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AIA

A business guide to practical performance analytics

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14th Mar 2011
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Brian Hawkes reveals how driver-based business analytics can support performance management, financial control and business opportunities.

In today’s value-driven culture the CFO has become the front line profit manager and the person to whom investors look for real business insight. Conditional projections are not acceptable – senior managers must have a firm control of value creation under the confident navigation of the CFO.

Financial control and performance management now extend to controlling business drivers and limiters. Core to this philosophy is the return on capital employed (ROCE) value chain, and in particular the sales value chain to which most business functions add value. Sales measures also yield a rich vein of analytics governing core business drivers.

With an increased focus on assuring future results, it makes sense to centre our attention on driver-based forecasting systems, which both provide the mechanism for driver measurements and are influenced by them. Their key purpose (other than forecasting) is to continuously identify sales gaps and provide management with the information needed to close them.

They have three core features:

  1. One central real-time database that provides rolling forecasts on demand - multi-dimensional data views, consolidations, translations, analyses and what-if capabilities can instantly provide new perspectives on forecast potential.
  2. Accurate projection of sales gaps is the first step in budget attainment - the sales value chain forms the spine of the value creation model. Landmark value steps are the vertebrae from which ultimate conversion rates are calculated (ie the percentage rate at which leads that have experienced this landmark convert into a sale) and are used in the roll-up calculation of forecasts thus avoiding subjectivity and providing a mechanism for a) sensitivity checking, and b) filtering speculative sales tails
  3. Sales value chain - value steps are the points from which we capture valuable analytics pertaining to performance, lead attrition and sales churn which are used to manage the closure of sales gaps. They provide invaluable data on the 90% of business activity that is not analysed in financial statements except as overheads.

Identification and measurement of drivers/limiters

The best data capture points for drivers/limiters are lead attrition and sales churn. Front line managers can usually obtain details of why an opportunity was lost and to whom. While not all prospective customers will provide this feedback, any data is valuable because such events occur 20+ times more frequently than sales.

Recording this data against the opportunity when it is closed identifies the value step (and business function) at which it occurred and enables the forecast database to provide valuable analysis of causes and competitors:

  • actual conversion rate and time calculation
  • value step (process) success rate calculation
  • driver/competitor impact analysis by any criteria  over any horizon
  • driver/competitor trend analysis by any criteria adds perspective and provides feedback on remedial actions
  • analysis of competitor strengths
  • identifies value step performance and causal analysis.

These practical analytics enable firms to identify and quantify a wide range of business issues ranging from supply chain, product lifecycle, process performance and market trends to the more everyday customer service and pricing matters which enable organisations to:

  • reduce the impact of competitors
  • improve value-added process performance and times
  • identify and justify areas for investment
  • improve sales conversion rates and times
  • prevent opportunity leakage
  • drive sales churn replenishment
  • reduce sales costs
  • close sales gaps.

Aggressive companies may take this methodology one step further. Having acquired strong control over their business drivers and limiters and with good performance management, they can effectively reverse engineer the driver-based process to achieve impressive organic growth rates – typically 30+% p.a. compound.

Brian Hawkes is a freelance CFO, a member of 3i’s CFO panel and owner of Foresite SPA. Specialising in performance turnaround and rapid growth Brian has developed driver-based forecasting and performance analytics that provide evidence-based and provable business knowledge which brings confidence to the development of shareholder value.

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