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Trend # 2 – What if Analysis

Performance Management framework covers strategy formulation, planning and monitoring performance through analysis. In the traditional analysis world, the business user typically looks at some data and takes it to a spreadmart, and comes out with an outcome, by modifying few drivers.  But the challenge of such analysis is very narrow and cannot simulate different scenarios – just because of unavailability of accurate driver information, and also because it is more complex due to constraints of the tools that are used – spreadsheets, pure dw tools, account based planning tools etc. This result in making decisions based on simulation, only with few number of scenarios.

The main trend that we can see going forward is the ability to have multiple scenarios analysis that is probably not possible from a normal human approach. Scenarios that can result from different driver options set to analyze data in multiple combinations and n options.

Typical use case when I used to work in a CPG company few years back was my CFO would come to me and ask, ‘Hey can we determine what would be the impact of the new tax on oil, into our profitability for rest of year and probably for couple of more years. Need this analysis urgently’. Yep this was possible as it would be possible from a spreadmart if there is a predefined model that identifies the tax rate and oil price driver that affects the various p&l line items – utilities, fuel to run vehicles etc. This is a very basic what if capability.

But with the changing economic climate, and the complexities of the business, and complexities of the wide business lines that some of the companies venture into, the world is not so simple, or the needs of reporting have become more. So the ‘What ifs’ becomes more of a combination of drivers, options to compare and contrast the various business drivers. But unfortunately, with current set of tools like The specified item was not found., our decision makers really do not do justice to arriving at the right scenarios to adapt in their business, as they rely on few factors, and build a couple of what if scenarios to discuss in a meeting.

Let’s consider an example. During the forecasting discussions, the planner of a Telco company needs to consider the impact of following:

  •  Couple of new product variant launch, including their varying timing of launch
  •  Three New capex on network  lines to be added, including their cost benefit impact individually
  •  Getting into west and south territory that was ignored earlier, but competition is catching up fast there
  •  Shared services vs. ownership options for few towers
  •  Penetrating into value added services through marketing campaigns
  •  Strategic tie up with business application companies A or B

Now you see there are various initiatives, with subsets in each of the options above being available to be evaluated for the business plan. But I can bet that in the current context, any company would probably build maximum 2 or 3 what if scenarios based on all of the above drivers. Often when the business user gets to a meeting, the decision maker wants to know the impact of profitability, revenue and other KPIs for a different combination than the preworked combinations. And yes, the user would need more time and it can never be ‘The specified item was not found..

The  true value of ‘What if analysis’ would be when the business user is able to add/remove each of the options, and is able to ascertain the impact of the same on the revenue, profitability and other KPIs, with comments captured in a collaborative environment. More interesting, if you can do this very fast and enable it in Top Ten ePM trends for Next Decade – #4, yes that would be cool.

I got a tweet that was interesting ‘After 2 hrs with high tech CFO – I am amazed at how little transformation has been achieved despite having all the tools for years’. This is indeed a case with all the ‘Decision Insight’ initiative. What is needed is a clear framework that can support real ‘What if analysis’ for decision insights to people like a CFO. So you understand the importance of what ifs with respect to ePM, clearly a very important trend.SAP BusinessObjects Enterprise Performance management solutions with the interface to xcelsius (very innovative writeback from Xcelisus to BPC), allows seamless what if analysis. With initiatives management coming from Strategy Management and Profitiability analysis enabled, its all set to enable ‘What if analysis’ quiet extensively. A glimpse of the same belowimage”  

Top Ten ePM trends for Next Decade – #3

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  1. Former Member

    you are right, when you say the ‘what-if’ analysis is very important. I think there are two points to it. One is understanding of co-relation among the various variables that would drive the result of the what-if analysis. This insight comes from the experience as well as the actual data. In the ‘spreadsheet’ days the co-relation was based only upon the exprience. But now the technology has also helped it.

    The availability of the data for long period, the modeling techniques have helped to improve the accuracy of the co-relation among the variables.

    Thus taody the ‘what-if’ analysis is avalaible that is faster and more accurate.


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