Understanding Business Intelligence – Part 2

In our previous article, we explained what Business Intelligence (BI) is and what it can do for your organization.  In this issue, we will address how BI works in the real world (not only in the technology world).  We will explain this by what some authors describe as the BI Cycle.

Business Intelligence should be considered as a performance management framework or an ongoing cycle by which organizations set their goals, analyze their progress, gain insight, take actions and measure their results, just to start all over again.

BI helps managers make better and faster decisions at both, the strategic and operational levels.  Analyzing information leads to insights that suggest different approaches to improve the way we do things.  This cycle keeps repeating as you continuously monitor your key performance indicators to determine what strategies work and which ones require more work.

The BI cycle could be described as an iteration of analysis, insight, actions and measurements which allow further analysis to continue again:

Analysis

When we gather data about our business we select only what we consider that is important.  For example, we collect information to determine which factors affect our costs, our revenue or data that is important to our customers, to our partners or to our employees.

We do this because we have a mental model of what our business is and how to influence in the results of our business.  This mental model simplifies reality so we can make decisions easier and faster, not considering all the complexities that the real world has.  Our mental model however, can also block us from seeing what might be obvious to others.

BI systems usually provide freestyle analysis that can help you break the limitations of our mental models and eventually help conceptualize new models.   The ability to navigate through layers of data, slice and dice rows and columns, create and calculate metrics on the fly and sort by any criteria enable users to ask the questions they consider important at that time and do the analysis in any form they choose.

Insight

  1. perceptiveness: the ability to see clearly and intuitively into the nature of a complex person, situation or subject
  2. clear perception: a clear perception of something.

There are different types of insights.  There are operational insights, like the cause of a decrease in sales of a certain product line.  There are strategic insights, for example, the best strategy to penetrate into a new market category is through educating your target audience about your new product.

Insight is the product of broad, “out of the box” thinking and analysis that only we can recognize as useful.  If an individual has an important insight, it generally becomes useful when shared with others.  And this is typically not an easy task.  Insights that bring change to mental models are usually resisted and sometimes unwelcome.

Business intelligence leads us to the insights, but it also provides us with the data, patterns and logic to support our insights.  It also helps us present the justification of our insights.
Spreading insights is about helping people see things in a new way and understand the benefits.

Action

Business intelligence allows you to make better and faster decisions.  Actions always follow these decisions.  Decisions backed by good analysis and insights give courage to the action maker.  To implement these decisions you will always need some strong organizational support.  When actions are backed by strong analysis and business intelligence, the purpose of these actions is usually clearer and easily justified, hence making it easier to gain the support that you need.

When business intelligence is delivered quickly, it accelerates the BI cycle and this gives more time for taking actions.  Faster loops in the BI cycle and tighter feedback provide more chances for these action-based experiments and testing.

Measurement

Business intelligence provides improved and more frequent information.  This information helps organizations to measure results and compare against quantitative standards.  And this again, leads to another cycle of analysis, insight and corrective action.

But what’s also very important is that business intelligence provides the capability of setting the standards for benchmarking purposes.  This benchmarking will provide you with feedback on the financial aspects of your operation and also well beyond the traditional financial measures.

We measure what we think is important.  BI systems are designed to “digest” large amounts of complex data that come from different sources and then combine this data using complicated algorithms for allocating and aggregating.  As a result, BI delivers consistent reporting on the metrics, ratios and business drivers that managers need to understand, analyze and take actions regularly.  These are called Key Performance Indicators or KPIs.

The following table describes some examples of KPIs:

Business Area

Key Performance Indicators

Operations

Units produced

Inventory turns

 

% defective

Sector headcount

 

Average wait time

% orders scheduled to requested

 

Vendor performance

Returns

 

Average cost on hand

Average days in inventory

Sales & marketing

Unit sales

Amount sales

 

Average selling price

Amount value per customer

 

# products per customer

Items per order

 

Sales per salesperson

Sales per territory

 

Return amount

Sales growth

 

Gross profit

Gross profit %

Customer service

Cases opened

Cases closed

 

First call resolution count

First call resolution rate

 

Cases per problem type

Support rep. performance

 

Cases per segment

Cases per product family

 

Cases per support representative

Increase/decrease in cases

 

Average handle time

Average resolution time

Finance

Actual vs. budget

Actual vs. forecast

 

% variance

% margin

 

% profit

Quick ratio

 

Debt-to-equity ratio

Asset turns

In our next article, we will discuss how to enable business intelligence by describing the main components.  If you need assistance or would like more information on BI, please feel free to contact us at info@axisgp.com. To view previously published articles on BI solutions please visit us at AXIS Newsletter Archive.

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