In the last blog we looked at an organisations’ business processes that should provide the foundation for managing performance. In this blog we will look at a way these can be monitored that we will call the Operating Activity Model (OAM).
Monitoring Business Processes
The Operating Activity Model (OAM) is central to organisational planning that, as the name suggests, has a departmental activity focus. Its purpose is to monitor business processes, resources and outcomes, with a range of measures that allows management to evaluate:
- Departmental workload – i.e. what activities are carried out
- How departmental activities contribute to overall goals
- What resources are being consumed
The model to be described holds different versions of data, some of which flows from other models in the planning framework that we will cover in a later blog. These versions include:
- Target – contains the high-level goals set during the strategic planning process
- Budget – contains goals set at a detailed level for the current year
- Forecast – contains the latest ‘best estimate’ of future performance for the next couple of months
- Actual – contains past results
The measures within the OAM has a structure that links operational activities with corporate objectives. These measures can be classified into the following types:
- Objectives – these define what the organisation is trying to achieve in the long-term.
- Business Process Goals – these measure the success of an organisation’s core business processes and support activities that directly lead to the achievement of objectives
- Assumption measures – these monitor key assumptions made about the prevailing and forecast business environment, which relate to the value of the Business Process Goals.
- Performance measures – these breakdown business process goals into measures that can be directly related to activity outcomes
- Activity measures – these come in 3 types:
- ‘Work done’ are those that measure the volume of work done by a particular department e.g. the number of mailings sent out by the marketing department as part of its lead generation process;
- ‘Outcome’ are those that measure what an activity should directly achieve, e.g. the number of people that respond to the mailing;
- ‘Outcome factor’ is an optional measure that can be derived from the first two activity measures by linking the work done with outcome. For example, by dividing the outcome – ‘No. of people responding to a mailing’, by the work done – ‘No. of mailings sent’, we can calculate the outcome factor, in this case the ‘response rate’.
- Source measures – these are values that are either derived from existing data (e.g. last year actual sales) or manually entered (e.g. annual salary growth).
- Income measures – these track income that comes into the organisation
- Resource measures – these track expenditure that flows out of the organisation.
These measures form a natural ‘hierarchy’ relationship as can be seen if we look at the following example of a sales business process:
Sample perational activity measures for a sales business process
In the example, the relationship between objective measures, business process goals, workload and outcomes can be clearly seen. It also indicates the department responsible and any delay there may be between a measure and its impact on the measure it directly supports. These relationships can be used within a target setting or forecasting model to generate predictions of future performance.
To simplify the setting up of the OAM so that it automatically displays the right combination of measures for any particular activity/department, we can assign each with one or more attributes. An attribute is simply a label that denotes what the measure represents. For the OAM each measure has the following three different types of attribute:
Measurement type: This is set to one of Objective, Business Process Goal, Assumption, Performance Measure, Workload, Outcome, Outcome Factor, Income or Resource as mentioned above. Where a measure can be assigned to more than one of the above attributes (e.g. sales revenue can be both a business process goal and an income measure), then the measure may need to be duplicated depending on the sophistication of the planning system being used.
Department: This attribute identifies which department(s) are responsible for the measure and hence whether it is to appear in a particular departmental plan or report.
Activity: This final attribute identifies whether the measure is linked to a specific business process and hence its appearance in any report where that activity is included.
These attributes make it easy when setting up reports or data capture screens, in that they can act as an automatic ‘filter’ to define what measures are to be shown. For example, show all measures designated as ‘Resource’ or ‘Outcome’ for department ‘Customer Support’; show measures for activity ‘Market Research’; or any combination of attributes.
Most planning technology systems allow models to be defined by specifying the individual business dimensions to be used, and then the members that make up each dimension. For most organisations, the OAM will consist of the following four business dimensions, in addition to the measure dimension that has just been described:
Organisation: This dimension contains the departments and how they consolidate into the total company. It’s likely that most organisations will not be able to track departmental activity separately except by reference to the department that carries it out and the associated measures. This means budgets cannot be assigned to an activity unless the department itself is broken down into ‘sub-departments’ within the organisation structure, or activity is considered to be a separate model dimension. For the purposes of this blog we have assumed the former – i.e. activities can only be tracked at a departmental level.
Periods: This defines the organisation’s operational calendar to be applied within the model. Some data may be held at a day level while others at a month and quarter level. For retail organisations this grouping can include seasons and take note of public holidays. This definition also describes the period groupings on how data is to be accumulated over time so that reports can be produced for a selected period in both YTD and periodic format.
Years: This defines the time span to be covered by the model, which can be either a true year or a fiscal year.
Version: This is used to separate the different versions of data that were mentioned earlier.
Where more dimensions are needed, for example to plan and monitor sales by product, line of business, etc., these extra dimensions can be defined within a corresponding supporting model that we will cover in a future blog.
The final part in setting up the model is defining the rules that govern measures. Although we identified measures as having relationships, particularly between performance measures and business process goals, the OAM does not use them.
The rules that are set up are:
- Sub-totals, for example to calculate total expenses,
- Where measures such as ratios need to be calculated from base data
- Those governing currency conversion
- Those required to monitor drivers. We mentioned earlier the relationship between outcomes, workload and objectives measures. In the OAM we may want to calculate what relationships were actually achieved, which can then be reported against those used in the driver based target setting or forecast model.
- Those that are involved in consolidating results to give a total company picture.
Reporting from the OAM
This model is now able to display data by department but in relation to activity, outcome and resources used. Below are a few examples of the types of report that can be produced.
This first report displays an overview of activities and resources consumed by the marketing department:
Sample report with measures filtered by business process and department
By using the attributes defined as a filter, the report is able to automatically display the appropriate measures as they apply to the selected department.
In this next report we have selected the corporate objectives and the business process goals (although only the sales process is shown due to lack of space). For each goal, the list of associated activities are displayed, along with the measures of workload and outcome. Actual performance is compared to what was expected in the budget. From this management can assess the relationship between workload and outcomes to judge whether the focus is on the right activities.
Sample report showing Activity Vs Outcomes
This last report contrasts the business process goals with assumptions and costs. If the assumptions were not right then doubt must be placed on whether the success of affected actions and the associated costs are appropriate. The aim of the report is to start a debate around whether the level of success being achieved is worth the costs that were assigned.
Sample report showing success Vs assumptions and cost
These reports have just touched the surface of what can be displayed from the OAM. Interestingly, most organisations have much of this data already, although it is typically split into separate budgeting and scorecard/dashboard models that focused on the performance of a department. When treated in this way, the data can’t be used to model organisational value and much of its worth is lost.
In the next blog we will look at different ways of viewing business processes. For those of you who can’t wait, you can download our new white paper that covers all of the blogs in this series.