IN CHAPTER 2, WE DISCUSSED the “House of VBM,” as described in Figure 2.6:

The “Technology Enablers” involve information technology (IT) that supports the modeling and calculations used by ERM and the EPM methods (including resources and cost management).

INFORMATION TECHNOLOGY TO ACHIEVE RESULTS

For the VBM framework with its EPM methods to work effectively, an organization must have information technology (IT) systems that can support them. Furthermore, in the context of performance, risk management, and resource and cost management, IT systems serve as enablers.

The EPM methods (the ellipse in “The Mechanism” in the “House of VBM” in Figure 2.6), contribute to the balancing of the three scales in Figure 2.1. As described in Chapter 5, the EPM methods are continuously interacting to balance and improve the three scales: the three Rs of results, resources, and risks. This is where decision-making occurs.

From a decision-making perspective, starting with accurate, reliable, and valid source data is key. An IT issue often involves low-quality input data, nicknamed “dirty data.” There are tools to clean data called “extraction, transform, and load (ETL)” that filter source data. For effective decision-making, remember this: in the absence of facts, anybody's opinion is a good one! And usually the biggest opinion wins, which is the opinion of one's supervisor or one's supervisor's supervisor. So, to the degree these senior managers are making decisions based on intuition, gut feel, flawed and misleading data, or office politics, their organization is at risk.

DATA MANAGEMENT

Data is trustworthy and useful only if it is reliable and can be validated. Reliability implies consistency. For example, if one takes an action five times, one should get roughly the same results every time. Validity implies quality. A test is valid if it measures what it is supposed to measure. IT can provide reliable data, but its data also needs to be valid if one is to have any confidence in the resulting decision. IT systems provide such capabilities. A centralized system with data extraction, data cleansing, and data management capabilities appropriate to the decision at hand provides the type of reliability necessary for that confident decision-making.

Some organizations that have progressed down the VBM framework road find themselves in a laborious process of having to manually collect data, calculate measures, and refresh reports with new information. This can be very time-consuming and a poor use of resources. However, by automating these manual processes, work hours can be freed up so that employees can better use their time to focus on more strategic performance improvement activities.

Organizational leaders and management are empowered when they are armed with information relevant to a decision to be made. Pair a process for handling and managing the data with VBM enabled with EPM methods, and the result is information that is more accurate, reliable, valid, and current than ever before. Only when these methods are employed can performance measures – inputs, outputs, and outcomes – be calculated and automatically updated on a reliable and repeatable basis.

It is true that most agencies and their programs have many systems containing useful data that support their needs. However, for VBM to be successful, the ability to extract data from a variety of disparate operational systems, all while managing the process, is paramount. That leads to a need for data integration, ideally on a single integrated information platform.

Automated data extraction and data management are needed to effectively provide data-driven information. The automation capability allows reliable and valid information to be surfaced. Ultimately, this enables users to proactively manage their areas of responsibility. Performance reports, applications, dashboards, and balanced scorecards can show users at a glance where performance is today, not yesterday. This feedback provides information to inform managers on how well they are performing on what is relatively most important.

BUSINESS INTELLIGENCE AND ANALYTICS

Once data is integrated, business intelligence (BI) and analytics are of critical value to assess and report on performance and cost. Analytics allows a manager to peel back the layers and get to the heart of the performance matter. A dashboard is “thin” if it provides only metrics and performance against targets; this just tells you where you are at a glance. When you ask, “Why are we performing at that level?” analytics and business intelligence come into play. A dashboard or scorecard is “deep” if it can provide:

• Business intelligence (BI) to drill down into data and reports to reveal causes of trends
• The ability not just to look at summarized data and records of information, but to analyze it as well

An example of drilling down with financial transactions is viewing line items of a purchase order.

Most business intelligence software offerings allow one to ascertain performance only historically, by using queries and reporting. This is shortsighted, especially in the context of performance management. The objective is not to just monitor the dials but to move the dials. Many in the IT community refer to BI, which is a term coined over a decade ago, to be about reporting. The higher stage of maturity is with analytics. A popular continuum for analytics comprises these four stages:

The prescriptive stage is synonymous with optimization. For example, of all the what-if scenario options from the predictive stage, what is the best option, choice, or decision?

Today, performance, risk management, and cost management applications are easier to use and bring more value to the table than their rudimentary predecessors. Executives do not need to be technology-savvy, because the systems are intuitive and provide a wealth of information with a few clicks of the mouse (and eventually verbal speech recognition commands). In fact, information can also be within reach for the masses, because many applications are Web-enabled and allow access not just for a few key personnel, but for rather hundreds or thousands of people to access the system and use the information in their jobs. Imagine having access to information that gets everyone on the same page. Information technology supporting the VBM framework can enable communication, alignment, and focus because the supporting technology is scalable and available to the appropriate individuals in the organization.

Applying business intelligence (BI) and analytics software can be extremely valuable with improving performance, managing risk, and reducing expenses, or alternatively, getting more results with the same level of spending and level of risk exposure. Analytical techniques such as operational analytics, logistics, and predictive modeling can be used to enhance processes to make them as efficient and effective as possible.

Since analytics are based on algorithms, statistical models, and other types of modeling already developed by skilled and capable people, it can be helpful in recognizing substantial productivity improvements and potential cost savings if the proper data is available. For instance, analytics can predict future resource needs for planning and budgeting purposes. By using predictive analytic techniques such as “what-if” scenario analyses – which can calculate the mix of the level and types of resources, costs, and risks needed to realize results – then analytics can be used to develop models that predict likely outcomes given certain influencing factors, including resources and environmental conditions. Overall, the ability to understand and determine the various levels and types of resources required in relation to expected results enables organizations to prepare accordingly.

In Chapter 16 we will discuss the need to consider organizational change management issues required to pursue the full vision of the VBM framework. There are barriers that slow the adoption rate of VBM. Few of them involve information technology. Software tools are proven. The barriers are predominantly social ones, including resistance to change, which is human nature.