Professional Documents
Culture Documents
Performance Management
Making it Work
Gary Cokins, CPIM
Analytics-Based Performance Management LLC
Cary, North Carolina USA
www.garycokins.com
919 720 2718
gcokins@garycokins.com
Previous Associations:
- FMC Corporation
- Consultant with: Deloitte,
KPMG Peat Marwick,
Electronic Data Systems [EDS, now HP]
- SAS
Copyright 2012 www.garycokins.com
Key questions
AGENDA
AGENDA
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Examples of Analytics
-- Hollywood celebrities and the film industry
Will Smith: Independence Day; Men in Black; I, Robot; I am Legend; Hancock
-- Sports teams
-- Crime prevention
-- music score analysis
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Reactive
(Descriptive)
STANDARD REPORTS
1
AD HOC REPORTS
2
QUERY DRILLDOWN (OR OLAP)
3
ALERTS
4
Copyright 2012 www.garycokins.com
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Reactive
(Descriptive)
STANDARD REPORTS
1
AD HOC REPORTS
2
QUERY DRILLDOWN (OR OLAP)
3
ALERTS
4
Copyright 2012 www.garycokins.com
Proactive
(Inferential)
STATISTICAL
ANALYSIS
FORECASTING
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PREDICTIVE
MODELING
OPTIMIZATION
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Analytics-Based Performance Management LLC
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A hot topic
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AGENDA
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4.0
3.8
Market trends
3.7
Customer service
3.7
3.7
3.7
IT capabilities
3.5
1
Source: 2006 Monitor Analysis. Survey of 354 executives; 49% of respondents are C-level
and 56% are from companies with revenue greater than $1 billion
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Vision
& Mission
Strategy
Mapping
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Financial
Customer
Customer
Internal Process
Internal
Processes
Learning
Learning &
Innovation
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Vision
& Mission
Exceed shareholder
expectations
Financial
Customer
Diversify income
stream
Increase sales
volume
Diversify
customer base
Increase sales to
existing customers
Improve profit
margins
Test new
products
Internal
Process
Target profitable
market segments
develop new
products
Optimize internal
processes
Develop
employee skills
Integrate
systems
Attract new
customers
Learning
& Growth
Copyright 2012 www.garycokins.com
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Vision
& Mission
Financial value
Exceed shareholder
expectations
Financial
Customer
Internal
Process
Diversify income
stream
creating
Increase sales
Improve profit
margins
volume
Diversify
customer base
Increase sales to
Customer
intimacy
existing customers
Test new
products
leads to
develop new
internal
Process
excellence Optimize
products
processes
Target profitable
market segments
Attract new
customers
Learning
& Growth
Copyright 2012 www.garycokins.com
stimulates
employee
skills
systems
A learning
environment
Develop
Integrate
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Measurements
KPIs
(strategic context)
Scorecard
Must have
targets
(inter-related
measures with
cause-and-effect
correlations)
Frequency of
reporting
- drill-down analysis
- alert messages
quarterly
monthly
weekly
Without
targets
daily
hourly
Project-based
KPIs
Process-based
KPIs
PIs
Dashboard
real-time
(operational)
(measures in isolation)
Budget &
Resource
Planning
Copyright 2012 www.garycokins.com
With
targets
Without
targets
- Trends
- Upper / lower
thresholds
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37
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Plan
Favorable/
(unfavorable)
$621,400
$600,000
$(21,400)
161,200
150,000
(11,200)
Travel expense
58,000
60,000
2,000
Supplies
43,900
40,000
(3,900)
Use and
occupancy
30,000
30,000
$914,500
$880,000
$(34,500)
Salaries
Equipment
Total
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Activity-Based View
Chart-of-Accounts View
Plan
Favorable/
(unfavorable)
$621,400
$600,000
$(21,400)
161,200
150,000
(11,200)
60,000
2,000
Supplies
40,000
(3,900)
Salaries
Equipment
Use and
occupancy
Total
43,900
Key/scan claims
$ 31,500
Analyze claims
121,000
Suspend claims
32,500
83,400
Process batches
45,000
Determine eligibility
119,000
Make copies
145,500
Write correspondence
30,000
30,000
$914,500
$880,000
$(34,500)
101,500
Attend training
Total
77,100
158,000
Activity
cost
drivers
#of
#of
#of
#of
#of
#of
#of
#of
#of
#of
$914,500
$914,500
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Resources
Resources
Activities
Activities
Objects
Objects
Simple
ABM
Copyright 2012 www.garycokins.com
Expanded
ABM
Analytics-Based Performance Management LLC
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Resources
Benefits
Direct
Material
Phone,
Travel
Supplies
Depreciation
Rent,
Interest,
Tax
Work
Activities
People
Activities
Support
Activities
(verb-noun)
cost-to-serve
paths
Final
Cost
Objects
Equipment
Activities
Products,
Services
Business
Sustaining
Suppliers
Customers
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Resources
Benefits
Phone,
Travel
Supplies
Depreciation
Rent,
Interest,
Tax
Direct costs
Direct
Material
Work
Activities
People
Activities
Support
Activities
(verb-noun)
cost-to-serve
paths
Final
Cost
Objects
Equipment
Activities
Products,
Services
Business
Sustaining
Suppliers
Customers
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$ 30 sales
- 28 expenses
= $ 2 profit
Net
Revenues
Minus
ABM costs =
profit
$ 2 profit
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each activitys
driver quantity
unit activity
driver cost
(eg. # of registrations)
Price/Fee
(Revenue)
Copyright 2012 www.garycokins.com
Activity
Costs
Analytics-Based Performance Management LLC
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VA
Business
Processes
$
$
$
Supplier
(direct material)
NVA
$
$
Process A
Enterprise
Cost
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Customer
+
Channel
+
Product
Direct material,
Direct labor &
Equipment
Indirect expenses
Distribution
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Sales
$$$
Product-Related
Supplier-Related costs (TCO) $ xxx
Margin $
(Sales - Costs)
Margin
% of Sales
$ xxx
98%
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
50%
48%
46%
30%
Distribution-Related
Outbound Freight Type*
Order Type*
Channel Type*
xxx
xxx
xxx
xxx
xxx
xxx
28%
26%
24%
Customer-Related
Customer-Sustaining
Unit-Batch*
xxx
xxx
xxx
xxx
22%
10%
Business Sustaining
xxx
xxx
8%
xxx
8%
Direct Material
Brand Sustaining
Product Sustaining
Unit, Batch*
Operating Profit
Productrelated
costs
Channel &
Customerrelated
costs
* Activity Cost Driver Assignments use measurable quantity volume of Activity Output
(Other ActvityAssignments traced based on informed (subjective) %s)
Copyright 2012 www.garycokins.com
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Very
Profitable
High
(Creamy)
Product Mix
Margin
Low
(Low Fat)
High
Low
Cost-to-Serve
Very
unprofitable
Types of Customers
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ABC/M Models
#0
#1
#2
#3
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100%
Accuracy
of
Final Cost
Objects
A
B
World Class
ABC System Design
0%
Little
Modest
Great
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GARY COKINS
Principal, Global
Business Advisory
Services, SAS
THOMAS P.
KLAMMER
Professor of
Accounting
(retired)
University of North
Texas
TERRANCE L.
POHLEN
Associate
Professor of
Logistics
University of North
Texas
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Chain Management
Involves Linkages
Supply ChainValue
Trading
Partner Relationships
Tier 2
Tier 1
suppliers suppliers
Tier 1
customers
Initial suppliers
1
2
Tier 2
customers
Tier 3+ to
consumers
1
2
1
n
1
n
1
2
n
2
3
n
1
n
Consumers / end-customers
Tier 3+ to
Initial
suppliers
n
1
n
1
n
Focal Company
Source: Adapted from Douglas M. Lambert, Martha C. Cooper, James D. Pugh, Supply Chain Management: Implementation Issues and
Research Opportunities, The International Journal of Logistics Management, Vol. 9, No. 2, 1998, p. 2.
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1
2
3
4
5
6
7
8
$ 560,000.00
Sheet 1
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Integrated
Budget
(Rolling
Financial
Forecasts)
Projectdriven
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Measurement
Period;
1st Quarter
Strategic
Objective
Executive Team
Identify
Projects,
Initiatives,
or
Processes
KPI
Measure
Managers and
Employees
KPI Target
KPI Actual
comments /
explanation
their score
X
X
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Past
Now
Future
Activity-Based Costing
Activity-Based Planning
Predictive
spending
driver measures
output quantities
- Calculates costs
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Resources
Process Costs
Output &
Outcome Costs
Customers and
Service-recipients
Copyright 2012 www.garycokins.com
Resource
expenses can
be calculated
with
backwards
ABC/M
Start Here.
Analytics-Based Performance Management LLC
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Predictive Accounting
ABC/M
ABP
Past
ABC/M
Known
resources
work
activities
cost
objects
ABP
Now
Future
Provides consumption
rates
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Predictive Accounting
ABC/M
ABP
Past
ABC/M
resources
work
activities
cost
objects
Copyright 2012 www.garycokins.com
ABP
Now
Future
Estimated
Analytics-Based Performance Management LLC
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Predictive Accounting
Descriptive
Predictive
Past
Now
unused
Traceable to
products,
channels,
customers,
sustaining
used
Future
sunk
unused
fixed
(unavoidable)
variable
(adjustable
capacity;
avoidable)
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High
7
8
Severity of impact on
event occurrence and
achievement
of objectives
10
4
5
1
Budget
Low
Low
High
Do not budget
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Recurring
Demanddriven
expenses
production
and
ABP/B
Integrated
Budget
(rolling
financial
forecasts)
Projectdriven
Non-recurring
expenses
strategy
map and
risk grid
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Strategy methods
(e.g., SWOT)
(by executives)
Managerial
Accounting
(e.g., Activity-based
Costing)
knowledge
Identify and
manage strategic
initiatives
KPI dashboard
feedback
Forecast drivers
(e.g. sales) ;
develop production
plan
Driver volumes
and mix
Traditional and
driver-based
budgeting (e.g. PBB)
e.g., hours,
Pounds,
# employees
Approve strategy
risk and capital
budget
Operational Modeling
(by employee teams)
Create balanced
scorecard
KPI
targets
Financial Modeling
(1) Operational
budget
Changes and
responses
Capacity
resource plan
Derived budget
(and rolling
financial forecasts)
Manage and
improve core
processes
Results and
outcomes
Revise
plan
No
OK
Acceptable?
Yes
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accuracy
0%
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ACCOUNTING
Tax
Accounting
Financial
Accounting
Managerial
Accounting
Cost Accounting
Non-financial data
capture
Cost Measurement
Financial Reporting
regulatory compliance
[e.g., GAAP, IFRS]
Costs of goods sold
Inventory valuation
Decision Support/
Cost Planning
(feedback on performance)
Spending vs. budget variance
analysis
Profitability reporting
Process analysis (e.g., lean,
benchmarking, COQ)
Performance measures
Learning; corrective actions
History
Low value-add
Source: A Costing Levels Continuum Maturity Model by Gary Cokins
Copyright 2012 www.garycokins.com
published by the International Federation of Accountants, 2010
Future
Modest value-add
High value-add
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Unused
Capacity
Aware
8D
Resource
Consumption
Accounting
Level #
7D
Improved
Output
Information/
Approximate
Push
Accuracy
ActivityBased
costing
(ABC);
6D
Output Visibility
Blind
1D
Process
Visibility
2D
process and
bookkeeping Lean accounting
3D
4D
Direct costs
without (3) and with
(4) support costs
to output groups
5D
Standard
costing to
individual
outputs;
Product
costs
Unused
capacity
costs
Level 6D with (estimate
Channel and d)
customer
profitability
Reporting;
Cost-to-serve
Pull
Activitybased
Resource
Planning
%
G/L acct.
Incrementa
l
1P
Project acct;
Job order
costing
2P
(ABRP);
Forecast
driver
quantities
X unit
consumptio
n rates;
Driver
based
budgeting
Timedriven
ABC
3P
(TDABC);
Forecast
driver
quantities
X time
consumption
rates;
4P
Simulation
5P
Ultimate in
consumptio
n rates;
(RCA);
Level 2P
with
proportional
costing at
direct and
support
depts.
Direct cost
focus;
Repetitive
work
conditions
Source: A Costing Levels Continuum Maturity Model by Gary Cokins published by the International Federation of Accountants, 2012
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AGENDA
85
Strategy,
Mission
Customer
Satisfaction
ERP, etc.
CRM
Scorecards
Organization
Resources
Supplier
Inputs
ROI
(capacity)
Shareholders
86
Customer
Satisfaction
ERP, etc.
CRM
Scorecards
Organization
Resources
(capacity)
Supplier
Inputs
ROI
$
Shareholders
Managerial
accounting
87
needs
ERP, etc.
Targeting
Risk Mgmt.,
Strategy map,
KPIs
Scorecards
Customer
Satisfaction
Order fulfillment
CRM
KPI
Scores
Feedback
Organization
Resources
(capacity)
Supplier
Inputs
ROI
$
Shareholders
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needs
Customer
Satisfaction
ERP, etc.
Targeting
Risk Mgmt.,
Strategy map,
KPIs
Order fulfillment
CRM
Supplier
Inputs
wasted resources
Scorecards
KPI
Scores
Feedback
Organization
Resources
Shareholders
(capacity)
ROI
$
leakage
(waste)
Analytics-Based Performance Management LLC
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Power of
Information
$ROI
Predictive
Modeling
Descriptive
Modeling
(with analytics)
Raw
Data
Two types of
software are
like a brains
two halves.
Ad hoc
Reports &
Standard OLAP
Reports
Data
Information
Knowledge
Intelligence
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Thank You
Gary Cokins, CPIM
Analytics-Based Performance Management LLC
Cary, North Carolina USA
www.garycokins.com
919 720 2718
gcokins@garycokins.com
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