2. EXCELLING AT ENTERPRISE PERFORMANCE MANAGEMENT Pertemuan 19-24 Matakuliah: A0824/IT Investment Portfolio Tahun: 2009 We are what we repeatedly do. Excellence, Therefore, is not an act but a habit. ~ Aristotle

3. Elements of Enterprise Performance Management (EPM) Enterprise performance management is an enterprisewide approach that riles on comprehensive, integrated performance metrics, timely feeback of performance results, and planning and management aimed at achieving optimal enterprise performance. Bina Nusantara University 3

4. Enterprise Performance Management EPM’s goals of optimizing at the enterprise level affects how decisions are made to improve business processes. An impromvemen in a business process is measured not only at the business-process level, but most important, also at the enterprise level. Bina Nusantara University 4

5. Relationship ot ITPM to EPM The common reason given for the growing interest in EPM is that organizations want more from their IT investments, especially their costly investments in ERP systems, CRM, data warehouse systems, financial systems, etc. Organizations implement EPM to integrate data from these various systems so that management can receive more and better information for managing the enterprise. Bina Nusantara University 5

6. Relationship ot ITPM to EPM Focus on optimizing performance at the enterprise level, Regular feedback of performance information Complex trade-offs in determining the best ways to improve performance Provide managers with custom tailored reports and displays to support their decision making Bina Nusantara University 6

7. Relationship ot ITPM to EPM The major eason given for adopting EPM – to get a greater return from large IT investments. Ignores the importance of portfolio-based IT investment management in maximizing enterprise investment returns while controlling costs and risks. ITPM cannot be successfully implemented without the capabilities of BI and EAI systems, which give ITPM its enterprise-wide reach. Bina Nusantara University 7

8. Relationship on IT Portfolio Management to EPM Bina Nusantara University 8

9. Basic Concepts The priorities are customer and enterprise firs, followed by business process, and then the activities comprising the process. Optimization is at the customer and level Visibility of performance results and related information is provided at the enterprise level, the business process level, and the activity level, with the ability to trace results downward, upward, and across or horizontally Reliable and valid measurements of business and IT performance are used at the enterprise, business process, and activity levels The portfolio includes all (with minor expectations) IT investments, including IT projects and in-place systems

10. Basic Concepts High level investment criteria are used to determine the relative worth of competing It investments for meeting priority enterprise performance needs The portfolio mix and balance are constantly monitored and changed to improve enterprise performance, control cost, and manage risk Procedures and systems are in place that ensure timely feedback, analysis, reporting, decision making, and implementation of change

11. Benefits of ITPM Approach to EPM Improved alignment of both business activities and IT with enterprise strategic and operational objectives and their performance metrics Increased return on IT investments because they are managed as a portfolio, eliminating overlaps and dulplications and managing risk More accurate, timely, and relevant information for management decision making at all levels, especially at the enterprise level Quicker identification of, and responses to, process improvement needs and new opportunities Bina Nusantara University 11

12. Benefits of ITPM Approach to EPM Improved use of IT resources because of optimization at the enterprise level Clarification of data needs for decision making, especially at the enterprise level but also at lower levels Enhanced ability to evaluate benefis, costs and risks – an trade offs among them – in terms of net impact enterprise wide Other benefits – experience demonstrates other benefits, such as improved customer retention, productivity, and reduced cost of sales Bina Nusantara University 12

13. Performance Measures and Metrics Cultural Resistance to Performance Measures Number of Performance Measures to Use Enterprise Output and Outcome Measures Responding to Performance Feedback –Correcting Negative Outcomes –Correcting or Changing Output Results –Documenting and Tracking Changes Bina Nusantara University 13

14. Examples of Performance Indicators, Performance Measures and Performance Targets Performance Indicator Performance Measure Performance Target ProfitFinancial Return40 % ROI Satisfied Customers Customer Retention Rate 90 % Retention Online Response Time Time it Takes to Respond 2 Second Response

15. Several common reasons for resistance to performance measures Some managers lack an understanding of what performance measures are and why they are needed The managers are used to managing without the new measures and some do not change their management approach Some managers may disagree with the measures selected or being used and believe they are being pressured to accept them Some managers fear the measures will reveal something that they do not want revealed, such as an unauthorized allocations of resources, misleading reports to superiors or outside groups, or questionable, even illegal, activities

16. Benefits of ITPM Approach to EPM Improved alignment of both business activities and IT with enterprise strategic and operational objectives and their performance metrics Increased return on IT investments because they are managed as a portfolio, eliminating overlaps and duplications and managing risks More accurate, timely, and relevant information for management decision making at all levels, especially at the enterprise level Quicker identification of, and responses to, process improvement needs and new opportunities

17. Benefits of ITPM Approach to EPM Improved use of IT resources because of optimization at the enterprise level Clarification of data needs for decision making, especially at the enterprise level but also at lower levels Enhanced ability to evaluate benefits, costs, and risk – and trade offs among them – in terms of net impact enterprise wide Other benefits – experience demonstrates other benefits, such as improved customer retention, productivity, and reduced cost of sales

18. Responding to Performance Feedback Enterprise-Level Performance Measures Outcome Measures and Their Linked Output Measures Outcome Measure Feedback Output Measures Feedback Comment on Feedback Positive Can assume right products and services are being produced but continue to monitor NegativePositiveInvestigate possible shift in customer values; business process changes may be required to respond to customer changes PositiveNegativeImmediately investigate business process for possible underperforming activities Negative Investigate whether right products and services are being produced; investigate business processes for underperforming activities Bina Nusantara University 18

19. Defining Performance Measures Bina Nusantara University 19 High Level Business Strategies From Updated Strategic Plan High Level Business Strategies From Updated Strategic Plan Key Results and Measures High Level for Strategy Map Key Results and Measures High Level for Strategy Map Supporting Measures Results Chains for Implementing the Strategies Supporting Measures Results Chains for Implementing the Strategies Goals and Objectives Using Balanced Scorecard Goals and Objectives Using Balanced Scorecard Critical Success Factors Most Important Things to Accomplish to Be Successful Critical Success Factors Most Important Things to Accomplish to Be Successful

20. Measuring and Controlling Enterprise Alignment Monitoring Customer Values Bina Nusantara University 20 What Outcomes Do Customers Want? What Outputs Are Needed to Produce the Outcomes What Work Activities Are Needed to Produce the Outputs? What IT Investments Are Needed to Enable the Activities Outcomes Measures Activity Measures Investments Criteria

21. Measuring and Controlling Enterprise Alignment Investment Criteria as an Alignment Tool Bina Nusantara University 21 Aligned Investment Criteria Used to Select Aligned Investments That Produce Desired Outputs That Result in Desired Outcomes

22. Decision Criteria Used During the IT Investment Management Life Cycle ~ IT Investment Management Life Cycle ~ Select PhaseControl PhaseEvaluate Phase Selected Projects Ongoing Projects Completed Projects Evaluated with : Screen-Out criteria Investement Criteria Portfolio Balance Evaluated with : Planned vs actual Investment Criteria Portfolio Balance Evaluated with: Planned vs actual Investment Criteria Portfolio Balance Bina Nusantara University 22

23. Life Cycle Alignment Control The same investment criteria are used by proposal teams organization-wide and by the Investment Review Board, so everyone uses the same criteria for investment decision making. The investment criteria are used in all three of the investment phases and measure the degree of alignment with, and expected contribution to, the organization’s goals and performance objectives The contribution of the investment to portfolio balance is evaluated throughout its life cycle; an investment must not only be aligned but also contribute to portfolio balance Bina Nusantara University 23

24. Life Cycle Alignment Control “Screen out” criteria are used in the select phase to screen out proposed investments that are not aligned, are unworthy, should be decided at a level below the Investment Review Board, or otherwise do not meet the requirements for board consideration Planned versus actual performance is measured and assessed in both the Control Phase and the Evaluate phase, the degree of alignment is also evaluated All existing and proposed investments are in competition with each other for the same scarce funds regardless of investment phase; those that are best aligned have a greater likelihood of receiving funding. Bina Nusantara University 24

25. The Business Case and Enterprise Performance Bina Nusantara University 25 Analysis of Problem/ Opportunity Investment Business Case Investment Board Decisions IT Portfolio Business Process Performance Enterprise Performance Approve Change Delay Replace Cancel Performance Feedback

26. Standard Information Requirements What is the problem or opportunity and why does it have to be addressed now? What have others done to solve the problem or address a similar opportunity? What alternative solutions were considered and why was this one selected? What is the cost and when are the funds needed? How long will it take to recover the investment? What risks are involved and how will they be managed? What changes will the project make and when must the project start? How will the project be managed and who will be the project manager? Bina Nusantara University 26

27. Making the Business Case Without IT Investment With IT Investment Bina Nusantara University 27

28. Measuring Financial and Non Financial Benefits The calculation of financial ROI is a fundamental measure used in business cases. Characteristics of ROI: –Relatively easy to quantify (e.g. cost savings) –Easy for senior executives to understand –Long history of use to justify investments –Much credibility because the quality of the source data, assumptions, and computation method can generally be verified –Can determine impact on financial condition of the organization –A strong financial case is always appealing to executives Bina Nusantara University 28

29. “Intangible” does not mean Unmeasurable Bina Nusantara University 29

30. Software Systems Increased Comprehensiveness Facilitating Integration Importance of the Underlying Process Benefits of Designing the Underlying Process First Bina Nusantara University 30

31. Related Software Systems IT Portfolio Management (ITPM) Business Intelligence (BI) Enterprise Application Integration (EAI) Bina Nusantara University 31

32. Convergence of Software Systems Bina Nusantara University 32 Project Office Resource Management IT Portfolio Management Enterprise Application Integration Project Management Business Intelligence Others Capabilities One IT Portfolio Management Software System or Software Suite

33. EPM Software Software “What we need is a highly scalable platform that can provide collaboration on an integrated set of metrics from all areas of the organization that can link to a distributed set of hierarchical goals and objectives. Unfortunately, the focus on the sizzle of the end-user interface has pushed out consideration of the enterprise architecture and information integration required for adaptability and customization of this new breed of application platform. “ – Mark Smith, CEO of Ventana Research, after a review of EPM Systems, in Intelligent Enterprise, June 30, 2003 Bina Nusantara University 33

34. EPM Software Systems A satisfactory EPM software system must either have an IT portfolio managemenct capability or it must be able to integrate seamlessy with an IT portfolio management system. The more advanced IT portfolio management sofware systems are encompassing much of the funcitionality desired of a comprehensive EPM System Bina Nusantara University 34