Performance management

Recently, I learned that my local bank would no longer charge ATM fees for using its machines. While a dollar or two doesn’t translate to a lot for an individual, for the bank it adds up over time considering the volume of people using their ATMs. I’m sure their competitors are analyzing the financial impact of whether (or not) they should follow their lead. For some, that analysis will take minutes to perform. For others it will take days or even weeks to determine the impact of a similar strategy. Businesses, like individuals, make financial decisions like this each and every day. Making the right decision depends on access to the right information when you need it.

Someone once coined the maxim ‘information is power’, most likely in the context of battle strategy. Perhaps they never knew that thousands of years later it would someday be used to justify countless and sometimes questionable information technology projects. This quest for ‘information power’ led to a wave of ERP and data warehousing initiatives over the past decade, many of which fell short of their initial expectations. For my banks’ competitors, it is here that the search for answers in the ATM fee policy question would likely begin.

Finding a single needle in a field of haystacks

It’s been said that the amount of information in the world doubles every two years. When everyone has access to information, it ceases to have the same benefits. In fact, without a means of filter and interpretation, the sheer volume can easily become information overload. The popularity of search engines such as Google and Yahoo! show the underlying need to make sense of it all. A competitive advantage is no longer gained by simple access to information, but from the ability to make a timely decision and execute upon it. So perhaps there is a new maxim for the internet age – ‘effective decision-making is power’.

What do you do when raw information is not enough?

The problem that many decision-makers encounter is that once information has been captured and standardized, it has proved difficult to free again. The data warehouse had become a data prison, and keys were often held by a select group of trusted people. This led to the rise of the spreadsheet and business intelligence (BI) tools to unlock the wealth of information that the company had collected. These tools are more agile and easy to use, and soon an ‘information democracy’ took hold as stakeholders became more empowered. This brings us to where we are today – your business probably has thousands of spreadsheets floating around your networks. Ironically enough, many of them have become disparate silos containing the data and business process you were trying to centralize in your data warehouse in the first place.

Enter business performance management (BPM), also known as corporate performance management (CPM). Business performance management takes many forms, but it effectively combines your business practices and policies with the now unlocked information wealth about your operations. In essence, BPM replaces two-dimensional ‘what happened’ spreadsheets with multi-dimensional ‘what if’ modeling – often at the speed of thought. The power of BPM results from making informed decisions to help achieve your business goals.

The applications for BPM are endless

In a popular TV show called Numb3rs, detectives utilize tools and techniques such as data mining and predictive analytics to solve crimes. They do so by finding patterns and irregularities in seemingly endless amounts of data. BPM solutions can help your business solve its own mysteries as well as enforce the change in policies that result from their discovery.

When credit underwriting, two companies may appear to have a similar size and similar financials, but this alone may not tell the entire story of who is more creditworthy. BPM applications can combine historical data with predictive analytics and mix in external factors to present a clearer picture to base a correct decision upon.

For example, the price of oil at US$70 a barrel may support lending to oil exploration firms, but weaken the position of transportation companies. This gives you a better foundation for decision-making than any historical data may present. BPM goes further, and allows you to quickly answer questions such as what the exposure might be if oil retreats to US$50, or shoots to US$100. The environment we conduct business in is always changing, and business policies can adapt and change with them. You can build industry specific templates that enable your decision-makers, while still maintaining a framework of acceptable risk control for your company.

Effective decision-making is a constant process

With the price of oil affecting my heating bill and the cost to fill my gas tank, I needed to make adjustments to my own spending habits. Decisions need to be made to alter my budget to adapt to these changing conditions. The same is also true for the operations of a business – change happens. BPM applications can not only assist with budgeting and forecasting, but also help your company manage against the original and revised goals. Decisions have to be communicated, acted upon and monitored to track their success. Planning and forecasting BPM packages are designed to enable your company to do this quickly and effectively.

After some analysis, I decided to pay down some debt and switch my adjustable rate mortgage to a 30-year fixed for a slightly lower monthly payment than I have now. I got the news about the ATM fees while I was at that very bank, and was surprised to learn about the swift appreciation of my home’s value. With federal interest rates creeping up slowly, but a long-term rate that has barely moved, the housing sector continues to perform strongly. The real estate boom has created opportunities for many – but as with any upside, there are often unforeseen risks.

A bubble of trouble?

For instance, there has been a significant increase in mortgage fraud (and subsequently payment delinquencies) by some determined not to miss the boat with real estate. And it has not only been isolated geographically to where housing costs rapidly outpace income growth; some experts estimate that almost 17 percent of mortgage applications have misrepresentations, with some brokers often turning a blind eye to the discrepancies.

BPM solutions can be a great assistance in fraud detection for your organization. Oftentimes, a spreadsheet analysis is ineffective in seeing larger trends and anomalies because of its 65536 line item limit. If your company has more than 66000 of anything – products, customers, locations, etc. – you are forced to reduce your sample and query sizes and perhaps miss the big picture. BPM applications aren’t constrained by these limits, allowing you to marry your corporate data to external industry data and browse the collective results visually. When presented graphically, a store clerk who claims a six figure income will appear as a glaring irregularity, but in a huge spreadsheet the value in a single cell may go otherwise undetected. Recognizing pattern abnormality helps companies identify fraud quickly and efficiently. After helping to isolate the conditions and warning signs, BPM solutions can further help enforce the business policy to detect and prevent across your operations.

Like having a crystal ball

With the free exchange of information, we have entered a new age of accountability and transparency. Compliance requirements such as Sarbanes-Oxley and Basel II seek to make this obligatory conduct in the course of business. BPM enables your business to thrive with solutions such as compliance scorecarding and managing key performance indicators. Now, good business practices can be shared across the organization, but also enforced uniformly. Besides the competitive advantages this brings your organization, many companies report that their BPM initiatives generate positive ROI within the first year. That’s some good news you can take to the bank.