Business Analytics Drives

Performance Management
Applications
Andre M. Boisvert

Board Vice Chairman and Senior Advisor

Business Analytics
As companies seek to improve their performance in an increasingly global, consumer-driven landscape, managers must
strive to stay one step ahead of the competition. Business Analytics provides managers a unique opportunity: it enables them to
quickly identify market trends, determine the impact of those trends on their company and pinpoint the best response. This
not only improves decision-making, but also significantly increases business agility. In a recent report, Nucleus Research has
determined that companies gain an average return of $10.66 for every dollar spent on Business Analytics 1.
Given the interest from companies in a broad range of sectors, software vendors are investing heavily to help managers
adopt and realize the returns that analytics solutions provide. For the greatest return with these solutions, however, its
critical for business managers to understand not only the types of Business Analytics services, but also what problems
each type solves.
Traditional business intelligence (BI) technology and the ability to manage big data alone does not provide the insights
needed to make better business decisions; in these cases, the need for Business Analytics solutions, powered by more
than data models (typically OLAP), becomes clear.
Next-generation Business Analytics solutions help companies prepare strategies for the future. Underpinning these Business
Analytics applications for performance management, planning and decision support are three types of modeling platforms:

1. Business Intelligence (BI)

In the context of business analytics, BI is primarily used to aggregate transactional [historical] data to better track
performance, identify issues that need attention and deliver clean and timely information for company decision-making.
BI serves as a calculation engine to measure actual performance. BI also encapsulates master data about the business,
forecasts for known variables (e.g., headcount, capacity, salaries), and targets that drive performance scorecards.

Business Analytics Drives Performance

Management Applications

River Logic

Page 2 of 11

There are two primary types of BI uses: descriptive and diagnostic analytics.
Descriptive Analytics The primary use of BI; reporting what is happening in real-time. is to report on what is
happening. Descriptive analytics supports standardized and ad-hoc reports, scorecards, alerts and basic slice
and dice. Along with workflows and business process management, descriptive analytics technology is used to
aggregate information from multiple inputs on planning scenarios, such as budgeting.
Diagnostic Analytics These technologies also enable business users to understand why something is happening.
Users can quickly group information in multiple ways, and visualize it in charts and graphs. This helps uncover root
causes (e.g. deviations from target, outliers) for poor business performance. These solutions are typically supported
by in-memory visualization technologies.
When used for their intended purpose, BI models are excellent at helping users understand what has happened to their
business and identify the driving elements behind these conditions. Nevertheless, a BI model (descriptive or diagnostic)
should not be used as a calculation engine for forward-looking scenarios, as they are likely to provide incorrect
information and fuel suboptimal plans.

As a word of caution to readers, all Financial Planning

applications are built on top of BI technologies, and therefore
their ability to help CFOs build accurate and optimal forecasts
is limited.
Traditional BI platforms may come from a number of vendors, such as IBM Cognos, SAP Business Objects, Microsoft
(through Sharepoint/SQL Server/Excel), Oracle BI, Microstrategy and Pentaho (open source). There is also a newer breed
of visualization tools, based on in-memory, user-friendly applications, which are led by Tableau, Qlik and Tibco Spotfire.
This has driven leading vendors to invest in their own in-memory applications (e.g. SAP HANA).

2. Predictive Analytics
Through a variety of statistical modeling approaches, Predictive Analytics helps businesses predict the behavior of
unknown key variables that can have a significant impact on business performance. These analytics are most commonly
used to predict demand (volume, prices) in various forms, input prices, currency movements and risk (via weather or other
variables). Predictive models are also used for analyzing information patterns contributing to fraud detection or online
marketing optimization.

Business Analytics Drives Performance

Management Applications

River Logic

Page 3 of 11

Predictive modeling yields valuable results when causal drivers are identified, particularly when past driver behavior and
driver relationship to main variables are stable. Predicting the future is more challenging when many fluctuations are
present (e.g., when there are multiple causal drivers and they behave unpredictably). The same is true when there are
significant discrete events (e.g., a market disruption, a significant equipment failure) that occur infrequently.

For multiple reasons effort, suitability, ability to derive

insights and risk users should not attempt to build
Prescriptive Analytics models using Predictive Analytics tools.
The Predictive Analytics space is growing at an exponential rate. Traditional providers of Predictive Analytics include
statistical programming platforms like SAS, IBM SPSS and R (open source). There are also developing services that
incorporate new capabilities and facilitate use of open source R by business analysts, such as Knime, RapidMiner, Revolution
Analytics (recently acquired by Microsoft), StatSoft (recently acquired by Dell) and KXEN (recently acquired by SAP).

3. Prescriptive Analytics
These systems translate a series of constraints (and often a forecast) into a feasible business plan, and help users identify
the best next steps for their company. There are two primary approaches in these cases simulation and optimization.
Simulation is best used in design situations, to help identify system behaviors under different configurations and ensure
that all the key performance metrics are met (e.g. things like wait times and queue length). Optimization supports on-going
operational, tactical and strategic business planning. It leverages linear programming (typically mixed integer) to identify
the best outcome, given business constraints and an objective function.
Prescriptive Analytics (optimization) was traditionally applied by Operations Research professionals to solve operational
problems, such as route optimization and logistics planning. With the advent of new technologies that make it possible
to model larger, enterprise-wide problems, and provide broad support for what-if analyses, Prescriptive Analytics now
enables a new class of business analytics applications.

Business Analytics Drives Performance

Management Applications

River Logic

Page 4 of 11

One such example is the application of Prescriptive Analytics to S&OP or Integrated Business Planning. In this case, the
optimization model is used to calculate the impact that various forecasts (some from predictive analytics engines) will have
on the business, while also taking into account operational constraints, including factors such as:
Capacities in the form of headcount or production
Regulatory requirements
Emissions
Financial limitations, such as borrowing or working capital
Advanced optimization models combine the value chain (including key constraints) with financials, providing much higher
quality information than whats possible with single predictive or BI models this also ensures internal data consistency
and identifies infeasible outcomes. These models support unique analyses, such as contribution margin, activity-based
costing and pro-forma financial statements to help users make the best possible business decisions.
Prescriptive Analytics, for both simulation and optimization, is provided by multiple types of vendors. Simulation tools
include Arena, Anylogic, Simulink and many others; optimization vendors provide companies with a broader variety of
tools. The oldest set are general-purpose algebraic programming languages, developed in the 1960s-early 1980s this
includes Lindo, GAMS (General Algebraic Modeling System), IBM ILOG, and FICO Xpress.
Algebraic programming languages require a certain degree of expertise typically PhD-level understanding and a lot of
work to develop, de-bug and maintain the models. There are also packaged offerings that solve single-point problems,
such as supply chain modeling and truck route planning. These tools are hard-coded to solve only one problem, and
typically do not offer open APIs.
A new type of technology being developed is knowledge-based, and combines the flexibility of a general-purpose
language to address problems/open APIs with the ease-of-use of packaged applications one such example is Enterprise
Optimizer, owned by River Logic.

Business Analytics Drives Performance

Management Applications

River Logic

Page 5 of 11

While there are myriad differentiating factors and purposes for individual vendor offerings, they all generally fall under one
of these three classifications. These modeling platforms all have specific purposes; problems often arise when companies
try to use a modeling approach for purposes it was not designed for. This has been the unfortunate case with many BI
applications, driven by the fact that some platforms reached mainstream adoption prematurely, like data models.
Despite this, there is a clear use for all three, and they often can be used together inside Performance Management
applications to solve difficult business challenges, and increase business performance, agility and predictability.
Performance Management, Planning & Decision Support Applications
For better business planning and decision-making, understanding both when and how to use these platforms is critical.
The range of their applications is very wide, and almost entirely dependent on intended purpose, the context and the
functionality required. Several factors impact the choice of one or more platforms, including:
Time Orientation Applications can focus on the past, the future or both. If the focus is to understand past or
current performance (e.g., by business unit, region, customer or service), then key functions might be aggregation and
information reporting. Many BI applications work in this way, leveraging data models for data aggregation and roll-up
into various hierarchies. when and where.

Even these applications, however, may need support technology. This is the case when companies deploy scorecards
that compare performance vs. target data to show red/yellow/green status checks. In order to set appropriate targets,
a constraint model could help determine what are feasible and/or optimal targets.

While BI focuses on the past, Predictive and Prescriptive Analytics enable planning and decision support applications
that focus on the future.
Level of Uncertainty The degree of uncertainty in important variables drives the need for Predictive Analytics.
For example, in the insurance industry, Predictive Analytics are used to model weather patterns (as a driver of future
insurance claims) as an input to manage risk exposure. In business-to-consumer industries, predictive modeling helps
calculate base demand and lift as inputs for decision-making on promotional spend. In these examples, Prescriptive
Analytics help by identifying where to underwrite new policies, or which types of promotions to run on products
including when and where.

Business Analytics Drives Performance

Management Applications

River Logic

Page 6 of 11

Alternatively, in some situations, limited uncertainty lessens the need for Predictive Analytics. This includes situations
in which resource allocation decisions (such as in a hospital or a factory where short-term demand, resources, costs
and revenues are well known) and unknown variables are less important. In these situations, Prescriptive Analytics
can be used to identify both the most optimal and feasible decisions.
Variability & Complexity Variability refers to the rate of change of important variables that affect business, such as:
Prices
Input costs
Business constraints
Complexity is essentially how difficult is it to represent business processes, products, customers and important
constraints in an organization. For small businesses, for example, making one product in one plant features
consistent pricing and costs. In this case, one could reasonably argue that the future looks much like the past, and
that constraints are very limited. A data model (or even spreadsheet) might be sufficient to represent this situation.

On the other hand, there are medium and large companies with multiple products/services, many customers
across different regions, hundreds to thousands of resources, and an ever evolving competitive landscape
in these cases, new variabilities are constantly introduced. It then becomes necessary to use Prescriptive
Analytics models to support key decisions, which can be supported by BI/data models to aggregate inputs
and report actual performance.

Predictive analytics might be needed if variability is not known ahead of time, such as when uncertainty is high on
key, changing variables. The more variable and complex the situation, the more likely multiple scenarios will have to
be evaluated.
Business Context Includes the decisions that need to be supported and how businesses make them. Very simple
yes/no type decisions can be automated, through intelligent systems that can handle rules; however, some more
complex decisions require analyzing patterns of information. Predictive Analytics is well suited to identify patterns and
support this kind of analysis. Broader operational decisions that have to support resource allocation typically require
Prescriptive Analytics.

Most tactical, policy and strategic business decisions require data aggregation (BI), some type of forecasting
(Predictive Analytics), and the ability to assess decision impact on the business (Prescriptive Analytics); therefore, all
three approaches support one another.
Business Analytics Drives Performance
Management Applications

River Logic

Page 7 of 11

There are many other variables or factors that affect platform choice, some of which relate to the individual technologies
provided. For example, how well do they represent a business situation? Can they easily support what-if analyses? How
are financials modeled?
In addition, more complex requirements drive the need for other technologies, such as Reporting/Data Discovery (used
to understand and compare different scenarios quickly), Collaboration (allows multiple users to work together in creating,
running and evaluating various scenarios), and Workflow Management (supports a business process that guides the
formation of plans and/or scenarios, as in budgeting or Sales & Operations Planning). These systems are not used for core
calculations, but rather to understand and manage the inputs/outputs of these calculations
The diagram below illustrates a simplified structuring of multiple types of analytics platforms:

Business Analytics Drives Performance

Management Applications

River Logic

Page 8 of 11

Market Progress
Over the years, there have been several industries and sectors that have shown leadership using multiple platforms to
make better business decisions. For example, the Sales & Operations Planning (S&OP) process in most manufacturing
industries is relatively mature, and supported by technologies that rely on underlying platforms such as:
Demand Planning; using Prescriptive Analytics
Supply Planning; using Prescriptive Analytics
S&OP Dashboards compare plans vs. actuals (data models), leveraging BI technologies.
While there have been recent advancements in other areas (e.g., Network Optimization in the Telecom industry, predictive
modeling in the Financial Services industry), by and large the progress of advanced, forward-looking analytics is still
nascent providers and businesses have concentrated mostly on data models that have matured the soonest. The
lowest adoption is in the use of Prescriptive Analytics, which represents a very large opportunity to improve performance
across many industries and functional areas.
For example, all Budgeting/Planning/Forecasting (BPF) applications today are built on data models, and therefore cannot
support even the most basic representations of how a company adds value and competes in the market. As a result,
they are used primarily to estimate financial performance under user-driven assumptions, typically supported by Excel
spreadsheets. They do not support the strategic decisions they are meant to drive, and ignore the operational realities
of the business. Due to this, executives all over the world have relegated the budgeting process to a quasi-regulatory
process, intended to control costs or fulfill some a political ritual. As Professor Richard Rumelt of UCLA stated:

Most corporate strategic plans have little to do with strategy.

They are simply three-year rolling resource budgets and
some sort of market share projection. Calling this strategic
planning creates false expectations that the exercise will
somehow produce a coherent strategy. 2
Business Analytics Drives Performance
Management Applications

River Logic

Page 9 of 11

These examples illustrate what is possible through Prescriptive solutions, and where there might be opportunity for
positive change within an organization. The Financial Planning and S&OP communities must decide when and how they
can invest in better analytics, as there is opportunity to unify these processes into driving strategic planning, and thus
deliver significantly more value to shareholders.
Software vendors and technology consultants should consider their use of Business Analytics and keep their clients
aware of the possibilities. Every industry and major business function needs a coherent strategy; one that articulates how
they will use advanced Business Analytics for future opportunities.
As determined by Nucleus, the upside to implementing these practices is significant. Managers who move first will
develop better insights, higher profits and more efficient, flexible processes all leading to a competitive advantage that
can be sustained through increased market understanding and business agility.

(1) Business Analytics returns $10.66 for every $1 spent Nucleus Research Paper L122.
(2) The McKinsey Global Institute Survey of Strategic Planning

Business Analytics Drives Performance

Management Applications

River Logic

Page 10 of 11

Meet the Author

Andre M. Boisvert, Board Vice Chairman and Senior Advisor

Mr. Boisvert has over 30 years experience in the technology field and has
held executive positions in some of the most respected software companies
in the industry. After holding senior positions at IBM, Cognos, and Oracle
Corporation, Boisvert served as president & COO of SAS Institute, the
worlds largest privately-held software company, with annual revenues
exceeding $2B.
He later followed a SAS Institute Inc., investment and became Chairman &
CEO of Sagent Technologies Inc., (NASDAQ: SGNT) until it was acquired by
Group 1 Software, Inc. (NASDAQ: GSOF).
From 2002 to 2006, Boisvert served as a director of VA Software (NASDAQ:LNUX), the owner of SourceForge, the largest
world wide repository of open source projects. This led Boisvert to co-founding Pentaho Corporation, the provider of the
worlds most popular commercial open source business intelligence platform. During this time, Boisvert also acted as a
director and advisor to Compiere, Inc. (ERP & CRM), and Zenoss, Inc. (Systems Management).
Today, Boisvert serves as Chairman of Infobright (Data Warehousing), Palamida Corporation, the leader in Software
Composition Analysis for intellectual property & security risk management, and UBmatrix Inc., the creator of XBRL
(eXtensible Business Reporting Language). Additionally, Boisvert is a director of Swiss-based Odyssey Financial
Technologies, Inc., which makes software for the private banking and wealth management industry.

Business Analytics Drives Performance

Management Applications

River Logic

Page 11 of 11