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Great article from my friend Larry Maisel


Revving Business Performance with Analytics

June 23, 2011

by Larry Maisel

 

 

Today, more than ever, the finance function is expected to possess the talent, tools, and capabilities to assist their organizations to implement and utilize predictive business analytics to improve managerial decision making across many core performance areas.

 

For years, organizations have sought to develop and deploy an effective process to capture and filter forward-looking measures that enable it to understand significant patterns, relationships, and trends in order to facilitate better and more insightful decisions about the future. Several terms are in current use for this process: predictive analytics, business analysis and driver-based forecasting. To promote clarity and ensure that the application of predictive analytics is relevant to all organizational functions, we have elected to use the term Predictive Business Analytics (PBA).

 

As the term implies, PBA is forward-looking in nature, oriented to the organization at an enterprise level, and based on analysis of relevant business data and drivers that have a strong and traceable linkage to financial results and operational performance.

Business drivers can be financial or operational; they can also be external or internal. There are many examples of such drivers: some reflect changes over time, such as new home sales, new product sales, mortgage delinquencies and foreclosures; some reflect changes in a given period, such as new births, new car sales, and new hirings; and some reflect changes at a point in time, such as in interest rates, fuel prices, tax rates, and sales commissions.

 

PBA should enable management to identify new opportunities for growth and improvement, as well as to highlight areas for corrective actions and possibly strategy adaptations.

 

These past several years of economic turbulence and uncertainty have provided excellent examples of the importance and benefits to be realized by organizations that have developed a workable PBA process, and used it to anticipate and guide its operations to productive outcomes. Conversely, that period also demonstrated the consequences of omitting or not adequately developing a relevant PBA process.

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A recent survey by PricewaterhouseCoopers of over 400 senior financial leaders in both the public and private sectors found that high-performing companies outperformed low performers by 54 percent in several key categories, and were 43 percent more effective in their use of alerts or warning systems, driver-based forecasting, and data mining. This enabled them to manage by exception and be proactive, rather than be reactive to emerging issues and opportunities. High performers were also 44 percent more effective in “cascading” accountability for business drivers through the use of relevant and controllable performance metrics.

 

One of the more effective performance reporting tools is the balanced scorecard which if done properly, provides a line of sight causal relationship between drivers and outcomes.

 

For example, the chief financial officer of Darden Restaurants, using predictive insights based on customer data, anticipated opportunities to capitalize on non-traditional growth areas and sought to expand into the Middle East to capitalize on its brand and a fast-growing market for American dining brands.

 

This illustrates the notion that chief financial officers will have to balance traditional stewardship responsibilities with the ability to provide analytical truths and points of view that help shape overall strategy. It’s not enough to simply collect and report on financial data—you also have to figure out how to help your organization capitalize on it.

 

Pasted from <http://businessfinancemag.com/article/revving-business-performance-analytics-0623?cid=NLBFBL>

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