Michael Coveney, senior FSN writer and author of the book “Strategy to the MAX” continues his fresh look at the world of performance management. He challenges the existing obsession with CPM tools that fail to satisfy corporate objectives and instead proposes a new framework to illustrate what components are needed to deliver an executable strategy and how they should really fit together. In this article, the second of the series Michael goes into more detail on how this integrated framework can be implemented using OLAP technologies.
I wrote this series as practically all software vendors in the CPM market supply customers with a range of products, but other than a set of canned demonstrations that show off certain features, there is very little help in directing organisations as to how to construct an overall solution that will truly help them manage performance.
In the first article I mentioned that such a solution would consist of:
- a central CPM system containing the organisational business model together with a set of strategic initiatives designed to improve that business model. Resources are allocated and results monitored within the CPM system via a series of management processes including planning, budgeting, forecasting and management reporting.
- a range of supporting BI analytical applications that provide insight into actual and forecast performance. Resulting analyses can then be used to improve the business model via modifying or developing new strategic initiatives, and/or the re-allocation of resources
- reporting applications that combine data from both the CPM and BI systems in a format that is suitable for decision-making
Figure 1: Components of a Performance Management Framework
In this article I want to go into more detail on how this integrated framework can be implemented using OLAP technologies.
Defining the Central Business Model
The central CPM model requires multi-dimensional technology (- this article assumes that the reader has some knowledge of what multi-dimensionality means). This can be an OLAP or ROLAP database, however, the members that make up each dimension will need to be assigned ‘attributes’ that will allow them to be reported and analyzed in ways other than their physical structure / hierarchy within the model.
The CPM business model will typically consist of the following dimensions:
Measures – this is a traditional dimension containing the measures used throughout the application. Attributes should be assigned to each measure that denote what the measure represents. This could include:
- Resource attribute are for those measures consumed by an activity (e.g. travel expenses. This could also include people time)
- Success attribute are for KPI’s that denote the success of an activity (e.g. the success of the marketing programs may be the metric “number of leads”)
- Implementation attribute are for measures that denote the status of an activity (e.g. The implementation of a marketing program could be measured by the number of mailings made to the target market.)
Later on these attributes can be used to define reports that show all measures designated as ‘Resource’ or ‘Success’.
Organisation – this dimension contains the departments and how they consolidate into the total company
Time – the years and periods to be covered by the model
Version – used to separate actual, budget and forecast versions of data held by the model
Activity – this is used to identify organisational activities and the relationship between them that lead to organisational objectives. E.g. how revenue/income is generated; how products/services are manufactured, etc. For more information on this see my previous article.
Figure 2: Sample activities and their relationship on how an organisation achieves its objectives
Note that this is not a strategy map, which is typically used to show how improvements can be made to a business model. Activities within this dimension should show ‘business as usual’ and denotes how the organisation currently operates. Some activities will have a one-on-one relationship with the organisation structure, while others will go across multiple departments. The members of this dimension should be organised as a hierarchy.
Other dimensions may be required to collect things such as sales by product group, customer type, etc. However, in order to keep this framework as simple as possible I will ignore these for now.
It is the intersection of these dimensions that can then be used to identify the resources that need to be applied, by which departments, in order to deliver a particular activity. These resources are shown by time and can be separated into different versions such as budget, forecast and actual. And because we are using a multi-dimensional model, those same resources can be consolidated by both activity group and organisational unit, to give a total company position.
A similar intersection with different measures (as selected by their attribute) can be used to monitor the implementation of those activities and the success that those activities are achieving.
Defining the Strategy Model
So far, we have defined a central CPM model that can store data concerning the operation of the business model. The next step is to record how this model is impacted by strategic initiatives. The way this is done will depend on the system being used but a good way is to use a system that supports initiative or project planning.
To combine this information with the previously defined business model, an extra dimension is added that we will call ‘strategy’. Its members show the different elements of a strategic plan – e.g. Objectives, strategies and initiatives. (Incidentally these different element types will be attributes of each member allowing us later to view all ‘Initiatives’). These members are defined as a hierarchy that shows ‘cause and effect’ relationships as shown in a strategy map (see figure 3).
Figure 3: Linking strategy to the Business Model
This ‘extra’ dimension means we can enter resource and success data within each initiative, for the associated activities and organisational units involved. The OLAP model can then aggregate data by each dimension so that at the ‘top’ of the business model we can see, for example, total costs by each business activity, and how that is broken down by ‘Business as usual’ and the impact of all strategic initiatives.
I hope you’ve still with me – describing multi-dimensional concepts is always a challenge on paper, but hopefully I’ve given those with a knowledge of OLAP databases some things to think about.
Now we have the structure of the combined business and strategy model, the next stage is to describe how this model is used within the different management processes of planning, budgeting, forecasting and management reporting. But we’ll leave this for a future article.
