Performance Management: towards better decisions…
The goal of the presentation of Professor Van Nieuwenhuyse was to go through the existing tools that are designed to cover the problems of the decision-making process in a company. The starting idea is that only looking at the past isn’t enough; more crucial is to know where a company is heading.
First of all, we can observe a trend: the decision-making process is more and more carried out by the Financial Direction. Moreover, until recently, decision-making in a company was based on information from the past. Nowadays, Financial Directors need a more complete view to make their decisions, and this is the point where planning and budgeting applications prove their utility.
In fact, only looking at the past and past performances is not enough – it is widely known that past performance is in no case an indicator of future performance. Planning and budgeting takes a role here in deciding which direction to take.
The experienced frustrations of the Financial Direction are threefold:
- Lack of visibility: How can the Financial Direction have a complete vision of the performance of the entire organization?
- Lack of predictability: How to fix goals for the entire organization and plan the resources needed to achieve these goals?
- Lack of responsibility: How to allocate performance indicators to persons closest to the business? Middle managers are also getting more and more responsibilities.
Addressing this problems, we quickly understand that it is crucial to link the past, the present and the future.
Nevertheless, depending on the position in the pyramid of responsibilities, the information needs are different, and so is their level of granularity.
We easily understand the need of providing the right support in the right format to the right person at the right time. In our daily lives, we are used to being guided and warned in real time when dangers or possible future events occur. The same is applicable for the need of information within a company.
To be optimal, the logistic infrastructure that is implemented should cover 4 types of information:
- Financial information: concerns the actual data, the present;
- Operational information (or business intelligence): the data of the past;
- Strategic information: concerns the future;
- Analytical information: comes to an analysis of the past to predict the future.
Performance management then consists of the coordination of all aspects. To answer this, you have to select the right software, with different functionalities that allow you to collect, analyze, visualize and compare the data.
This is the point where it becomes important to implement a consolidation software to ensure correct data gathering, together with a functionality for data visualization (also, a new qualification that is developing these days is the “report designer”: his role is to enhance the required information). Important is a multidimensional visualization of data according to different axes (slice and dice), the possibility to dig deeper into the information, and so on. All this aspects facilitate the decision-making.
Decision-making software also need to allow to create standard reports, or reports on the fly, set up alert reports and reports that allow to visualize a process or to facilitate a quick analysis of the figures.
In conclusion, it is about modelling the key elements of the process of decision-making, which are:
- Data gathering
- Multi-dimensional vision
The cooperation between these different elements will allow to really understand the cause-consequence relation of the process of the company, but also to get to take correct actions and model the interactions between the decisions and their effects.
At last, like Albert Einstein himself instructed: the understanding of the mechanics of a company and the consequences of internal and external events for the company will allow us to better evaluate their impact, correct our actions and anticipate to the occurrence of such events.
“You have to learn the rules of the game. And then you have to play better than anyone else.”
– Albert Einstein