April 5, 2003

When Time Is Money

Real-time performance measurement can be a big advantage for many business processes

by Justin Langseth & Greg Reilly

Continued from Page 1

Value-focused management (VFM) is a methodology for facilitating the redesign of key management processes. The first step in VFM is to define how your organization creates value for its stakeholders in a manner that clearly outlines big picture success while also describing the specific reasons that customers, investors, and employees continue to help grow the organization. After this step, managers can begin to describe the components of value they create for stakeholders by defining the specific goods, services, information, money, and intangibles that the company delivers to each group. Next, managers determine the most critical attributes of each key deliverable to further refine the organization's understanding of how it creates value. Generic examples of the resulting value components include timeliness of delivery service provided to customers, completeness of design specifications delivered to suppliers, flexibility of work hours provided to employees, and amount of cash flow delivered to investors.

By defining and prioritizing the variety of ways the organization creates value, managers effectively define or validate the purpose of the firm, who it intends to serve, and how it expects to compete.

Similarly, VFM offers an approach for measuring, understanding, and improving business processes. Managers document processes that flow across the business and define key performance attributes of process activities, inputs, outputs, assets, or people. Specific characteristics of processes — such as the speed of manufacturing activities, utilization of a bottleneck machine, responsiveness of a customer service representative, or accuracy of an information input — are prioritized based on the extent to which they contribute to creating value.

Managers can then begin to define the performance measures that will be used in their BPM system to track company success. By following the VFM methodology, all employees will have a clear understanding of the purpose for collecting and reporting each measure, and will understand clearly the return on investment (ROI) justification for implementing real-time or near-real-time metric subsets.

Automating The Metric Development Process

Ideally, you should involve as many people as possible in the process of determining key metrics; this approach will ensure that the resulting BPM system contains metrics that will be of specific interest to each decision maker. The requirement for broad inclusiveness in this process can coexist with budget and timing realities by leveraging electronic survey and collaboration technologies — it's now cheap and quick to poll decision makers across a corporation. The same analytic tools that will be used in the BPM process itself can be turned inward to analyze the collected data to help determine which processes and metrics are the most important to measure. This concept of automated requirements discovery allows for a closed-loop approach to the warehouse design and data modeling process, much as proactive BI approaches close the loop on the alerting and distribution end of the spectrum.

The results of this polling and collaboration can then be used to two ends. First, they can help you prioritize the development of metrics, giving the IT function a list of the most important processes to measure and the most important metrics to develop. This type of real-world requirements analysis will appeal to BI implementation teams, who are frequently unhappy with the quality and completeness of requirements provided by, or extracted from, end users. It also ensures that development work is prioritized based on a clear understanding of the ROI that each task will provide to the organization.

Second, polling results can be used as a critical input later in the BI cycle when the system needs to decide who should be alerted to various anomalous and exceptional conditions.

Implementing Value-Focused Bpm

With VFM-based metrics and measures in hand, the development of a BPM system will proceed not too differently from a traditional BI implementation project. The only difference is that the typically vague, drawn-out user requirements definition phase has already been finished, probably with a high degree of coverage and completeness.

A methodology such as Extreme Programming, (also referred to as "spiral development" in some circles) can be very useful by allowing the most important metrics to be implemented first — not just for final metric definition within a BI tool, but across the whole process. To generate immediate ROI, the most important metrics can drive the whole project plan for the initial phase ranging from data modeling, to extract, transform, load (ETL) development, to report development and deployment.

As BPM systems are deployed, it will make sense to measure and monitor more key metrics on a real-time or at least intra-day, near real-time basis. While executives generally watch longer-term trends and set the strategic direction of an organization, managers at lower levels make the day-to-day, tactical decisions. As this group of users begins to get access to, and benefit from, targeted real-time BPM metrics, they'll be able to react more quickly and make better decisions.

But for this audience — where real-time monitoring and analysis is important — how should metrics be implemented? One approach is to use real-time ETL or custom-built code to pipeline underlying business data into the analytic data mart or data warehouse to support the metrics during the definition stage. When placed in the analytic repository, you can use real-time BI tools to perform continuous analysis.

The concept of "active" BI then comes into play to automatically identify anomalies and exceptions in the BPM metrics, both rules-based and statistical, and proactively communicate the anomalous conditions to executives and line managers who can take immediate action. In this manner, closed-loop, real-time (or near real-time) connections can be established among underlying business systems, the analytic BPM system, and the decision makers who are best positioned to react quickly.

Time Has Come Today

For the foreseeable future, the boom in BPM is likely to be the driving force behind the deployment of real-time, proactive BI systems. As the target audience of BPM systems expands to include all levels of decision makers, more and more BPM metrics will need to be measured and monitored in real time. A value-focused metric identification and development approach helps ensure that corporatewide priorities for metrics are well understood, and that only those metrics that will generate the highest ROI are implemented, particularly in the initial phase of a BPM initiative.

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By combining value-focused metric identification, potentially automated, with real-time warehousing and active BI techniques, enterprises large and small can ensure that their BPM systems will add the greatest possible value to the bottom line and demonstrate immediate ROI. In this manner, BPM systems will transform from limited-use executive dashboards into true mission-critical systems that drive or support virtually every decision in the intelligent enterprise.

Justin Langseth [langseth@claraview.com] is a founder and CTO of Claraview LLC. Claraview provides system architecture, project management, and implementation consulting services to companies and government agencies implementing proactive, real-time data warehouses and alerting systems.

Greg Reilly [greilly@measure.net] is founder and president of Measure.Net, a training and consulting firm that helps companies determine critical business performance metrics and link them to company strategies, stakeholders, people, processes, and value creation.

RESOURCES

Related Article at IntelligentEnterprise.com:

"Analytics On Demand: The Zero Latency Enterprise," Oct. 4, 2001

"Agility Training," May 28, 2002

"Outward Bound," Nov. 15, 2002

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