytics-Based Performance Management LLC
  61. 61. 61 Indirect expenses Distribution, Sales & Marketing General, Accounting, and Administration Customer + Direct material, Direct labor & Equipment Costs from Sales & Marketing are not Products Channel + Product Copyright 2016 www.garycokins.com Analytics-Based Performance Management LLC
  62. 62. 62 # 1- Customer Retention – It is relatively much more expensive to acquire a new customer than to retain an existing one. # 2 – Sources of Competitive Advantage – As products and standard service-lines become commodity-like, then the shift is towards service-differentiation. Why Do Customer-related Costs Matter? The Perfect Storm Copyright 2016 www.garycokins.com Analytics-Based Performance Management LLC
  63. 63. 63 # 4 - Power Shift – The Internet is shifting power … irreversibly … from sellers to buyers. # 3 - CRM’s “One-to-One” Marketing – Pepper & Rodgers have hailed technology as the enabler to (1) identify customer segments, and (2) tailor marketing offers. Why Do Customer-related Costs Matter? The Perfect Storm Copyright 2016 www.garycokins.com Analytics-Based Performance Management LLC
  64. 64. 64 Copyright 2016 www.garycokins.com Analytics-Based Performance Management LLC
  65. 65. 65 WORK ACTIVITIES (examples) SUPPLIER SUSTAINING UNIT & BATCH LEVEL BRAND SUSTAINING PRODUCT/SERVICE LINE SUSTAINING UNIT & BATCH LEVEL CUSTOMER SUSTAINING UNIT & BATCH LEVEL SENIOR MGT UNUSED CAPACITY R&D OSHA DOT RESOURCES FINAL COST OBJECTS # Advertisements SUPPLIERS SUPPLIER - RELATED PRODUCTS/SKUs SALARY & FRINGE BENEFITS DIRECT MATERIAL CAPITAL (equipment-related) NON-WAGE RELATED (e.g., operating supplies) # Machine hours # Material moves # Set-ups # Shows # Advertisements RELATIONSHIP MANAGEMENT PURCHASES, RECEIPTS •BRAND/PRODUCT- RELATEDWORK, •BRAND/PRODUCT- RELATED ADVERTISING & MERCHANDISING, •FACILITIES COST MACHINES MAKE PRODUCT, MOVE PRODUCT, SET-UPS TRADE SHOWS, IMAGE ADVERTISING SALES CALLS, ORDER HANDLING, FREIGHT # POs # Receipts # Sales calls # orders # shipments CUSTOMERS Gvt RegulatorsARBITRARY (for full absorption) ARBITRARY (for full absorption) BUSINESS SUSTAINING RELATED PRODUCT & SERVICE LINE- RELATED CUSTOMER- RELATED IRS ABC/M Profit Contribution Margin Layering Etc. # Pounds # Gallons # Meters Facility costs Product-specific Copyright 2016 www.garycokins.com Analytics-Based Performance Management LLC
  66. 66. 66 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 ABC Customer Profit & Loss Statement Copyright 2016 www.garycokins.com Analytics-Based Performance Management LLC
  67. 67. 67 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 2016 www.garycokins.com Analytics-Based Performance Management LLC
  68. 68. 68 High (Creamy) Low (Low Fat) Low High Cost-to-Serve Product Mix Margin Very Profitable Very unprofitable Types of Customers KPI Target KPI Linkage of Customer Profits to the Scorecard Copyright 2016 www.garycokins.com Analytics-Based Performance Management LLC
  69. 69. 69 Customer Sales Volume Versus Profits Sales Volume (logarithmic scale) Profitability $ 0 $ (unprofitable) $ profitable Customers tend to cluster. Medium-volume customers can be much more profitable than large-volume customers! These losers drag down profits $ small $ large Copyright 2012 www.garycokins.com Analytics-Based Performance Management LLC
  70. 70. 70 GARY COKINS Principal, Global Business Advisory Services, SAS THOMAS P. KLAMMER Professor of Accounting (retired) University of North Texas TERRANCE L. POHLEN Associate Professor of Logistics University of North Texas Copyright 2016 www.garycokins.com Analytics-Based Performance Management LLC
  71. 71. 71 1 2 n 1 n 1 2 3 n 1 n 1 2 3 n 1 2 n 1 n 1 2 n 1 2 n1 n 1 Consumers/end-customers Initialsuppliers n Tier 3+ to Initial suppliers Tier 2 suppliers Tier 1 suppliers Tier 1 customers Tier 2 customers Tier 3+ to consumers Focal Company Members of the Focal Company’s Supply Chain Non-Members of the Focal Company’s Supply Chain Managed Process Links Monitor Process Links Not-Managed Process Links Non-Member Process Links Source: Adapted from Douglas M. Lambert, Martha C. Cooper, James D. Pugh, “Supply Chain Management: Implementation Issues and Research Opportunities”, The International Journal of Logistics Management, Vol. 9, No. 2, 1998, p. 2. Value Chain Management Involves LinkagesSupply Chain Trading Partner Relationships Copyright 2016 www.garycokins.com Analytics-Based Performance Management LLC
  72. 72. 72 Rapid Prototyping with Iterative Remodeling Each iteration enhances the use of the ABC/M system. ABC/M Models 3 ABC/M System (repeatable, reliable, relevant) #0 #1 #2 #3 210 Copyright 2016 www.garycokins.com Analytics-Based Performance Management LLC
  73. 73. 73 Balancing Levels of Accuracy with Effort Accuracy of Final Cost Objects 100% 0% World Class ABC System Design Little Level of Data Collection Effort GreatModest A B Copyright 2016 www.garycokins.com Analytics-Based Performance Management LLC
  74. 74. 74 B / C > 1.00 Senior Management’s Benefits vs. Costs Test The objective is to raise the executive team’s perception of B (the benefits) while driving down C (the administative effort to collect and report). Copyright 2016 www.garycokins.com Analytics-Based Performance Management LLC
  75. 75. 75 Benefits from ABC Rapid Prototyping - Accelerated learning - Solving the thorny “leveling” problem - Preventing “over-engineering” ABC model size - Peer group: Pre-determining uses for the information - Replacing misconceptions with reality. - Getting ROI from earlier insights and decisions. Copyright 2016 www.garycokins.com Analytics-Based Performance Management LLC
  76. 76. 76 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? Copyright 2016 www.garycokins.com Analytics-Based Performance Management LLC The CFO must now help Sales and Marketing … to better target customers. A Shift in the CFO’s Emphasis
  77. 77. 77 … over-spending uneccessarily on loyal customers for what is needed to retain them. … under-spending on marginally loyal customers and risk their defection to a competitor. Therefore, what is the optimum spending level for differentiated services to different micro-segments of customers? Optimizing Customer Value --- “Smart” Sales Growth You can destroy shareholder wealth creation by … Copyright 2016 www.garycokins.com Analytics-Based Performance Management LLC
  78. 78. 78 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 2016 www.garycokins.com Analytics-Based Performance Management LLC
  79. 79. 79 Improve the value mix of customers Source: Managing Customer Relationships by Martha Rogers LMC MVC’s Growth by increasing value of customers Numberofcustomers Customer actual value 2 1 3 Growth by increasing number of customers Notes 1. Only focusing on the number of customers acquired results in a degraded mix as low-value customers by definition are easier to acquire 2. A customer centric strategy will not acquire any customer; only higher-value ones Copyright 2016 www.garycokins.com Analytics-Based Performance Management LLC
  80. 80. 80  Acquire more customers  Acquire customers likely to have a higher CLV  Improve new customer acquisition conversion rates  Reduce cost-to-serve per customer  Cross- and up-sell additional products and services  Retain customers longer; reduce the churn rate  Increase customers’ propensity to refer customers Actions to increase customer total CLV Copyright 2016 www.garycokins.com Analytics-Based Performance Management LLC
  81. 81. 81 AGENDA // What about Budgeting? 1) Compelling Needs for Enterprise Performance Management (EPM) 2) Overview of EPM 3) The Rise of Business Intelligence (BI) and Analytics 4) Strategy Formulation and Strategy Management 5) Fact-based Managerial Accounting (with ABC/M) 6) Customer Profitability and Value Management 7) The Shift in ROI’s Source from Tangible to Intangible Assets 8) Accelerating the Rate of Adoption for Implementing EPM Summary, Discussion, Questions and Answers Copyright 2016 www.garycokins.com Analytics-Based Performance Management LLC
  82. 82. 82 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 2016 www.garycokins.com Analytics-Based Performance Management LLC
  83. 83. 83 is invasive and time-consuming ... with few benefits. takes 14 months from start-to-end. requires two or more executive “tweaks” at the end. is obsolete in two months due to events and re-organizations. starves the departments with truly valid needs. caves in to the “loudest voice” and “political muscle.” rewards veteran sand-baggers who are experts at padding. incorporates last year’s inefficiencies into this year’s budget. Is over-stated from the prior year’s “Use-it-or-lose-it” spending. A Quiz. “Our budgeting exercise ... “ Copyright 2016 www.garycokins.com Analytics-Based Performance Management LLC
  84. 84. 84 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 2016 www.garycokins.com Analytics-Based Performance Management LLC
  85. 85. 85 Match the Budget Method to its Category Demand- driven Project- driven Integrated Budget (Rolling Financial Forecasts) Copyright 2016 www.garycokins.com Analytics-Based Performance Management LLC
  86. 86. 86 Budgeting is typically disconnected from the strategy. But this problem is solved if management funds the managers’ projects. (1) Non-Recurring Expenses // Strategic Initiatives Measurement Period; 1st Quarter Strategic Objective Identify Projects, Initiatives, or Processes KPI Measure KPI Target KPI Actual comments / explanation Executive Team X X Managers and Employees X X their score X <----- period results -------> Copyright 2016 www.garycokins.com Analytics-Based Performance Management LLC
  87. 87. 87  Activity-Based Costing - Historical & Descriptive - Starts with known: spending driver measures output quantities - Calculates “costs”  Activity-Based Planning - Predictive - Requires capacity analysis - Starts with estimated outputs - Applies ABC/M rates - Solves for Resource “expenses” NowPast Future ABC/M ABP (2) Recurring Expenses // Future Volume & Mix Copyright 2016 www.garycokins.com Analytics-Based Performance Management LLC
  88. 88. 88 Customers and Service-recipients Resources Process Costs Output & Outcome Costs inputs Resource expenses can be calculated with “backwards ABC/M” Operational Resource Capacity Planning Start Here. Copyright 2016 www.garycokins.com Analytics-Based Performance Management LLC
  89. 89. 89 ABC/M ABP Known ? ? resources work activities cost objects Provides consumption rates NowPast Future ABC/M ABP Predictive Accounting Copyright 2016 www.garycokins.com Analytics-Based Performance Management LLC
  90. 90. 90 ABC/M ABP ? calculated ? Estimated resources work activities cost objects NowPast Future ABC/M ABP Predictive Accounting Copyright 2016 www.garycokins.com Analytics-Based Performance Management LLC
  91. 91. 91 Long-term Short-term Planning time Horizon difficult manageable easy In the very short term, you would not fire employees on Tuesday due to low work load, but hire them back on Wednesday. But in the future you may replace full-time employees with contractors, or lease assets you might have purchased. In this way, so-called fixed costs behave variably. Effort level to adjust capacities Capacity only Exists as Resources Copyright 2016 www.garycokins.com Analytics-Based Performance Management LLC
  92. 92. 92 Accounting Treatments and Behavior of Capacity (expenses) NowPast Future Descriptive Predictive unused used sunk fixed (unavoidable) variable (adjustable capacity; avoidable) Traceable to products, channels, customers, sustaining unused Predictive Accounting Copyright 2016 www.garycokins.com Analytics-Based Performance Management LLC
  93. 93. 93 High Low Low High Severity of impact on event occurrence and achievement of objectives probability of an event occurring (3) Risk Assessment Grid … ERM is not just contingency planning 8 10 3 4 5 6 7 19 2 Do not budget Budget Copyright 2016 www.garycokins.com Analytics-Based Performance Management LLC
  94. 94. 94 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 2016 www.garycokins.com Analytics-Based Performance Management LLC
  95. 95. 95 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 2016 www.garycokins.com Analytics-Based Performance Management LLC
  96. 96. 96 Key concepts and definitions A target is what we would like to happen which we achieve by producing A forecast - what we think will happen based on: A set of plans: what we intend to do, which we change to achieve our target Copyright 2016 www.garycokins.com Analytics-Based Performance Management LLC
  97. 97. 97 Don’t treat forecasting as a “special event.” We haven’t forecasted in a while, maybe we should try that again…. Forecasting should be an on-going part of monitoring the business. Copyright 2016 www.garycokins.com Analytics-Based Performance Management LLC
  98. 98. 98 Continuous refreshing the rolling financial forecast …accuracy 100% 0% More frequent forecast intervals assure better accuracy. Copyright 2016 www.garycokins.com Analytics-Based Performance Management LLC time
  99. 99. 99 ACCOUNTING Financial Accounting Cost Measurement Managerial Accounting Cost Accounting Financial Reporting regulatory compliance Cost Reporting & Analysis (feedback on performance) Decision Support/ Cost Planning •[e.g., GAAP, IFRS] •Costs of goods sold •Inventory valuation • Spending vs. budget variance analysis • Profitability reporting • Process analysis (e.g., lean, benchmarking, COQ) • Performance measures • Learning; corrective actions • Fully absorbed & incremental pricing • Driver-based budgeting & rolling financial forecasts • What-if analysis • Product, channel & customer rationalization • Outsourcing & make vs. buy analysis History Future Low value-add Modest value-add High value-add Source data capture (transactions / bookkeeping) Non-financial data capture The Domain of Costing Tax Accounting Source: “A Costing Levels Continuum Maturity Model” by Gary Cokins published by the International Federation of Accountants, 2010 Copyright 2016 www.garycokins.com Analytics-Based Performance Management LLC Source: PABC IGPG “Evaluating and Improving Costing in Organizations” published by the International Federation of Accountants, 2009 Cokins’ IFAC.org Taxonomy of Accounting GAAP, rules
  100. 100. 100 Evaluating the Costing Journey: A Costing Levels Continuum Maturity Model By Gary Cokins Most organizations are typically at lower levels of maturity in adopting progressive managerial accounting practices, methods and systems. International Federation of Accountants Report Copyright 2016 www.garycokins.com Analytics-Based Performance Management LLC http://www.garycokins.com/images/pd fs/20131105- IFAC_Evaluating_the_Costing_Journ ey_by_Gary_Cokins.pdf
  101. 101. 101 1D Level# 2D 3D 4D 5D 6D 7D 8D Blind Process Visibility Output Visibility Improved Output Information/ Approximate Accuracy Improved Treatment of Indirect Costs Customer Demand Sensitive Unused Capacity Aware (1) Descriptive Continuum EXPENSE TRACKING, COST REPORTING and CONSUMPTION RATES (2) Predictive Continuum DEMAND DRIVEN PLANNING with CAPACITY SENSITIVITY bookkeeping process and Lean accounting Direct costs without (3) and with (4) support costs to output groups Push Activity- Based costing (ABC); Product costs Standard costing to individual outputs; Project acct; Job order costing Level 6D with Channel and customer profitability Reporting; Cost-to-serve Unused capacity costs (estimated) Costing Continuum / Levels of Maturity (most companies are Level 5D and 1P) Source: “A Costing Levels Continuum Maturity Model” by Gary Cokins published by the International Federation of Accountants, 2016 2P 3P 4P 5P Pull Activity- based Resource Planning Time- driven ABC Resource Consumption Accounting Simulation (ABRP); Forecast driver quantities X unit consumption rates; Driver based budgeting (TDABC); Forecast driver quantities X time consumption rates; Direct cost focus; Repetitive work conditions (RCA); Level 2P with proportional costing at direct and support depts. Ultimate in consumption rates; 1P % G/L acct. Incrementa l
  102. 102. 102 STRATEGY REALIZATION CUSTOMERS, MARKETS SUPPLY CHAIN MANAGEMENT PRODUCTS, CHANNELS & CUSTOMERS ACTIVITIES (ABC/M) RESOURCES SHAREHOLDER WEALTH PERFORMANCE MEASUREMENT SCORECARDS PROCESS MANAGEMENT General ledger PROJECT ACCOUNTING, PROGRAM MANAGEMENT KEY PERFORMANCE INDICATORS (KPIs) versus ACTUALS PROFITABILITY ANALYSIS DEMAND STRATEGY Expenses TIME SUPPLY / INVEST STRATEGY PRODUCT & SERVICES DEMAND VOLUME & MIX FORECAST MAXIMIZE MINIMIZE OPERATIONAL PERFORMANCE - PRODUCTIVITY & EFFICIENCY - BENCHMARKING - UTILIZATION/YIELD - TOTAL QUALITY MANAGEMENT (Cost of Quality) UNUSED (AVAILABLE) CAPACITY Asset management ACTIVITY DRIVERS REVENUES $$s hours Performance Management MAXIMIZE Alignment of cost structure to strategy What-if Planning? Source: ABC/M: An Executive Guide; Gary Cokins Copyright 2016 www.garycokins.com Analytics-Based Performance Management LLC CAM-I ABC Cross - Expanded
  103. 103. 103 AGENDA 1) Compelling Needs for Enterprise Performance Management (EPM) 2) Overview of EPM 3) The Rise of Business Intelligence (BI) and Analytics 4) Strategy Formulation and Strategy Management 5) Fact-based Managerial Accounting (with ABC/M) 6) Customer Profitability and Value Management 7) The Shift in ROI’s Source from Tangible to Intangible Assets 8) Accelerating the Rate of Adoption for Implementing EPM Summary, Discussion, Questions and Answers Copyright 2016 www.garycokins.com Analytics-Based Performance Management LLC
  104. 104. 104 Organization Resources (capacity) Strategy, Mission How Does It All Fit Together? ERP, etc. Customer Satisfaction Scorecards, Dashboards CRM ROI $ Shareholders Supplier Inputs Copyright 2016 www.garycokins.com Analytics-Based Performance Management LLC
  105. 105. 105 Organization Resources (capacity) Strategy, Mission In Summary … first, we energize with good managerial accounting. ERP, etc. Customer Satisfaction Scorecards, Dashboards CRM ROI $ Shareholders Supplier Inputs Managerial Accounting; Analytics Copyright 2016 www.garycokins.com Analytics-Based Performance Management LLC
  106. 106. 106 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, Dashboards Targeting needs Shareholder Wealth Creation is not a goal. It is a result! Shareholders Copyright 2016 www.garycokins.com Analytics-Based Performance Management LLC
  107. 107. 107 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, Dashboards Targeting Shareholder Wealth Creation is not a goal. It is a result! leakage (waste) wasted resources needs Less productivity reduces Shareholder Wealth Copyright 2016 www.garycokins.com Analytics-Based Performance Management LLC
  108. 108. 108 Historical, Descriptive (trends, insights, inferences) Time = 0 (now) Predictive (uncertainty, risk mgmt.) Past (reactive) Future (proactive) Two BA Views: Hindsight and Foresight What happened? Where? And why is this happening? What will happen next? What is the best that can happen? Copyright 2016 www.garycokins.com Analytics-Based Performance Management LLC
  109. 109. 109 Power of Information $ROI Raw Data Standard Reports Ad hoc Reports & OLAP Descriptive Modeling (with analytics) Predictive Modeling Data Information Knowledge Decisions Prescriptive Analytics / Optimization The Intelligence Hierarchy Insights Copyright 2016 www.garycokins.com Analytics-Based Performance Management LLC
  110. 110. 110 AGENDA 1) Compelling Needs for Enterprise Performance Management (EPM) 2) Overview of EPM 3) The Rise of Business Intelligence (BI) and Analytics 4) Strategy Formulation and Strategy Management 5) Fact-based Managerial Accounting (with ABC/M) 6) Customer Profitability and Value Management 7) The Shift in ROI’s Source from Tangible to Intangible Assets 8) Accelerating the Rate of Adoption for Implementing EPM Summary, Discussion, Questions and Answers Copyright 2016 www.garycokins.com Analytics-Based Performance Management LLC
  111. 111. 111 Why has the adoption rate for analytics-based EPM’s methodologies been so slow? The Buy-in to Performance Management Copyright 2016 www.garycokins.com Analytics-Based Performance Management LLC
  112. 112. 112 IT and Users have common goals IT Users • Make better decisions • Optimize performance / manage risk • Achieve strategic objectives But IT systems evolve organically and erratically. (The user has an itch, and IT scratches it.) Copyright 2016 www.garycokins.com Analytics-Based Performance Management LLC
  113. 113. 113 Remove the wall between IT and Users IT (a set of technologies) (gatekeepers of data) Business (analytical sandbox) (a set of capabilities) - Daily operations - Keep the lights on - Batch processing - Data storage - Data structures - Data governance - Discovery - Investigation - Analysis Copyright 2016 www.garycokins.com Analytics-Based Performance Management LLC
  114. 114. 114 IT’s view of Business Business’ view of IT - competitor - solve but don’t operate - IT resource intensive - risky; low concern for governance and control - a mystery of what they do - obstructionists - controlling - uncooperative - bureaucrats - less skilled than us - just a service center BA provides IT the opportunity to drive value, but IT will need to be more tolerant and flexible. Remove the wall between IT and Users Copyright 2016 www.garycokins.com Analytics-Based Performance Management LLC
  115. 115. 115 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 2016 www.garycokins.com Analytics-Based Performance Management LLC
  116. 116. 116 To create change, you need to create the need for change! How? Change only occurs and continues only when: (D x V x F) > R the product of 3 factors is greater than R esistance to change Dissatisfaction with how things are Vision of what “better” would look like First practical steps Overcoming Resistance to Change Copyright 2016 www.garycokins.com Analytics-Based Performance Management LLC
  117. 117. 117 The Complete Vision of Performance Management Make the RPM of the EPM and BA gears spin … … better, faster, cheaper … safer and smarter Copyright 2016 www.garycokins.com Analytics-Based Performance Management LLC
  118. 118. 118 Action steps  Get educated. Get buy-in.  Rapid prototyping. Start small; think big.  Improve incentives. (Motivational theory) Getting Started Actions and Resources Copyright 2016 www.garycokins.com Analytics-Based Performance Management LLC Resources: http://www.epmchannel.com/2013/04/09/exceptional-epm-cpm-systems-are-an-exception/ http://www.blog.corpeum.com/strategyexperts/gary-cockins/gary-cokins-strategy-essential A suggestion: Have your management team read either or both of these educational pieces. Then schedule a meeting for discussion. Have each manager answer, “What did I learn? What issues and concerns do I have about EPM?” This will stimulate needed conversations.
  119. 119. 119 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
  120. 120. 120 Thank You Gary Cokins, CPIM Analytics-Based Performance Management LLC Cary, North Carolina USA www.garycokins.com 919 720 2718 gcokins@garycokins.com Copyright 2016 www.garycokins.com Analytics-Based Performance Management LLC

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