Business, Legal & Accounting Glossary
Business performance management (BPM) (or Corporate performance management, Enterprise performance management, Operational performance management) is a set of processes that help organizations optimize their business performance. It is a framework for organizing, automating and analyzing business methodologies, metrics, processes and systems that drive business performance.
For years, owners have sought to drive strategy down and across their organizations, they have struggled to transform strategies into actionable metrics and they have grappled with meaningful analysis to expose the cause-and-effect relationships that, if understood, could give profitable insight to their operational decision-makers.
Now corporate performance management (CPM) software and methods allow a systematic, integrated approach that links enterprise strategy to core processes and activities. “Running by the numbers” now means something as planning, budgeting, analysis and reporting can give the measurements that empower management decisions.
Reference to non-business performance management occurs in Sun Tzu’s The Art of War. Sun Tzu claims that to succeed in war, one should have full knowledge of one’s own strengths and weaknesses and full knowledge of one’s enemy’s strengths and weaknesses. Lack of either one might result in defeat. A certain school of thought draws parallels between the challenges in business and those of war, specifically:
Prior to the start of the Information Age in the late 20th century, businesses sometimes took the trouble to laboriously collect data from non-automated sources. As they lacked computing resources to properly analyze the data they often made commercial decisions primarily on the basis of intuition.
As businesses started automating more and more systems, more and more data became available. However, collection remained a challenge due to a lack of infrastructure for data exchange or due to incompatibilities between systems. Reports on the data gathered sometimes took months to generate. Such reports allowed informed long-term strategic decision-making. However, short-term tactical decision-making continued to rely on intuition.
In modern businesses, increasing standards, automation, and technologies have led to vast amounts of data becoming available. Data warehouse technologies have set up repositories to store this data. Improved ETL and even recently Enterprise Application Integration tools have increased the speedy collecting of data. OLAP reporting technologies have allowed faster generation of new reports which analyze the data. Business intelligence has now become the art of sieving through large amounts of data, extracting useful information and turning that information into actionable knowledge.
In 1989, Howard Dresner, a research analyst at Gartner, popularized “Business Intelligence” as an umbrella term to describe a set of concepts and methods to improve business decision-making by using fact-based support systems. Performance Management is built on a foundation of BI, but marries it to the planning and control cycle of the enterprise – with enterprise planning, consolidation and modelling capabilities.
The term “BPM” is now becoming confused with “Business Process Management”, and many are converting to the term “Corporate Performance Management” or “Enterprise Performance Management”.
BPM involves the consolidation of data from various sources, querying, and analysis of the data, and putting the results into practice.
BPM enhances processes by creating better feedback loops. Continuous and real-time reviews help to identify and eliminate problems before they grow. BPM’s forecasting abilities help the company take corrective action in time to meet earnings projections. Forecasting is characterized by a high degree of predictability which is put into good use to answer what-if scenarios. BPM is useful in risk analysis and predicting outcomes of merger and acquisition scenarios and coming up with a plan to overcome potential problems.
There are various methodologies for implementing BPM. It gives companies a top-down framework by which to align planning and execution, strategy and tactics, and business unit and enterprise objectives. Some of these are six sigma, balanced scorecard, activity-based costing, total quality management, economic value-add, and integrated strategic measurement. The balanced scorecard is the most widely adopted performance management methodology. Methodologies on their own cannot deliver a full solution to an enterprise’s CPM needs. Many pure methodology implementations fail to deliver the anticipated benefits because they are not integrated with the fundamental CPM processes.
For business data analysis to become a useful tool, however, it is essential that an enterprise understand its goals and objectives – essentially, that they know the direction in which they want the enterprise to progress. To help with this analysis key performance indicators (KPIs) are laid down to assess the present state of the business and to prescribe a course of action.
Metrics and Key Performance Indicators (KPI’s) are critical in prioritization what has to be measured. The methodology used helps in determining the metrics to be used by the organization. It is frequently said that one cannot manage what cannot be measured. Identifying the key metrics and determining how they are to be measured helps the organizations to monitor performance across the board without getting deluged by a surfeit of data; a scenario plaguing most companies today.
More and more organizations have started to speed up the availability of data. In the past, data only became available after a month or two, which did not help managers react swiftly enough. Recently, banks have tried to make data available at shorter intervals and have reduced delays. For example, for businesses which have higher operational/credit risk loading (for example, credit cards and “wealth management”), A large multi-national bank makes KPI-related data available weekly, and sometimes offers a daily analysis of numbers and realtime dashboards are also provided. This means data usually becomes available within 24 hours, necessitating automation and the use of IT systems.
Most of the time, BPM simply means use of several financial/nonfinancial metrics/key performance indicators to assess the present state of the business and to prescribe a course of action.
Some of the areas from which top management analysis could gain knowledge by using BPM:
This is more an inclusive list than an exclusive one. The above more or less describes what a bank would do, but could also refer to a telephone company or similar service sector company.
What is important is:
BPM integrates the company’s processes with CRM or ERP. Companies become able to gauge customer satisfaction, control customer trends and influence shareholder value.
People working in business intelligence have developed tools that ease the work, especially when the intelligence task involves gathering and analyzing large amounts of unstructured data.
Tool categories commonly used for business performance management include:
When implementing a BPM programme one might like to pose a number of questions and take a number of resultant decisions, such as:
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Definitions for Business Performance Management are sourced/syndicated and enhanced from:
This glossary post was last updated: 21st April, 2020 | 227 Views.