Unit II: Business Reporting and
Business Performance Management
What is Business Report; Components of Business Reporting Systems; Data
Visualization, Performance Dashboards;
Performance Measurement; Balanced
Scorecard and Six Sigma.
Business Reporting Definitions and Concepts
• Decision makers are in need of information to make accurate and timely decisions. Therefore information is essential and often provided in the form of written report (digital or paper).
• A report is any communication artifact prepared with the specific intention to convey information in a presentable form to whoever needs it, whenever and wherever they need it.
• It is usually a document that contains information, driven from data and knowledge, organized in narrative, graphic and/or tabular form.
• Report can be periodically made or as per requirment basis.
• Reports can fulfill many different functions like:
– To ensure that all departments are functioning properly – To provide information
– To provide results of an analysis – To persuade others to act
– To create an organizational memory (as part of KMS)
• For lengthy reports, executive summary is provided for those who do not have time to go through it all.
• A business report is a written document that contains information regarding business matters.
• Business reporting (enterprise reporting) is an essential part of the larger drive toward improved managerial decision making an organizational knowledge management.
• Due to rapid expansion of information technology coupled with the need for improved competitiveness in businesses, there has been an increase in the use of computing power to produce unified reports that joins different views of the enterprise in one place.
• Key to successful report are clarity, brevity, completeness and correctness.
• In terms of content and format, there are only three categories of business report: formal, informal and short.
• The nature of report also changes significantly based on whom the report is created.
– Internal reports (dedicated to inform stakeholders and decision makers in an organization).
– External reports (between business and government. Eg. Tax reports.)
• According to Hill (2013), there is a wide variety of business reports, the ones that are often used for managerial purposes can be grouped into three major categories
– Metric Management Reports: in many org. business performance is measured by outcome oriented metrics. Service level Agreements (SLAs) for external groups and Key Performance Indicators (KPIs) for internal management. Both may be used to improve performance and other strategies like Six Sigma, TQM etc.
– Dashboard Type Reports: a popular idea in business reporting in recent years has been to present a range of different performance indicators on one page, like dashboard of a car. A set of predefined reports with static elements and fixed structure is provided in a report, but also allow for customization of dashboard widgets. Colour coded schemes are also used to draw conclusions.
– Balanced Scorecard type Reports: this method of reporting is developed by Kaplan and Norton that attempts to present an integrated view of success in an organization. In addition to financial performance, BSC also contains reports which include customer, business process, learning and growth perspectives.
Components of Business Reporting Systems
• Although each business reporting system has unique characteristics, there seems to be a generic pattern common across organizations.
• On one end-user and on the other end of the continuum- data.
• Based on needs and requirements of the business user, data is captured, stored, consolidated and converted to desired reports based on predefined rules.
• reporting requirements and information delivery should be properly aligned.
• Following are the most common components of business reporting system.
– OLTP (Online Transaction Process)- e.g. ERP systems, POS, web servers, RFID readers, card readers.
– Data Supply: a system that takes recorded events/transactions and delivers them reliably to the reporting system.
– ETL (Extract, Transform and Load)
– Data Storage: often employs OLAP functions.
– Business Logic: the explicit steps for how the recorded transactions/ events are to be converted into metrics, scorecards and dashboards.
– Publications
– Quality Assurance
Data and Information Visualization
• Data (information) visualization has been defined as
“the use of visual representations to explore, make sense of, and communicate data”.
• Closely related to the field of information graphics, information visualization, and statistical graphics.
• Includes both charts and graphs as well as other type of visual elements used to create scorecard and dashboards.
• Most development in this field is done in last 30 years.
• Earliest use of graphical representation can date back
to 1812 when Charles Joseph Minard graphically
portrayed the losses suffered by Napolean army in the
Russian Campaign.
Source: en.wikipedia.org
• Companies and individuals are, seemingly all of a sudden, interested in data; that interest has in turn sparked a need for visual tools that help them understand it.
• The internet has also served as a fantastic distribution channel for visualizations; a diverse community of designers; programmers, cartographers has assembled to disseminate all sorts of ideas and tools for working with data in both visual and non-visual form.
• Google maps has also democratized both the interface conventions and the technology for displaying interactive geography online, to the extent that people know what to do when presented a map online.
• Future of data/information visualization is very hard to predict. We already have 3 dimensional visualization, more immersive experience with multi dimensional data in virtual reality environment, holographic visualization of information.
Types of Charts and Graphs
• Line chart
• Bar Chart
• Pie Chart
Scatter plot
Bubble chart
Histogram
Gantt Chart
Pert Chart Bullet
Heat Map Highlight table
Geographic map Tree Map
Visual Analytics
• Visual analytics is a recently coined term that is often used to mean nothing more than information visualization.
• It is the combination of visualization and predictive analytics.
• While Information visualization aims at “what happened”
and “what is happening” and is closely associated to Business Intelligence.
• Visual analytics is aimed at “why it is happening”, “what is more likely to happen” and is more associated to Business Analytics.
• Due to increasing demand of visual analytics coupled with fast growing data volumes, there is an exponential movement toward investing in highly efficient visualization systems. SAS Institute is leading the waves.
Performance Dashboards
• It is common component of most, if not all, performance management systems, BPM software suits, and BI platforms.
• Dashboard provide visual displays of important information that is consolidated and arranged on a single screen so that information can be digested at a single glance, easily drilled and further explored.
• An example of such dashboard is in the next slide
Source: dundas.com
Dashboard Design
• Dashboards are not a new concept, roots can be traced to EIS of the 1980s. Today Dashboards are ubiquitous.
• Few years back (2006) it was estimated that 40% of the largest 2,000 companies in the world used this technology. The number must have gone up.
• In fact now it would be unusual to see any BI system that does not employ Performance Dashboards.
• You can visit dashboardspy.com/about. This website
contains descriptions and screenshots of thousands of
BI dashboards, scorecards, and BI interfaces used by
businesses of all sizes.
• The most distinctive feature of a dashboard is its three layers of information:
– Monitoring: Graphical, abstracted data to monitor key performance measures.
– Analysis: Summarized dimensional data to analyze root cause of problems.
– Management: Detailed operational data that identify what actions to be taken in order to resolve a problem.
• Because of these 3 layers, dashboards pack a lot of information in a single screen.
• The fundamental challenge of dashboard is to display all the required information in a single screen, clearly without distraction, in a manner that can be assimilated quickly.
Contd..
• Some of the common comparison made in BI systems include comparison against past values, forecasted values, targeted values, benchmark or average values, and the values of other measures like revenue vs cost.
• It is always better to point out whether a measure is good or bad and whether it is trending as expected.
• Colour coded schematics can also be used to indicate
the direction of the values. Also it is helpful in
understanding of the decision makers and they can
take decisions by not investigating further, but by
looking at the dashboard.
What to look for in a Dashboard
• A well designed dashboard and other information visualizations possesses the following characteristics (Novell, 2009):
– They should use visual components like charts, performance bars, gauges, meters etc. to highlight at a glance, the data and expectations that require action.
– They should require minimal training and are extremely easy to use and interpret.
– They should combine data from a variety of system in a single, summarized and unified view of business.
– They should enable drill down to underlying data sources or reports, providing more detail about underlying comparative and evaluative context.
– They should present a dynamic, real world view with timely data refreshes, enabling the end user to stay up to date with any recent changes in the business.
– They should require little, if any, customized coding to implement, deploy and maintain.
Best practices in Dashboard Design
• Sometimes overlooked, but data is the most important aspect of a dashboard.
• Data should be reliable, timely and missing values should not be there otherwise a dashboard may have professional design with graphs, charts etc. but it will not be of any help or rather it can mislead the user.
Some best practices include:
1. Benchmark key Performance Indicators with Industry Standards.
– Doing a gap assessment with industry benchmarks aligns you with industry best practices.
2. Wrap the Dashboard Metrics with Contextual Metadata – Where did you source the data from?
– What %age of data got rejected/encountered data quality problems?
– Information presented is “fresh” or “stale”?
– When data warehouse last refreshed or going to be refreshed next?
– Were there any outliers which may effect the whole data?
3. Validate the Dashboard design with Usability Specialist.
– In many dashboard environments, tools specialist focus is only on design without considering usability principles.
– Data should be well engineered but also it should be user friendly, and easy to interpret.
4. Prioritize and Rank Alerts/Exceptions Streamed to the Dashboard.
– Since there are tons of raw data, it is important to have a mechanism by which important exceptions are proactively pushed.
– A Business rule can be codified, which detects the alert pattern of interest.
5. Enrich Dashboard with Business-User Comments
– When multiple business users are presented with dashboards, a small text box can be provided in order to capture comments.
6. Present Information in Three Different Levels – Visual Dashboard level
– Static Report level – Self service cube level
7. Pick the Right Visual Construct Using Dashboard Design Principle.
– Sometime simple bar charts and tables are more effective.
8. Provide for Guided Analytics
– Sometimes the Dashboard user can be analytically immature.
Business Performance Management
• Business Performance Management (BPM) has a no of names like Corporate Performance Management (CPM) –coined by market analyst firm Gartner (gartner.com); Enterprise Performance Management (EPM)-associated with Oracle (oracle.com); and Strategic Enterprise Management (SEM)- term that SAP (sap.com) uses.
• BPM refers to the business processes, methodologies, metrics, and technologies used by enterprises to measure, monitor, and manage business performance.
• Three key components:
– A set of integrated, closed-loop management and analytic processes (tech supported) that address financial and operational activities.
– Tools for businesses to define strategic goals and then measure and manage performance against those goals.
– A core set of processes, including financial and operational planning, consolidation and reporting, modeling, analysis and monitoring key performance indicators, linked to organizational strategy.
Closed Loop BPM Cycle
• Focus on the strategy is the most significant differentiator of BPM from other BI tools and practices.
• BPM encompasses a closed-loop set of processes that link strategy to execution in order to optimize business performance.
• The loop implies that optimum performance is achieved by
– setting goals and objectives i.e. strategize,
– establishing initiatives and plans to achieve those goals i.e. plan, – monitoring actual performance against goals and objectives i.e.
monitor, and
– taking corrective action i.e. act and adjust
• The continuous repetitive nature of the cycle implies that the completion of an iteration leads to a new and improved one.
Strategize: Where do we want to go?
• Strategy is a high level plan of action, encompassing a long period of time to achieve a defined goal.
• Since numerous constraints like market conditions, resource availabilities and legal/political disruptions are present, therefore strategy is a necessity.
• It is the process of identifying and stating the organization’s mission, vision and objectives, developing plans.
• Business strategies are normally planned and created by the team of corporate executives, approved and authorized by the board of directors, senior executives and then implemented by the company’s management team under the supervision of senior executives.
• Business strategy provides an overall direction to the organization and it is the first and foremost process in the BPM methodology.
Plan: How do we get there?
• When managers know and understand the what (i.e.
organizations objectives and goals), they will be able to come up with the how (i.e. detailed operational and financial plans).
– What tactics and initiatives will be pursued to meet the performance targets established by strategic plan?
– What is the expected results?
• An operational plan translates an organization’s strategic objectives and goals into a set of tactics and initiatives.
• The financial planning process has a logical structure that typically starts with those tactics that generate some revenue or income.
Monitor/Analyze: How are we doing?
• The performance of the organization should be continuously monitored.
• Two key issues must be kept in mind:
– What to monitor? And How to monitor?
• It is not practical and technically impossible to look at everything in an organization. Therefore organizations need to focus on monitoring specific issues.
• Once factors are identified, strategy should be
devised in order to monitor and focus on
identified factors only.
Act and Adjust: What do we need to do differently?
• Creating new products, entering new markets, acquiring new customers and businesses or streamlining some processes.
• It is never easy to act and adjust in the business environment for new products.
• Large projects fail at the rate of 70%, for new products the failure rate is 80%, for new pharmaceutical products the failure rate can be as high as 90%.
• Therefore doing something differently is also very
important for an organization to understand.
Performance Measurement
• Underlying BPM is a performance measurement system. Performance Management Systems assist managers in tracking the implementations of business strategy by comparing actual results against strategic goals and objectives.
• Periodic feedback report system.
• Raw numbers are rarely of value, all measurement is about comparisons.
• Operational metrics that are used to measure
performance are usually called Key Performance
Indicators (KPIs).
Key Performance Indicators (KPIs)
• It represents a strategic objective and measures performance against a goal.
• KPIs are multidimensional having a variety of distinguishing factors:
– Has strategic objective.
– Measure performance against specific targets.
– Targets have performance ranges.
– It has time frames in target assignments.
– Targets are measured against a baseline or benchmark.
Balanced Scorecards
• Probably the best known and most widely used performance measurement system is the balanced scorecard (BSC).
• Kaplan & Norton first articulated this methodology in their Harvard Business Review article “The Balanced Scorecard: Measures That Drive Performance” in 1992.
• Within few years, same authors produced a groundbreaking book – The Balanced Scorecard: Translating Strategy into Action- that documented how companies were using the BSC to not only supplement their financial and non-financial measures, but also to communicate and implement their strategies.
• Some notable writing include
– The strategy focused organization: How BSC companies thrive in the New Business Environment (2000).
– Strategy Maps: Converting Intangible Assets into Tangible outcomes (2004)
– The Execution Premium (2008).
The Four Perspectives of BSC
• The BSC suggests that we view the organization from four perspectives
– Customer – Financial
– Internal Business Process – Learning and Growth
• Goal is to develop objectives, measures,
targets and initiatives relative to each of these
perspectives.
Four perspectives in Balanced Scorecard Methodology
The Customer Perspective
• Recent management philosophies has shown increasing realization of the importance of customer focus and customer satisfaction in any business.
• These are leading indicators: if customers are not satisfied, they will eventually find other suppliers that will meet their needs.
• Poor performance from this perspective is thus a leading indicator of future decline, even though the current financial picture look good.
• Segmentation and targeting is the key to
understand customer perspective.
The Financial Perspective
• Timely and accurate financial data will always be the priority and managers should do whatever necessary to manage and provide it.
• Often there is more than enough handling and processing of financial data which leads to unbalanced situation with regard to other perspectives of the scorecard.
• With the implementation of corporate database,
it is hoped that more of the processing can be
centralized and automated.
The Learning & Growth Perspective
• This perspective aims to answer – to achieve our vision, how will we sustain our ability to change and improve?
• It includes employee training, Knowledge Management, and corporate culture characteristics related to both individual and corporate level improvement.
• In the current, rapid change in technological environment, it is becoming necessary for knowledge workers to continuously learn and adopt.
• Learning and growth constitutes the essential foundation for success in any organization.
• Ease of communication among workers and management will allow problem solving skills development.
• Kaplan & Norton emphasized more on “learning” than
“training”.
The Internal Business Perspective
• This perspective focuses on importance of Business process.
• Metrics developed on this perspective allows
managers to know how well their internal
business processes and functions are running,
and whether the outcomes of these processes
(i.e. products and services) meet and exceed
the customer expectations and requirements.
The Meaning of Balance in BSC
• BSC is both a performance measurement and a management methodology that helps translate an organizational financial, customer, internal process, and learning and growth objectives and targets into a set of actionable initiatives.
• BSC is designed to overcome the limitation of other designs which have a financial focus only.
• Non-financial objectives are customer, Internal business process and learning & growth perspectives of an organization.
• All these non-financial objectives form a causal chain with
‘learning and growth’ deriving ‘internal business process’
change, which produces ‘customer’ outcomes which are ultimately responsible for reaching company’s financial objectives.
Six Sigma
• Six Sigma is a set of techniques, and tools for process improvement. It was developed by Motorola in 1986.
• Sir Bill Smith, “the Father of six sigma” introduce this quality improvement Methodology to Motorola.
• Six Sigma is now an enormous 'brand' in the world of corporate development.
• Since the 1920's the word “sigma”(s) has been used by mathematicians and engineers as a symbol for a unit of Measurement in product quality variation.
• In the mid-1980's engineers in Motorola in the USA used “Six Sigma”(S) an informal name for an in-house initiative for reducing defects in production processes, because it represented a suitably high level of quality.
• In the late-1980's Motorola extended the Six Sigma methods to its critical business processes, and significantly Six Sigma became a formalized in-house 'branded' name for a performance improvement methodology, i.e, beyond purely 'defect reduction.‘
• In 1991 Motorola certified its first 'Black Belt' Six Sigma experts, which indicates the beginnings of the formalization of the accredited training of Six Sigma methods.
Definition
• Six Sigma seeks to improve the quality of process outputs by identifying and removing the causes of defects.
• Six Sigma approach is a collection of managerial and statistical concept and techniques that focuses on reducing variation in processes and preventing deficiencies in product.
• The concept of Variation states “No two items will be perfectly identical.”
• In a process that has achieved six sigma capability, the variation is small compared to the range of specification limit.
• A six sigma process is one in which 99.9999966% of the products manufactured are statistically expected to be free of defects (3.4 defects per million).
• Six Sigma is a very clever way of branding and packaging many aspects of Total Quality Management (TQM).
• Manufacturing methods of six sigma are used in Batch production, Job production & Mass production.
Objectives of Six Sigma
• Overall Business Improvement
• Remedy Defects/Variability
• Reduce Cost
• Improve Cycle Time
• Increase Customer Satisfaction
Methodologies
• Six Sigma projects follow two project methodologies
– DMAIC (Define, Measure, Analyze, Improve, Control)
• Used for projects aimed at improving an existing business process.
– DMADV (Define, Measure, Analyze, Design, Verify)
• Used for projects aimed at creating new product or process designs.
Software
• Arena
• ARIS Six Sigma
• Bonita Open Solution BPMN2 standard
• KPIs for statistic monitoring
• MATLAB or GNU Octave
• Microsoft Visio
• STATA
• STATISTICA
And Many more…..
BSC vs Six Sigma
BSC Six Sigma
Strategic Management System Performance Management System Relates to longer view of the business Provides snapshot of business
performance Designed to measure balanced set of
measures Designed to identify a set of measures
that impact profitability Emphasizes targets for each
measurement Emphasized aggressive rate of
improvement for each measurement, irrespective of target
Focuses on growth Focuses on maximizing profitability Heavy on strategic content Heavy on execution for profitability Management system consisting of
measures Measurement system based on process
management