EXCELLING AT ENTERPRISE PERFORMANCE MANAGEMENT Pertemuan 19-24 Matakuliah: A0824/IT Investment Portfolio Tahun: 2009 We are what we repeatedly do. Excellence,

EXCELLING AT ENTERPRISE PERFORMANCE MANAGEMENT

Pertemuan 19-24

Matakuliah : A0824/IT Investment PortfolioTahun : 2009

We are what we repeatedly do. Excellence, Therefore, is not an act but a habit. ~ Aristotle

Elements of Enterprise Performance Management (EPM)

Enterprise performance management is an enterprisewide approach that riles on comprehensive, integrated performance metrics, timely feeback of performance results, and planning and management aimed at achieving optimal enterprise performance.

Bina Nusantara University 3

Enterprise Performance Management• EPM’s goals of optimizing at the enterprise level

affects how decisions are made to improve business processes. An impromvemen in a business process is measured not only at the business-process level, but most important, also at the enterprise level.


Relationship ot ITPM to EPM• The common reason given for the growing

interest in EPM is that organizations want more from their IT investments, especially their costly investments in ERP systems, CRM, data warehouse systems, financial systems, etc.

• Organizations implement EPM to integrate data from these various systems so that management can receive more and better information for managing the enterprise.


Relationship ot ITPM to EPM• Focus on optimizing performance at the

enterprise level, • Regular feedback of performance information• Complex trade-offs in determining the best ways

to improve performance• Provide managers with custom tailored reports

and displays to support their decision making


Relationship ot ITPM to EPM• The major eason given for adopting EPM – to get

a greater return from large IT investments.• Ignores the importance of portfolio-based IT

investment management in maximizing enterprise investment returns while controlling costs and risks.

• ITPM cannot be successfully implemented without the capabilities of BI and EAI systems, which give ITPM its enterprise-wide reach.


Relationship on IT Portfolio Management to EPM


Basic Concepts• The priorities are customer and enterprise firs, followed

by business process, and then the activities comprising the process. Optimization is at the customer and level

• Visibility of performance results and related information is provided at the enterprise level, the business process level, and the activity level, with the ability to trace results downward, upward, and across or horizontally

• Reliable and valid measurements of business and IT performance are used at the enterprise, business process, and activity levels

• The portfolio includes all (with minor expectations) IT investments, including IT projects and in-place systems

Basic Concepts• High level investment criteria are used to

determine the relative worth of competing It investments for meeting priority enterprise performance needs

• The portfolio mix and balance are constantly monitored and changed to improve enterprise performance, control cost, and manage risk

• Procedures and systems are in place that ensure timely feedback, analysis, reporting, decision making, and implementation of change

Benefits of ITPM Approach to EPM• Improved alignment of both business activities and

IT with enterprise strategic and operational objectives and their performance metrics

• Increased return on IT investments because they are managed as a portfolio, eliminating overlaps and dulplications and managing risk

• More accurate, timely, and relevant information for management decision making at all levels, especially at the enterprise level

• Quicker identification of, and responses to, process improvement needs and new opportunities


Benefits of ITPM Approach to EPM• Improved use of IT resources because of

optimization at the enterprise level• Clarification of data needs for decision making,

especially at the enterprise level but also at lower levels

• Enhanced ability to evaluate benefis, costs and risks – an trade offs among them – in terms of net impact enterprise wide

• Other benefits – experience demonstrates other benefits, such as improved customer retention, productivity, and reduced cost of sales


Performance Measures and Metrics• Cultural Resistance to Performance Measures• Number of Performance Measures to Use• Enterprise Output and Outcome Measures• Responding to Performance Feedback

– Correcting Negative Outcomes– Correcting or Changing Output Results– Documenting and Tracking Changes


Examples of Performance Indicators, Performance Measures and Performance

Targets

Performance Indicator

Performance Measure

Performance Target

Profit Financial Return 40 % ROI

Satisfied Customers

Customer Retention Rate

90 % Retention

Online Response Time

Time it Takes to Respond

2 Second Response

Several common reasons for resistance to performance measures• Some managers lack an understanding of what

performance measures are and why they are needed• The managers are used to managing without the new

measures and some do not change their management approach

• Some managers may disagree with the measures selected or being used and believe they are being pressured to accept them

• Some managers fear the measures will reveal something that they do not want revealed, such as an unauthorized allocations of resources, misleading reports to superiors or outside groups, or questionable, even illegal, activities

Benefits of ITPM Approach to EPM• Improved alignment of both business activities

and IT with enterprise strategic and operational objectives and their performance metrics

• Increased return on IT investments because they are managed as a portfolio, eliminating overlaps and duplications and managing risks

• More accurate, timely, and relevant information for management decision making at all levels, especially at the enterprise level

• Quicker identification of, and responses to, process improvement needs and new opportunities

Benefits of ITPM Approach to EPM• Improved use of IT resources because of

optimization at the enterprise level• Clarification of data needs for decision making,

especially at the enterprise level but also at lower levels

• Enhanced ability to evaluate benefits, costs, and risk – and trade offs among them – in terms of net impact enterprise wide

• Other benefits – experience demonstrates other benefits, such as improved customer retention, productivity, and reduced cost of sales

Responding to Performance FeedbackEnterprise-Level Performance Measures Outcome Measures

and Their Linked Output Measures

Outcome Measure Feedback

Output Measures Feedback

Comment on Feedback

Positive Positive Can assume right products and services are being produced but continue to monitor

Negative Positive Investigate possible shift in customer values; business process changes may be required to respond to customer changes

Positive Negative Immediately investigate business process for possible underperforming activities

Negative Negative Investigate whether right products and services are being produced; investigate business processes for underperforming activities


Defining Performance Measures


High Level Business StrategiesFrom Updated Strategic Plan

High Level Business StrategiesFrom Updated Strategic Plan

Key Results and MeasuresHigh Level for Strategy Map

Key Results and MeasuresHigh Level for Strategy Map

Supporting MeasuresResults Chains for Implementing the Strategies

Supporting MeasuresResults Chains for Implementing the Strategies

Goals and ObjectivesUsing Balanced Scorecard

Goals and ObjectivesUsing Balanced Scorecard

Critical Success FactorsMost Important Things to Accomplish to Be Successful

Critical Success FactorsMost Important Things to Accomplish to Be Successful

Measuring and Controlling Enterprise Alignment

• Monitoring Customer Values


What Outcomes

Do Customers

Want?

What Outputs Are Needed to Produce the Outcomes

What Work Activities Are

Needed to Produce the

Outputs?

What IT Investments Are

Needed to Enable the Activities

Outcomes Measures

Outcomes Measures

ActivityMeasures

Investments Criteria

Measuring and Controlling Enterprise Alignment

• Investment Criteria as an Alignment Tool


Aligned Investment

Criteria

Used to Select Aligned

Investments

That Produce Desired Outputs

That Result in Desired

Outcomes

Decision Criteria Used During the IT Investment Management Life Cycle

~ IT Investment Management Life Cycle ~

Select Phase Control Phase Evaluate Phase

Selected Projects

Ongoing Projects

Completed Projects

Evaluated with :Screen-Out criteriaInvestement CriteriaPortfolio Balance

Evaluated with :Planned vs actualInvestment CriteriaPortfolio Balance

Evaluated with:Planned vs actualInvestment CriteriaPortfolio Balance


Life Cycle Alignment Control• The same investment criteria are used by proposal teams

organization-wide and by the Investment Review Board, so everyone uses the same criteria for investment decision making.

• The investment criteria are used in all three of the investment phases and measure the degree of alignment with, and expected contribution to, the organization’s goals and performance objectives

• The contribution of the investment to portfolio balance is evaluated throughout its life cycle; an investment must not only be aligned but also contribute to portfolio balance


Life Cycle Alignment Control• “Screen out” criteria are used in the select phase to screen

out proposed investments that are not aligned, are unworthy, should be decided at a level below the Investment Review Board, or otherwise do not meet the requirements for board consideration

• Planned versus actual performance is measured and assessed in both the Control Phase and the Evaluate phase, the degree of alignment is also evaluated

• All existing and proposed investments are in competition with each other for the same scarce funds regardless of investment phase; those that are best aligned have a greater likelihood of receiving funding.


The Business Case and Enterprise Performance


Analysis of Problem/

Opportunity

Investment Business

Case

Investment Board

Decisions

IT Portfolio

Business Process Performance

Enterprise Performance

Approve Change Delay ReplaceCancel

Per

form

ance

Fee

dbac

k

Standard Information Requirements• What is the problem or opportunity and why does it have to be

addressed now?• What have others done to solve the problem or address a similar

opportunity?• What alternative solutions were considered and why was this one

selected?• What is the cost and when are the funds needed?• How long will it take to recover the investment?• What risks are involved and how will they be managed?• What changes will the project make and when must the project start?• How will the project be managed and who will be the project

manager?


Making the Business Case• Without IT Investment• With IT Investment


Measuring Financial and Non Financial Benefits

• The calculation of financial ROI is a fundamental measure used in business cases. Characteristics of ROI:– Relatively easy to quantify (e.g. cost savings)– Easy for senior executives to understand– Long history of use to justify investments– Much credibility because the quality of the source data,

assumptions, and computation method can generally be verified

– Can determine impact on financial condition of the organization– A strong financial case is always appealing to executives


“Intangible” does not mean Unmeasurable


Software Systems• Increased Comprehensiveness• Facilitating Integration• Importance of the Underlying Process• Benefits of Designing the Underlying Process First


Related Software Systems• IT Portfolio Management (ITPM)• Business Intelligence (BI)• Enterprise Application Integration (EAI)


Convergence of Software Systems


Project Office

Resource Manageme

ntIT Portfolio

Management

Enterprise ApplicationIntegration

Project Manageme

nt

Business Intelligen

ceOthers

Capabilities

One IT Portfolio Management

Software System or Software Suite

EPM Software Software“What we need is a highly scalable platform that can provide collaboration on an integrated set of metrics

from all areas of the organization that can link to a distributed set of hierarchical goals and objectives.

Unfortunately, the focus on the sizzle of the end-user interface has pushed out consideration of the enterprise

architecture and information integration required for adaptability and customization of this new breed of

application platform. “ – Mark Smith, CEO of Ventana Research, after a review of EPM Systems, in Intelligent

Enterprise, June 30, 2003


EPM Software Systems• A satisfactory EPM software system must either

have an IT portfolio managemenct capability or it must be able to integrate seamlessy with an IT portfolio management system.

• The more advanced IT portfolio management sofware systems are encompassing much of the funcitionality desired of a comprehensive EPM System


Documents

EXCELLING AT ENTERPRISE PERFORMANCE MANAGEMENT Pertemuan 19-24 Matakuliah: A0824/IT Investment Portfolio Tahun: 2009 We are what we repeatedly do. Excellence,