Analytics not only proves or disproves hypothesis, but its truth-seeking tests can also reveal cause and effect relationships. Understanding causality serves for making better decisions. Ambiguity and uncertainty? The greater they exist, then the more challenging the problem for an analyst and researcher to undertake. They can be an analyst’s best friend.
Read moreTried and Died? One and Done? Don’t let this be your EPM epitaph
One of the frustrations I experience is when managers or analysts share with me that their organizations tried to implement progressive management methods, and they either failed or abandoned them. A prominent example is an unsuccessful attempt to implement activity-based costing to measure and manage costs and profit levels of products, services, channels and customers. Other examples include risk management, customer analytics, enterprise resource planning (ERP) systems, and the balanced scorecard.
Read moreDo you Really Need to Embrace Analytics?
If you have not witnessed the deluge of big data and business analytics media coverage to date, then welcome back from the coma you were apparently in for the last couple of years. For the rest of you, perhaps you have the same nagging question that I have: Are big data and business analytics such a big deal that if our organization is late to the party in deploying them, we will never catch up to our competitors?
I go back and forth on wondering if applying analytics now is an urgent imperative for an organization to survive or if it is a “nice to have” relative to more critical “must have” capabilities that an organization should ideally possess.
Activity-Based Costing (ABC) Expert Gary Cokins
Today, entrepreneurs anticipate their market changes, make decisions in that direction and analyze their results, within the corporate strategy guidelines.
In such an environment, driving a company business requires an effective toolkit which provides accurate information to facilitate analysis. This is because understanding what has to be changed is needed before launching any action plan. This is the reason why ABC (Activity-Based Costing) seemed to be a promising response to the enterprise performance management needs, in the early nineties.
How does this promise stand twenty five years later? Critics have reported customers who were dissatisfied with their results from ABC. They mainly claimed that the method itself is too complex, lacks from a really efficient toolkit, and results in never-ending implementation projects.
Read moreThe US Government’s Sequester – Anything versus Everything
I tend to be an apolitical person. I try to be internally apolitical within organizations I am employed by as well as related to government politics.
But now I have a dilemma. It is not with an employer. At the age of 64 I recently “semi-retired” from my employer, a large business intelligence software vendor, after being 16 fun years there. I now have time to write more and present seminars, talks, and webcasts. My dilemma is that I have been invited to present a keynote talk in Washington DC on March 28 to US Federal government civilian and military executives. What should I say to them?
Read moreDemystifying Business Intelligence, Business Analytics and Predictive Analytics
Organizations often complain that they are drowning in data but starving for information. What they are seeking is insight and foresight from the treasure chest of raw and transactional data they already have combined with other information widely available. Business intelligence (BI) software tools have been presumed as the solution; however there is confusion because there is an emerging term, business analytics (BA), that is also heralded as the solution. What is the difference? And where does predictive analytics fit in?
Read moreMeasuring and Managing Customer Profitability
As companies shift from a product-centric focus to a customer-centric focus, a myth that almost all current customers are profitable needs to be replaced with the truth. Some high demanding customers may indeed be unprofitable! Unfortunately, many companies’ managerial accounting systems aren’t able to report customer profitability information to support analysis for how to rationalize which types of customers to retain, grow, or win back and which types of new customers to acquire. With this shift in attention from products to customers, managers are increasingly seeking granular nonproduct-associated costs to serve customer related information as well as information about intangibles, such as customer loyalty and social media messaging about their company and its competitors. Today in many companies there’s a wide gap between the CFO’s function and the marketing and sales function. That gap needs to be closed!
Read moreMeasuring and Managing Patient Profitability
“The greatest wealth is health” (Virgil, Ancient Roman poet). There is nothing more important than taking care of ourselves and each other. However, focusing a health system on the appropriate goals in a complex political and social environment requires investment in the right combination of time, money, intellect, and creativity.
Government agencies are bringing pressure on healthcare providers, vendors, and insurance companies. For decades, our health system has been revenue driven, often with somewhat irrational pricing. Healthcare leaders must now pay closer attention to the middle line – costs – not just the top line (revenues) when working to improve the bottom line (profits).
The only financial value a healthcare facility will ever create for its stakeholders is the value it derives from its patients — its current patients and new ones to be served in the future. Healthcare organizations should view patients similarly to how commercial companies view existing and prospective customers. To remain competitive, healthcare facilities must determine how to keep patients and their families coming back to satisfy medical needs throughout their lifespan and to serve them more efficiently. To do this, they must maintain a high level of quality and patient satisfaction, while growing revenue and controlling costs.
Read moreHow to Embrace and Understand Enterprise Performance Management
DocuStar is honored to welcome Gary Cokins to our Marketing Organizational Leadership series. Gary is the founder of Analytics-Based Performance Management LLC, an advisory firm located in Cary, North Carolina.
Gary is an internationally recognized expert, speaker and author in advanced cost management and enterprise performance and risk management systems. He began his career in industry with a Fortune 100 company in CFO and operations roles and then worked for 15 years in consulting with Deloitte, KPMG and EDS. From 1997 until recently, Gary was a principal consultant with SAS, a leading provider of enterprise performance management and business analytics and intelligence software. His two most recent books are Performance Management: Finding the Missing Pieces to Close the Intelligence Gap and Performance Management: Integrating Strategy Execution, Methodologies, Risk, and Analytics. His most recent book is Predictive Business Analytics.
In the first discussion of a three-part series, Gary takes a look at Enterprise Performance Management, what it actually means and why businesses should be adopting its various methodologies.
Read moreA Kite with a Broken String – The Balanced Scorecard
How do executives expect to realize their strategic objectives if all they look at is financial results like product profit margins, return on equity, earnings and interest before interest, taxes, depreciation, and amortization (EBITDA), cash flow, and other financial results? These are really not goals – they are results. They are consequences. Measurements are not about just monitoring the summary dials of a balanced scorecard. They are about moving the dials of the dashboard that actually move the scorecard dials.
Worse yet, when measures are displayed in isolation of each other rather than with a chain of cause-and-effect linkages, then one cannot analyze how much influencing measures affect influenced measures. This is more than just leading indicators and lagging indicators. Those are timing relationships. A balanced scorecard reports the causal linkages, and its key performance indicators (KPIs) should be derived from a strategy map. Any strategic measurement system that fails to start with a strategy map and/or reports measures in isolation is like a kite without a string. There is no steering or controlling.
Read morePredictive Business Analytics, a Book Preview
Analytics is becoming a competitive edge for organizations. Once a “nice-to-have,” applying analytics–and especially predictive business analytics–is becoming mission-critical.
Business analytics is a skill that is gaining mainstream value due to the increasingly thinner margin for decision error. There is a requirement to gain insights, foresight, and inferences from the treasure chest of raw transactional data (both internal and external) that many organizations now store (and will continue to store) in a digital format. Without interpretation, numerical data is simply just numbers.
Read moreEnterprise and Corporate Performance Management (EPM/CPM) – Making It Work
Many organizations are far from where they want and need to be with improving performance, and they apply intuition, rather than fact-based data, when making decisions. Enterprise and corporate performance management (EPM/CPM) is now viewed as the seamless integration of managerial methods such as strategy execution with a strategy map and its companion balanced scorecard (with key performance indicators, KPIs); enterprise risk management (ERM); capacity-sensitive driver-based budgets and rolling financial forecasts; product, service-line, channel, and customer profitability analysis (using activity-based costing [ABC] principles); customer lifetime value (CLV); lean and Six Sigma quality management for operational improvement; and resource capacity planning.
Each method should be embedded with business analytics of all flavors, such as correlation, segmentation, regression and clustering analysis, and especially predictive analytics as a bridge to prescriptive analytics to yield the best (ideally optimal) decisions.
What is the answer for executives who need to expand their focus beyond cost control and toward sustained economic value creation for shareholders and other more long-term strategic directives? EPM/CPM provides managers and employee teams at all
TIME-DRIVEN OR DRIVER RATE-BASED ABC?
A debate has been going on for years about which method of activity-based costing (ABC) is better to use for assigning costs: Time-Driven or Driver Rate-Based. The answer: It depends on the circumstances. There’s a great deal of confusion regarding which one to use and around terms such as “push” vs. “pull” and “top-down” vs. “bottom-up” in which the latter perspective of both terms is one where a product isn’t consuming all of the supplied capacity expenses, and the former perspective is one where the capacity expense, including unused or idle capacity, is being fully traced into the product, thus overcosting products. This raises several questions: How are the approaches similar? How are they different? Is one method superior to the other? Can a company start with the former method and transition to the latter method as informational needs increase? What are the conditions when one or the other method might suffice?
To discuss the merits, we need a starting point to establish clarification. It’s an incorrect simplification to refer to Time-Driven ABC (TDABC) as the “pull” basis and its predecessor, the conventional Driver Rate-Based ABC (DRBABC), as
Read moreThe Time to Create a Culture for Analytics Is Now
The old organizational model for decision making is broken. The jig is up. Making decisions relying on gut feeling, intuition, office politics, past experience and bias is giving way to using fact-based information and analytics. These allow for investigation, insights, foresight, and improvements.
Predictable skepticism of business analytics
Some readers may already be reacting to my observations and saying to themself, “I’ve heard this exaggerated story before.” Skepticism is a healthy virtue. Skepticism involves waiting for enough evidence before accepting or believing.
Read moreA Television Game Show for IT and Analysts
Television game and quiz shows, like Jeopardy, are now in abundance. I have an idea for a game show that probably would not achieve high viewer ratings, but it might be appealing to those interested in how truth is proven with analytics, research and fact-based data.
True or false? Good or bad?
My idea is for a game show where three competing teams of contestants are given a business problem involving choices. They are given one week to design and test their hypotheses through experiments and return to the show with their answers. A panel of CEOs would judge the winning team.
Read moreThe Soft Stuff is the Hard Stuff
Most of us are technical. We like to be fact-driven. We embrace technologies of all flavors including computer hardware, software, mobile devices, the Internet, and social media. We tolerate opinions of others different from ours, but we prefer tangible and hard evidence that supports any one’s position or argument. The problem is organizations are comprised of people and not just computers and equipment.
We like research studies and the use of analytics to gain insights and foresights as well as to solve problems and pursue opportunities. But darn it. People get in the way.
Read moreIs Analytics Shifting Power from Executives to Employees?
Why do executives sometimes fail to act on proposed ideas that could save a company substantial amounts of money? Is it due to their complacency or incompetence? I am unsure of the correct answer. I prefer to give executives the benefit of the doubt. Most of them were promoted to executive positions because they are smart as well as effective leaders. They have made good decisions in the past.
But is there a change in the wind? I sense that an explanation for less risk-taking by executives, such as they’re not acting on a good proposed idea, involves the emergence of business analytics and Big Data. It can be explained with a pyramid depicting how a shift in power and influence to employees is increasingly affecting various types of decisions.
Read moreEstimating the Return on Investment (ROI) from Activity-Based Costing (ABC)
Some organizations have strict rules to determine the acceptance for proposals to invest and spend money on equipment or projects. Sometimes the administration of these is called the capital investment justification process. Senior management may not authorize any spending unless the business proposal exceeds a certain return on investment (ROI) level – often referred to as the hurdle rate. Management wants to assure itself that any money re-invested in itself will greatly exceed the level of return that its shareholders could achieve in other investments.
Organizations that are skeptical of activity-base costing (ABC) regularly ask, “What is the ROI from ABC?” My blunt reply from what I have learned is that calculating ROI on ABC/M is not possible to do. Here is why.
Read morePAF for North Pole Operations
Perhaps you thought that Santa, Mrs. Claus, and all the Elves at North Pole Operations just magically get all the toys made and delivered on Christmas eve each year? Nothing could be further from the truth. North Pole Operations uses our framework – the Profitability Analytics Framework (PAF) by the Profitability Analytics Center of Excellence (PACE) - to plan and execute the big Christmas eve delivery every year.
No organization can escape the global pressures to better execute their executive team’s strategy and improve productivity - not even Santa Claus and his team. Here is how they do it.
Read moreMovie Sequel – “Accountant Pirates of the Caribbean”
Please forgive me for my persistent rant and criticism against accountants who budget poorly or continue to calculate the substantial and growing high indirect and shared costs originating from resource expenses such as salaries, supplies, power, information technologies, and travel. I cannot seem to hold back my frustration.
When I observe managerial accounting practices and methods that ignore driver-based budgeting principles or simply allocate indirect and shared expenses typically as large combined “pool” using a single broad-brushed cost allocation base (e.g., number of units produced, sales amounts, direct labor input hours, head count, square feet/meters), I do not know if I should laugh or cry!
An excellent reference for best budgeting practices is this “Budgeting Best Practice e-book” written by Alan Whitehouse, Chief Solution Architect with TrueSky Inc. It is at:
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