It's time to say 'bye' to KPIs - An introduction to DBPM
- 1. Itâs time to say âbyeâ to KPIs An introduction to driver-based performance management (DBPM)
- 2. Why?
- 3. Page 3 The decision-making environment is becoming more complex âş The business environment is increasingly VUCA - volatile, uncertain, complex and ambiguous âş Decision-making is an ever more difficult task â it must be both effective and fast âş Organisations that cannot consistently make the right decisions at the right time are at a competitive disadvantage An introduction to driver-based performance management (DBPM). Š 2016 Ernst & Young, New Zealand. All Rights Reserved. APPENDIX A
- 4. Page 4 Therefore, for many organisations, an âindicationâ of performance is no longer sufficient âş To be effective and fast, decision-makers need more than an "indication" of what factors are key to understanding and managing performance âş Truly useful information is accurate, complete, timely and easy to understand without leaps of interpretation or inference âş Typical performance management improvement initiatives like Balanced Scorecard make data more organised and accessible, but these are only steps on the journey to making it easily understandable An introduction to driver-based performance management (DBPM). Š 2016 Ernst & Young, New Zealand. All Rights Reserved.
- 5. Page 5 There is a method to deliver the context and connectedness that transforms KPIs into truly useful decision-making info ⺠Driver-based Performance Management (DBPM) identifies the internal and external factors that have a quantifiable impact on performance and quantifies those impacts ⺠This results in a structured model of business performance, which is more useful in much the same way that a completed jigsaw puzzle is more easily interpreted than a jumble of jigsaw pieces⌠An introduction to driver-based performance management (DBPM). Š 2016 Ernst & Young, New Zealand. All Rights Reserved.
- 6. Page 6 Only DBPM provides the âcomplete jigsawâ that is truly useful information Financial Reporting / Planning Ăź Likely timely, accurate and organised Ăť Incomplete â operational drivers absent or as commentary Balanced Scorecard / KPI Approach Ăź Potentially complete Ăź Related metrics grouped Ăť Big picture is still not immediately obvious Driver-based Performance Management Ăź Big picture immediately obvious and understood Ăź Missing / duplicate / inconsistent metrics are easily identified An introduction to driver-based performance management (DBPM). Š 2016 Ernst & Young, New Zealand. All Rights Reserved.
- 7. Page 7 DBPM not only improves organisational performance management, but also âreturn on brain investmentâ Manually manipulating data in order to make it useful is drudgery âş High-quality brains are too expensive to waste on drudgery âş High-quality brains are too rare to lose by making them drudge DBPM allows your best brains to be engaged and to add value âş Driver-based reporting allows them to rapidly access insights and frees them up to apply more of their time and intelligence to acting on them âş Driver-based planning allows them to focus on investigating scenarios and making planning decisions rather than on the mechanics of building and compiling the plan An introduction to driver-based performance management (DBPM). Š 2016 Ernst & Young, New Zealand. All Rights Reserved.
- 8. What?
- 9. Page 9 At its core, driver-based performance management is a quantified driver tree for each outcome metric⌠⺠The few measures of organisational success tied directly to value Outcome Metric 1 Outcome Metric 2 Outcome Metric 3 Driver 46 Driver 47 Driver 1 Driver 2 Driver 6 Driver 5 Driver 3 Driver 4 Driver 22 Driver 23 Driver 48 Driver 49 âş Internal and external factors with significant and direct relationship to outcome metrics â market, competitor, operational, financial, leading, lagging âş Arranged into a hierarchical tree with linkages quantified, even if imperfectly APPENDIX B An introduction to driver-based performance management (DBPM). Š 2016 Ernst & Young, New Zealand. All Rights Reserved.
- 10. Page 10 ⌠that is used consistently across all performance processes âş Looking backwards, the model enables automated variance analysis and drill-down dashboards â decision-makers can prioritise actions on highest impact, controllable drivers âş Looking forwards, the same model â at differing levels of detail â is used to generate plans from detailed budgets to strategic or long-range plans with common assumptions âş The organisation gains a common language of performance â debate can focus on the decision, not the data and what it means An introduction to driver-based performance management (DBPM). Š 2016 Ernst & Young, New Zealand. All Rights Reserved.
- 11. How?
- 12. Page 12 Although the basic steps remain consistent, there are several ways to approach a DBPM journey Basic Steps Approaches 1. Big Bang 2. Group then extend into BUs 3. BUs then consolidate at Group 4. Data first, then processes 5. Specific issue, then overall performance 6. Software first Setup ImproveDesign Implement ⺠Future state vision ⺠Define outcome metrics, drivers and dimensions ⺠Define PB&F, reporting and analysis processes ⺠Execute POC ⺠Select tool and vendor ⺠Create implementation plan and functional specifications ⺠Write technical specifications ⺠Configure application ⺠Develop data integration and security ⺠Develop UI ⺠Conduct UAT, performance testing and optimisation ⺠Document, train users, deploy and support An introduction to driver-based performance management (DBPM). Š 2016 Ernst & Young, New Zealand. All Rights Reserved.
- 13. Page 13 Driver trees are the most critical âget rightâ of the design process (1/2) An effective driver design process is⌠⺠Hypothesis led for a fast start â leveraging existing scorecards / generic sector trees âş Iterative and collaborative â achieving buy-in and alignment-to-needs from end users âş Customer oriented â tightly focused on providing in-scope decision makers with what they need to manage performance âş Practical and achievable â theory balanced by data readiness assessment An introduction to driver-based performance management (DBPM). Š 2016 Ernst & Young, New Zealand. All Rights Reserved.
- 14. Page 14 Driver trees are the most critical âget rightâ of the design process (2/2) Selecting the right drivers TailoredTailored Simple and PracticalSimple and Practical EffectiveEffective âş Industry specific âş Aligned to strategy âş Balance between consistency and comparability across the business vs. the unique elements of different lines or BUs âş Understandable, measurable, and testable for ability to influence outcomes âş Limited to the fewest number that deliver the desired outcomes (MECE) âş Include both leading and lagging indicators âş Include both controllable and uncontrollable levers âş Support decision makers at multiple levels, conducting multiple processes An introduction to driver-based performance management (DBPM). Š 2016 Ernst & Young, New Zealand. All Rights Reserved.
- 15. Page 15 However, dimensions are another common source of pitfalls â it is possible to overdo dimensional detail⌠⺠Dimensions allow âslicingâ of data to facilitate root cause analysis and targeted decision making âş Dimensions can create exponential data complexity, straining both âman and machineâ âş Sustainable performance management requires explicit decisions based on (i) which decision makers are being supported and (ii) what they must have to make good decisions Level of Detail Dimensions Original Ask Final Design Geography 120 9 Organisation (BU) 67 6 Customer/ Segment 5 5 Product 90 10 Channel 5 3 120 ´ 67 ´ 5 ´ 90 ´ 5 = 18,090,000 9 ´ 6 ´ 5 ´ 10 ´ 3 = 8,100Other common dimensions include process, time, and currency An introduction to driver-based performance management (DBPM). Š 2016 Ernst & Young, New Zealand. All Rights Reserved.
- 16. Page 16 ⌠and it is tempting to conflate dimensions into driver trees, but this should be avoided Rather than multiple driver trees for different lines of business or geographies⌠Text Text Text Text Text Text Text Text Text Text Text Text Text Text Text Text Text Text Text âŚhave one driver tree that is used differently across dimensional intersections Text Text Text Text Text Text Text Text Text Text Text Text Text Text Text Text Text Text ĂźEase of maintenance ĂźConsistency and comparability across the business ĂźPromotes âeleganceâ of modeling An introduction to driver-based performance management (DBPM). Š 2016 Ernst & Young, New Zealand. All Rights Reserved.
- 17. Page 17 Throughout, the human element must always be accounted for and actively managed Create Momentum Create Momentum Manage Change Manage Change Embed in Culture Embed in Culture âş Donât let the perfect be the enemy of the good âş Prioritise effort where value can be delivered and proven âş Leverage executive support to change the conversation âş Be clear that drivers will evolve, but at set times âş Use drivers for all performance processes âş Focus on embedding changes in behaviour, not merely implementing a tool âWatch the Birdyâ - using selective data to present an incomplete or skewed view âWatch the Birdyâ - using selective data to present an incomplete or skewed view âStump the Chumpâ â managing by seeking errors or inconsistencies in reports âStump the Chumpâ â managing by seeking errors or inconsistencies in reports âWhat About Postage?â - managing by P&LâWhat About Postage?â - managing by P&L âThis is great. Can we addâŚ?â - adding âjust in caseâ information burden âThis is great. Can we addâŚ?â - adding âjust in caseâ information burden Surface issues automatically â concealment is not an option Surface issues automatically â concealment is not an option Debate decisions, not data â trust the drivers, use the drivers, no âpet metricsâ Debate decisions, not data â trust the drivers, use the drivers, no âpet metricsâ Target effort â focus attention on changing drivers with the biggest impact on the outcome Target effort â focus attention on changing drivers with the biggest impact on the outcome An introduction to driver-based performance management (DBPM). Š 2016 Ernst & Young, New Zealand. All Rights Reserved.
- 18. Page 18 Other tips and âwatch outsâ include⌠⺠Proofs-of-concept â Critical to moving from design to build with confidence âş Design comes together in the âfour way matchâ â Which intersections of driver, process and dimension are valid? For each one, what is the data source and/or input responsibility? âş There isnât a perfect âmodel engineâ yet â Most existing options are only part way through a journey from financial consolidation tool to true âmulti-metricâ tool; Customisation is required âş Automated AOC is critical but tricky âş Trade-offs abound â E.g. it is important to balance extra functionality vs. the impact on UI responsiveness and maintenance costs An introduction to driver-based performance management (DBPM). Š 2016 Ernst & Young, New Zealand. All Rights Reserved.
- 19. Who?
- 20. Page 20 Thank you! If youâd like to get in touch to share DBPM-related thoughts and experiences⌠⺠nz.linkedin.com/in/camryn âş camryn.brown@nz.ey.com âş +64 21 916 781 I hope this session has been helpful as you strive to âturn VUCA aroundâ... Volatility = V = Vision Uncertainty = U = Understanding Complexity = C = Clarity Ambiguity = A = Agility An introduction to driver-based performance management (DBPM). Š 2016 Ernst & Young, New Zealand. All Rights Reserved.
- 21. Appendix
- 22. Page 22 Appendix A â There is widespread awareness of the imperative to improve decision making Source: âBrand New Order 2012â, an EY survey of 285 global executives of leading global companies including CEOs Leaders are focused on the need to improve planning, management reporting, and decision support Faster decision making Communicating strategy and vision Resource optimization Reducing bureaucracy and complexity Analyzing complex and interconnected data Giving more authority/ accountability to local operating units = 81% = 79% = 77% = 69% = 66% = 61% 53 47 56 39 47 44 28 32 21 30 19 17 FAIRLY HIGH POTENTIAL TO IMPROVE VERY HIGH POTENTIAL TO IMPROVE âYou have to have the balance between your strategy and all these terabytes of data that youâre getting every second, and you have to be very clear on how you analyse that data and what youâre looking for in that data otherwise you will drown in itâ âYou canât forecast the future with certainty, but what you can do is create a learning organisation that can react to changes with greater efficacy and greater efficiency than an organisation that doesnâtâ An introduction to driver-based performance management (DBPM). Š 2016 Ernst & Young, New Zealand. All Rights Reserved.
- 23. Page 23 Appendix B â What does a real driver tree look like? âş A real net sales tree for a Fortune 200 consumer projects firm had 112 drivers âş Being close to the âupper limitâ was justified in this case by the tree being consistent across 20,000 SKUs in all global markets âş The key structural elements are included in this example⌠Net sales Xxxx Xxx An introduction to driver-based performance management (DBPM). Š 2016 Ernst & Young, New Zealand. All Rights Reserved. This slide not available on SlideShare
- 24. Page 24 Appendix C â How does DBPM relate to âbig dataâ analytics? Analytics complements DBPM âş Generates new or improved drivers, both during initial design and later maintenance âş Provides a means to understand exceptional âblack swanâ occurrences that are outside the model âş Provides further impetus to better manage data Analytics alone arenât enough âş Analytics insights need to be connected to a common framework of understanding â âthatâs a great insight, but what do I do with it?â âş Analytics insights need a connection to standard processes â without a DBPM approach, thereâs a risk of simply having a better-managed Balanced Scorecard An introduction to driver-based performance management (DBPM). Š 2016 Ernst & Young, New Zealand. All Rights Reserved.
- 25. Page 25 Appendix D â Why is DBPM a superior method? We already use a balanced scorecard - how is this any different? Balanced scorecard was a breakthrough because it incorporated external KPIs and began to use them in a structured way. A driver-based approach takes these KPIs and builds them into a fully mathematically linked model to support scenario and root cause analyses that show not only "where" but also "whyâ things happen. Our performance management already includes our key drivers Most processes include a discussion or even a listing of drivers. However, this conceptual listing does not typically provide the easy-to-use insights needed for decision-making. Drivers should be built into a quantified mathematical model to enable planning and root cause analysis at the driver level. We have drivers built into our planning models today Many use rudimentary drivers â such as unit * rate. These models typically ignore important external and operational drivers such as competitor pricing, market size and GDP change. We have a market analytics team that already conducts research into drivers Many companies market analytics teams and other specialist âcentres of analytics excellenceâ. However, they tend to address very specific groups of drivers and correlations. Additional value is unlocked by connecting these pockets of insight together and to the big picture. An introduction to driver-based performance management (DBPM). Š 2016 Ernst & Young, New Zealand. All Rights Reserved.
- 26. EY | Assurance | Tax | Transactions | Advisory About EY EY is a global leader in assurance, tax, transaction and advisory services. The insights and quality services we deliver help build trust and confidence in the capital markets and in economies the world over. We develop outstanding leaders who team to deliver on our promises to all of our stakeholders. In so doing, we play a critical role in building a better working world for our people, for our clients and for our communities. EY refers to the global organization, and may refer to one or more, of the member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients. For more information about our organization, please visit ey.com. Š 2016 Ernst & Young, New Zealand. All Rights Reserved. APAC no. NZ00000767 This communication provides general information which is current at the time of production. The information contained in this communication does not constitute advice and should not be relied on as such. Professional advice should be sought prior to any action being taken in reliance on any of the information. Ernst & Young disclaims all responsibility and liability (including, without limitation, for any direct or indirect or consequential costs, loss or damage or loss of profits) arising from anything done or omitted to be done by any party in reliance, whether wholly or partially, on any of the information. Any party that relies on the information does so at its own risk. ey.com/au