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What Is Performance Management?

Originally published July 14, 2011

It sounds like a simple question that should have a straightforward answer. It  also seems to be something that should have been resolved long ago. Unfortunately, neither statement is true. To this day there is disagreement, or at least confusion, when it comes to this question. The answer you get depends on who you ask, their background, their level of expertise in this area, and their own personal agenda. So, we felt it was time (again) to try to clear things up.

What It's Not

Performance management is not business intelligence (BI) and business intelligence is not performance management. The people who claim that performance management is business intelligence are actually doing a disservice to business intelligence. Business intelligence is much broader and can do a lot more than performance management. From a technology perspective, performance management is the application of business intelligence tools and techniques to address a strategic business need. Performance management relies on report and query capabilities, OLAP multidimensional cubes, data marts, ETL tools, etc.  These BI technologies can be used by in-house IT groups to build custom performance management solutions, or by vendors to create packaged performance management applications. Either way, business intelligence is part of the underlying foundation of performance management.

Performance management is also not business analytics, a term that has gained favor with several vendors of late. Much like business intelligence, performance management utilizes and applies many of the components of business analytics to help a business understand and enhance its bottom line performance. Performance management solutions often include elements of data mining, statistical analysis, and predictive modeling. Again, performance management solutions are not the only place those business analytics capabilities are used.

Performance management is not just a dashboard populated with a scorecard, although that is part of it. Some vendors that only provide this capability will say they “do performance management,” but they do only a piece of it. The same goes for budgeting. Some vendors only provide a budgeting tool but will claim to be a complete performance management solution. While providing another important piece of the equation, they do not address all of your performance management needs. Implementing either piece will provide significant benefits, but alone they will not help you reach the full potential of performance management.

The BPM Standards Group

Several years ago, when performance management was going through one of its initial growth spurts, there was also a great deal of noise and confusion around its precise definition. So a group of vendors, analysts, and consultants with a vested interest in seeing performance management succeed met in an attempt to clarify its meaning. The Business Performance Management (BPM) Standards Group was formed in December of 2003 and consisted of senior representatives from Applix (now part of IBM Cognos), BPM Partners, Hyperion (now part of Oracle), IBM, IDC, META Group (now part of Gartner), SAP, and The Data Warehousing Institute. This group is no longer active due to acquisitions and personnel changes, but the work they did is still valuable today. Although performance management has extended its reach over the years, the fundamental definition this group agreed on back in 2004 still holds up for the most part.

The Performance Management Definition

According to the BPM Standards Group:

  • Performance management enables a businesses to define strategic goals, and measure and manage performance against those goals.

  • Performance management is a set of integrated, closed-loop management and analytic processes, supported by technology, that address financial as well as operational activities.

  • Performance management’s core processes include financial and operational planning, consolidation and reporting, modeling, analysis, and monitoring of key performance indicators (KPIs) linked to organizational strategy.

A simplified definition I use today is that performance management enables organizations to plan, monitor, and execute on their strategies. The core components of performance management in 2011 include budgeting and forecasting, strategic planning and modeling, financial reporting and consolidation, dashboards and scorecards, operational analytics, and profitability optimization. I include governance, risk, and compliance as well, although some vendors prefer to break that out as its own discipline.

The BPM Standards Group also produced an in-depth, 27-page industry framework document that includes process and content examples. Most of it is still relevant today, although several of the links no longer work. We are making a copy available as a free download here.

Why It Matters

How can you have a successful performance management project if you don't know what it is? Also, the full value of performance management is only realized by integrating elements from all the areas it addresses. You may focus on a single area today, such as performance dashboards or budgeting, but you may want to consider choosing a vendor that also offers some of the other components in case you decide to expand your focus later.
 
However you choose to proceed, the choice should be based upon your business requirements. Lack of knowledge, inadequate preparation or vendor/consultant misdirection should not be the factors that influence your decision.

  • Craig SchiffCraig Schiff

    Craig, President and CEO of BPM Partners, is a pioneer in business performance management (BPM). Craig helped create and define the field as it evolved from business intelligence and analytic applications into BPM. He has worked with BPM and related technologies for more than 20 years, first as a founding member at IMRS/Hyperion Software (now Hyperion Solutions) and later cofounded OutlookSoft where he was President and CEO.

    Craig is a frequent author on BPM topics and monthly columnist for the BeyeNETWORK. He has led several jointly produced webcasts with Business Finance Magazine including "Beyond the Hype: The Truth about BPM Vendors," the three-part vendor review entitled "BPM Xpo" and "BPM 101: Navigating the Treacherous Waters of Business Performance Management." He is a recipient of the prestigious Ernst & Young Entrepreneur of the Year award. BPM Partners is a vendor-independent professional services firm focused exclusively on BPM, providing expertise that helps companies successfully evaluate and deploy BPM systems. Craig can be reached at cschiff@bpmpartners.com.

    Editor's Note: More articles and resources are available in Craig's BeyeNETWORK Expert Channel. Be sure to visit today!

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