BPM, EPM - IBANK

Chapter 5Chapter 5

Business Performance Management Business Performance Management

Learning ObjectivesLearning Objectives

Understand the all-encompassing nature of Understand the all-encompassing nature of business performance management (BPM)business performance management (BPM)

Understand the closed-loop processes Understand the closed-loop processes linking strategy to executionlinking strategy to execution

Describe some of the best practices in Describe some of the best practices in planning and management reportingplanning and management reporting

Describe the difference between Describe the difference between performance management and performance management and measurementmeasurement

Learning ObjectivesLearning Objectives Understand the role of methodologies in BPMUnderstand the role of methodologies in BPM Describe the basic elements of the balanced Describe the basic elements of the balanced

scorecard and Six Sigma methodologiesscorecard and Six Sigma methodologies Describe the differences between scorecards and Describe the differences between scorecards and

dashboardsdashboards Understand some of the basics of dashboard Understand some of the basics of dashboard

designdesign Understand the potential uses of business activity Understand the potential uses of business activity

monitoring (BAM)monitoring (BAM)

Business Performance Business Performance Management (BPM) OverviewManagement (BPM) Overview

BPM Defined BPM Defined Business performance managementBusiness performance management (BPM)(BPM)

A real-time system that alert managers to A real-time system that alert managers to potential opportunities, , impending problems potential opportunities, , impending problems and threats, and then empowers them to react and threats, and then empowers them to react through models and collaboration through models and collaboration


BPM and BI Compared BPM and BI Compared BPM is an outgrowth of BI and incorporates BPM is an outgrowth of BI and incorporates

many of its technologies, applications, and many of its technologies, applications, and techniques techniques

BPM is an enterprisewide strategy that seeks BPM is an enterprisewide strategy that seeks to prevent organizations from optimizing local to prevent organizations from optimizing local business at the expense of overall corporate business at the expense of overall corporate performance performance

BPM is part of the daily work of managers BPM is part of the daily work of managers


Summary of BPM processes Summary of BPM processes BPM encompasses a closed-loop set of BPM encompasses a closed-loop set of

processes that link strategy to execution in processes that link strategy to execution in order to optimize business performance, order to optimize business performance, which is achieved by:which is achieved by:• Setting goals and objectives Setting goals and objectives • Establishing initiatives and plans to achieve those Establishing initiatives and plans to achieve those

goals goals • Monitoring actual performance against the goals Monitoring actual performance against the goals

and objectives and objectives • Taking corrective action Taking corrective action

Strategize: Strategize: Where Do We Want to Go?Where Do We Want to Go?

Strategic planning Strategic planning Tasks common to the strategic planning Tasks common to the strategic planning

process:process:1.1. Conduct a current situation analysisConduct a current situation analysis2.2. Determine the planning horizonDetermine the planning horizon3.3. Conduct an environment scanConduct an environment scan4.4. Identify critical success factorsIdentify critical success factors5.5. Complete a gap analysisComplete a gap analysis6.6. Create a strategic visionCreate a strategic vision7.7. Develop a business strategyDevelop a business strategy8.8. Identify strategic objectives and goalsIdentify strategic objectives and goals


Strategic planningStrategic planning Critical success factors (CSF) Critical success factors (CSF)

Key factors that delineate the things that an Key factors that delineate the things that an organization must excel at to be successful in organization must excel at to be successful in its market spaceits market space

Strategic visionStrategic vision

A picture or mental image of what the A picture or mental image of what the organization should look like in the futureorganization should look like in the future


Strategic planningStrategic planning Strategic objectiveStrategic objective

A broad statement or general course of action A broad statement or general course of action prescribing targeted directions for an prescribing targeted directions for an organization organization

Strategic goalStrategic goal

A quantified objective with a designated time A quantified objective with a designated time period period


The strategy gap The strategy gap Four sources for the gap between strategy Four sources for the gap between strategy

and execution:and execution:1.1. Vision Vision

2.2. PeoplePeople

3.3. ManagementManagement

4.4. Resources Resources

Plan: Plan: How Do We Get There?How Do We Get There?

Operational planningOperational planning Operational plan Operational plan

Plan that translates an organization’s strategic Plan that translates an organization’s strategic objectives and goals into a set of well-defined objectives and goals into a set of well-defined tactics and initiatives, resources tactics and initiatives, resources requirements, and expected results requirements, and expected results


Operational planningOperational planning Tactic-centricTactic-centric plan—tactics are established to plan—tactics are established to

meet the objectives and targets established in meet the objectives and targets established in the strategic plan (used by best practices the strategic plan (used by best practices organizationsorganizations

Budget-centricBudget-centric plan—a financial plan or plan—a financial plan or budget is established that sums to the budget is established that sums to the targeted financial values targeted financial values


Financial planning and budgeting Financial planning and budgeting An organization’s strategic objectives and key An organization’s strategic objectives and key

metrics should serve as top-down drivers for metrics should serve as top-down drivers for the allocation of an organization’s tangible the allocation of an organization’s tangible and intangible assets and intangible assets

Resource allocations should be carefully Resource allocations should be carefully aligned with the organization’s strategic aligned with the organization’s strategic objectives and tactics in order to achieve objectives and tactics in order to achieve strategic success strategic success

Monitor: Monitor: How Are We Doing?How Are We Doing?

A comprehensive framework for A comprehensive framework for monitoring performance should address monitoring performance should address two key issues: two key issues: What to monitor What to monitor How to monitor How to monitor


Pitfalls of variance analysis Pitfalls of variance analysis The vast majority of the exception analysis The vast majority of the exception analysis

focuses on negative variances when focuses on negative variances when functional groups or departments fail to meet functional groups or departments fail to meet their targetstheir targets

Rarely are positive variances reviewed for Rarely are positive variances reviewed for potential opportunities, and rarely does the potential opportunities, and rarely does the analysis focus on assumptions underlying the analysis focus on assumptions underlying the variance patterns variance patterns

Act and Adjust: Act and Adjust: What Do We Need to Do Differently?What Do We Need to Do Differently? Hackett Group’s benchmarking process Hackett Group’s benchmarking process

divides planning and management divides planning and management reporting into four sub-processes:reporting into four sub-processes:

1.1. Strategic planningStrategic planning

2.2. Operational and financial planningOperational and financial planning

3.3. ReportingReporting

4.4. ForecastingForecasting

Act and Adjust: Act and Adjust: What Do We Need to Do Differently?What Do We Need to Do Differently?

Each sub-process is evaluated in terms of Each sub-process is evaluated in terms of five dimensions of efficiency and five dimensions of efficiency and effectiveness:effectiveness:1.1. Strategic alignmentStrategic alignment

2.2. Partnering Partnering

3.3. ProcessProcess

4.4. TechnologyTechnology

5.5. People and organizations People and organizations

Act and Adjust: Act and Adjust: What Do We Need to Do Differently?What Do We Need to Do Differently? The Hackett Group’s benchmarking results The Hackett Group’s benchmarking results

indicate that world class companies:indicate that world class companies: Are significantly more efficient than their peers Are significantly more efficient than their peers

at managing costs at managing costs Focus on operational excellence and experience Focus on operational excellence and experience

significantly reduced rates of voluntary significantly reduced rates of voluntary employee turnover employee turnover

Have hybrid sourcing strategies that combine Have hybrid sourcing strategies that combine shared services and outsourcing shared services and outsourcing

Act and Adjust: Act and Adjust: What Do We Need to Do Differently?What Do We Need to Do Differently? The Hackett Group’s benchmarking results The Hackett Group’s benchmarking results

indicate that world class companies:indicate that world class companies: Provide management with the tools and training Provide management with the tools and training

to leverage corporate information and to guide to leverage corporate information and to guide strategic planning, budgeting, and forecasting strategic planning, budgeting, and forecasting

Closely align strategic and tactical plans, Closely align strategic and tactical plans, enabling functional areas to contribute more enabling functional areas to contribute more effectively to overall business goals effectively to overall business goals

Act and Adjust: Act and Adjust: What Do We Need to Do Differently?What Do We Need to Do Differently? Paucity of analysis Paucity of analysis

The overall impact of the planning and The overall impact of the planning and reporting practices of the average company is reporting practices of the average company is that management has little time to review that management has little time to review results from a strategic perspective, decide results from a strategic perspective, decide what should be done differently, and act on what should be done differently, and act on the revised plans the revised plans

Performance MeasurementPerformance Measurement

Performance measurement systemPerformance measurement system

A system that assists managers in A system that assists managers in tracking the implementations of business tracking the implementations of business strategy by comparing actual results strategy by comparing actual results against strategic goals and objectives against strategic goals and objectives

Drawbacks of solely using Drawbacks of solely using Financial DataFinancial Data

Financial measures are usually reported by Financial measures are usually reported by organizational structures and not by the organizational structures and not by the processes that produced them processes that produced them

Financial measures are lagging indicators, Financial measures are lagging indicators, telling us what happened, not why it happened telling us what happened, not why it happened or what is likely to happen in the futureor what is likely to happen in the future

Financial measures are often the product of Financial measures are often the product of allocations that are not related to the underlying allocations that are not related to the underlying processes that generated themprocesses that generated them

Financial measures are focused on the short Financial measures are focused on the short term and provide little information about the term and provide little information about the longer term longer term

Effective Performance Effective Performance MeasurementMeasurement

Basic ingredients includeBasic ingredients include:: Measures should focus on key CSF’sMeasures should focus on key CSF’s Measures should be a mix of past, present, and Measures should be a mix of past, present, and

futurefuture Measures should balance the needs of all Measures should balance the needs of all

stakeholders (shareholders, employees, partners, stakeholders (shareholders, employees, partners, suppliers, etc).suppliers, etc).

Measures should start at the top and flow down.Measures should start at the top and flow down. Targets must be based on facts and reality; Targets must be based on facts and reality;

arbitrary measures do not work in the long run.arbitrary measures do not work in the long run.

BPM MethodologiesBPM Methodologies An effective performance measurement An effective performance measurement

system should help:system should help: Align top-level strategic objectives and bottom-Align top-level strategic objectives and bottom-

level initiatives (goal congruence) level initiatives (goal congruence) Identify opportunities and problems in a timely Identify opportunities and problems in a timely

fashionfashion Determine priorities and allocate resources Determine priorities and allocate resources

based on those priorities.based on those priorities. Be flexible to adjust measurements as the Be flexible to adjust measurements as the

underlying processes and strategies changeunderlying processes and strategies change

BPM MethodologiesBPM Methodologies An effective performance measurement An effective performance measurement

system should:system should: Delineate responsibilities, understand actual Delineate responsibilities, understand actual

performance relative to responsibilities, and performance relative to responsibilities, and reward and recognize accomplishments.reward and recognize accomplishments.

Identify opportunities to take action to improve Identify opportunities to take action to improve processes and procedures based on data.processes and procedures based on data.

Plan and forecast in a reliable and timely fashion Plan and forecast in a reliable and timely fashion

BPM MethodologiesBPM Methodologies Balanced scorecard (BSC)Balanced scorecard (BSC)

A performance measurement and A performance measurement and management methodology that helps translate management methodology that helps translate an organization’s financial, customer, internal an organization’s financial, customer, internal process, and learning and growth objectives process, and learning and growth objectives and targets into a set of actionable initiatives and targets into a set of actionable initiatives

BPM MethodologiesBPM Methodologies The meaning of The meaning of balancebalance

BSC is designed to overcome the limitations of BSC is designed to overcome the limitations of systems that are financially focused systems that are financially focused

Nonfinancial objectives fall into one of three Nonfinancial objectives fall into one of three perspectives: perspectives: 1.1. CustomerCustomer

2.2. Internal business process Internal business process

3.3. Learning and growthLearning and growth

BPM MethodologiesBPM Methodologies

BPM MethodologiesBPM Methodologies In BSC, the term In BSC, the term balancebalance arises because the arises because the

combined set of measures are supposed to combined set of measures are supposed to encompass indicators that are: encompass indicators that are:

• Financial and nonfinancialFinancial and nonfinancial• Leading and laggingLeading and lagging• Internal and externalInternal and external• Quantitative and qualitativeQuantitative and qualitative• Short term and long termShort term and long term

BPM MethodologiesBPM Methodologies Aligning strategies and actions Aligning strategies and actions

• BSC enables an organization to align its actions with BSC enables an organization to align its actions with its overall strategies through a series of interrelated its overall strategies through a series of interrelated steps:steps:1.1. Identify strategic objectives for each of the perspectivesIdentify strategic objectives for each of the perspectives

2.2. Associate measures with each of the strategic objectives; a Associate measures with each of the strategic objectives; a mix of quantitative and qualitative should be used.mix of quantitative and qualitative should be used.

3.3. Assign targets to the measures.Assign targets to the measures.

4.4. List strategic initiatives to accomplish each of the objectives List strategic initiatives to accomplish each of the objectives (i.e., responsibilities).(i.e., responsibilities).

5.5. Link the various strategic objectives through a cause-and-Link the various strategic objectives through a cause-and-effect diagram called a effect diagram called a strategy mapstrategy map

BPM MethodologiesBPM Methodologies Strategy mapStrategy map

A visual display that delineates the A visual display that delineates the relationships among the key organizational relationships among the key organizational objectives for all four BSC perspectives objectives for all four BSC perspectives

BPM MethodologiesBPM Methodologies

BPM MethodologiesBPM Methodologies BSC certification BSC certification

• BSC Collaborative offers software vendors the BSC Collaborative offers software vendors the opportunity to have their applications certified opportunity to have their applications certified against a well-defined set of criteria against a well-defined set of criteria

• The application must offer an end user the ability to The application must offer an end user the ability to view:view:1.1. Strategic objectives from the four perspectivesStrategic objectives from the four perspectives

2.2. The measures, targets, and initiatives associated with each The measures, targets, and initiatives associated with each objectiveobjective

3.3. The cause-and-effect relationships among the objectives The cause-and-effect relationships among the objectives

BPM MethodologiesBPM Methodologies Six SigmaSix Sigma

A performance management methodology A performance management methodology aimed at reducing the number of defects in aimed at reducing the number of defects in a business process to as close to zero a business process to as close to zero defects per million opportunities (DPMO) as defects per million opportunities (DPMO) as possible possible

BPM MethodologiesBPM Methodologies Six Sigma Six Sigma

The DMAIC performance modelThe DMAIC performance model

A closed-loop business improvement model A closed-loop business improvement model that encompasses the steps of defining, that encompasses the steps of defining, measuring, analyzing, improving, and measuring, analyzing, improving, and controlling a process controlling a process

BPM MethodologiesBPM Methodologies Six Sigma Six Sigma

Limitations of Six Sigma Limitations of Six Sigma • The lack of integration among the various Six Sigma The lack of integration among the various Six Sigma

projects across the enterpriseprojects across the enterprise• The failure to institute the roles required to support The failure to institute the roles required to support

the methodology the methodology

BPM Architecture and ApplicationsBPM Architecture and Applications

BPM Architecture and ApplicationsBPM Architecture and Applications BPM architecture BPM architecture

System architectureSystem architecture

TheThe logical and physical design of a system logical and physical design of a system A BPM system needs three components in A BPM system needs three components in

order to contribute to the successful order to contribute to the successful implementation of strategy: implementation of strategy: 1.1. Database tier Database tier

2.2. Application tier Application tier

3.3. Client or user interface Client or user interface

BPM Architecture and ApplicationsBPM Architecture and Applications BPM architecture BPM architecture

Database tier designs include:Database tier designs include:• Transactional data storesTransactional data stores• Application data martsApplication data marts • Centralized data warehouseCentralized data warehouse

BPM Architecture and ApplicationsBPM Architecture and Applications BPM architectureBPM architecture

BPM applications: BPM applications: 1.1. Budgeting, planning, and forecasting Budgeting, planning, and forecasting

2.2. Profitability modeling and optimization Profitability modeling and optimization

3.3. Scorecard applications Scorecard applications

4.4. Financial consolidation Financial consolidation

5.5. Statutory and financial reporting Statutory and financial reporting

BPM Architecture and ApplicationsBPM Architecture and Applications BPM architectureBPM architecture

BPM user interface BPM user interface • The user interface is the bridge between the BPM The user interface is the bridge between the BPM

applications and the end user applications and the end user • The Web browser is currently the primary tool for The Web browser is currently the primary tool for

accessing information in a BPM system accessing information in a BPM system • Spreadsheets are a popular alternative when a rich Spreadsheets are a popular alternative when a rich

user interface is needed to support the analytical user interface is needed to support the analytical and computation needs of the user and computation needs of the user

• BPM interfaces should provide is guidance to the BPM interfaces should provide is guidance to the end user end user

BPM Architecture and ApplicationsBPM Architecture and Applications

Performance DashboardsPerformance Dashboards

Dashboards and scorecards both provide Dashboards and scorecards both provide visual displays of important information visual displays of important information that is consolidated and arranged on a that is consolidated and arranged on a single screen so that information can be single screen so that information can be digested at a single glance and easily digested at a single glance and easily explored explored


Dashboards versus scorecards Dashboards versus scorecards Performance dashboardsPerformance dashboards

Visual display used to monitor operational Visual display used to monitor operational performance performance

Performance scorecardsPerformance scorecards

Visual display used to chart progress against Visual display used to chart progress against strategic and tactical goals and targets strategic and tactical goals and targets


Dashboards versus scorecards Dashboards versus scorecards Performance dashboard is a multilayered Performance dashboard is a multilayered

application built on a business intelligence application built on a business intelligence and data integration infrastructure that and data integration infrastructure that enables organizations to measure, monitor, enables organizations to measure, monitor, and manage business performance more and manage business performance more effectivelyeffectively (Eckerson) (Eckerson)


Dashboards versus scorecards Dashboards versus scorecards Three types of performance dashboards:Three types of performance dashboards:

1.1. Operational dashboards Operational dashboards

2.2. Tactical dashboards Tactical dashboards

3.3. Strategic dashboards Strategic dashboards


Dashboard design Dashboard design ““The fundamental challenge of dashboard The fundamental challenge of dashboard

design is to display all the required design is to display all the required information on a single screen, clearly and information on a single screen, clearly and without distraction, in a manner that can be without distraction, in a manner that can be assimilated quickly" (Few, 2005)assimilated quickly" (Few, 2005)


What to look for in a dashboard What to look for in a dashboard • Use of visual components (e.g., charts, Use of visual components (e.g., charts,

performance bars, sparklines, gauges, meters, performance bars, sparklines, gauges, meters, stoplights) to highlight, at a glance, the data and stoplights) to highlight, at a glance, the data and exceptions that require action.exceptions that require action.

• Transparent to the user, meaning that they require Transparent to the user, meaning that they require minimal training and are extremely easy to use minimal training and are extremely easy to use

• Combine data from a variety of systems into a Combine data from a variety of systems into a single, summarized, unified view of the businesssingle, summarized, unified view of the business


What to look for in a dashboard What to look for in a dashboard • Enable drill-down or drill-through to underlying data Enable drill-down or drill-through to underlying data

sources or reports sources or reports • Present a dynamic, real-world view with timely Present a dynamic, real-world view with timely

data refreshes, enabling the end user to stay up-data refreshes, enabling the end user to stay up-to-date with any recent changes in the business.to-date with any recent changes in the business.

• Require little, if any, customized coding to Require little, if any, customized coding to implement, deploy, and maintain implement, deploy, and maintain

Business Activity Monitoring (BAM)Business Activity Monitoring (BAM)

Business activity monitoring (BAM)Business activity monitoring (BAM)

A real-time system that alert managers to A real-time system that alert managers to potential opportunities, impending potential opportunities, impending problems, and threats, and then problems, and threats, and then empowers them to react through models empowers them to react through models and collaboration and collaboration


BAM depends on a wide range of BAM depends on a wide range of technologies working in concert including:technologies working in concert including: ETL technologyETL technology Process modelingProcess modeling technologytechnology Rules enginesRules engines Messaging serversMessaging servers E-mail in-boxes, portals, dashboards, E-mail in-boxes, portals, dashboards, andand

Web servicesWeb services


Benefits of BAM Benefits of BAM Real-time data access in a usable formatReal-time data access in a usable format Access to tools to collaborate and model the Access to tools to collaborate and model the

problem, leading to a quick solution problem, leading to a quick solution


BAM Issues BAM Issues Executives fail to consider the readiness of Executives fail to consider the readiness of

technology or of the business processes they technology or of the business processes they want to monitor want to monitor

Change management issues are paramount Change management issues are paramount Effective BAM requires working closely with the Effective BAM requires working closely with the

business units to identify the key indicators business units to identify the key indicators (CSF) and analytical techniques that provide (CSF) and analytical techniques that provide reliable early warnings of impending issues reliable early warnings of impending issues

Executives must let the responsible managers Executives must let the responsible managers on the frontlines deal with their problems and on the frontlines deal with their problems and issues in a timely manner before reacting issues in a timely manner before reacting

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