Last entry, I began discussing the importance of a target to business intelligence (BI). Today, I continue.
Before an organization can establish the specific numeric targets suitable for use in a BI application, it needs a mission and the goals that derive there from. Given that this blog is focused on systems-related issues rather than the strategic planning issues of mission and goals, I’m not going to tackle the topic of how the mission and strategic goals of an organization should be established. If you want to explore those topics, see Basics of Developing Mission, Vision and Values Statements and Basics of Action Planning.
Once mission and goals are set, they must be translated into specific values at the appropriate organization level, time dimension, and unit of measure consistent with the actual values from the operational systems such that the BI applications can do meaningful comparisons of target and actual performance.
This translation process is called “budgeting”.
I like the definition of budgeting published by (somewhat surprisingly) the National Park Service (see http://home.nps.gov/applications/budget2/glossary.htm):
The process of translating planning and programming decisions into specific projected financial plans for relatively short periods of time. Budgets are short-range segments of action programs adopted that set out planned accomplishments and estimate the resources to be applied for the budget periods in order to attain those accomplishments.
So, how do we do budgeting?
Budgeting is, in essence, a modeling process: Starting with the things we know, we use a model to translate that into specific financial figures consumable by our business intelligence application in comparison to actual performance figures.
A sample of some things we may know:
1) Our manufacturing capacity and costs: How much capital equipment, facilities, people, and raw materials do we have available? If you are an energy-intensive business such as an airline or a steel foundry, the recent price change in energy is very relevant to your planning process.
2) Our sales capacity, focus, and costs: Are we expanding to new markets? Do we have the people to sell to new markets? What will it cost to acquire the resources required to sell to new markets? Many companies are facing this issue today with the growth of Asia and China specifically, and it significantly impacts their planning.
3) Macro economic forecasts: What are the prospects for the housing market, inflation, consumer spending, and resource costs, for example? If you are a realtor or builder, the recent downturn in the housing market has great relevance to your planning processing.
4) Our customer forecasts: Are our customers expanding or contracting their businesses? If you are in the power business in the northwestern U.S. these days, the plans of your customers—Microsoft, Google, and Yahoo—are extremely relevant to your planning process. (See http://www.datacentres.com/research/google.asp.)
5) Government regulation changes: Are government regulations changing such that your market size is changing? Are government regulations changing such that your cost structure is changing? If you are a California-based business emitting high levels of greenhouse gases, recent government regulation is very important to your planning process. (See http://www.signonsandiego.com/news/state/20060831-1826-ca-xgr-globalwarming.html.)
Next entry: More about this translation process and how Microsoft products assist in it.