Analytics And The Importance Of Looking Forward

KPI

Are you living in the future or in the past? The way you measure performance is an easy way to tell. In order to provide transparency to processes, projects, duties and departments, many organisations draw up Key Performance Indicators (KPIs) as a basis for measuring their own performance.

Although, in many cases, this enables them to build a reasonable picture of their performance up to that point, it doesn’t offer any insight into what their future performance will be. It’s important to remember that KPIs are, in fact, “Past Performance Indicators” (PPIs). On the other hand, gaining insight into where your organisation wants to go (or should want to go) is how we define “Future Performance Indicators” (FPIs), which can help to provide an insight into how you will perform if existing processes remain unchanged.

These FPIs are becoming an increasingly important part of the way the modern business works. Specifically, they can help businesses to predict what problems will arise if they do not change the way they operate. FPIs can also help organisations to avoid issues before they have a negative impact on the bottom line. But how do you determine these FPIs?

In measuring any performance indicator, a link must be established between the planning data and the performance data, which considers what the plan is, and what has been realised. In the case of PPIs, which are most commonly used form of KPIs, the realised performance is measured against the planned performance: what did you plan to realise, and to what extent has this aspiration been achieved?

However, an insight into what has been realised actually says nothing about what you will realise in the future if your existing policies remain unchanged. That’s because it depends on far more factors than the current performance of employees or processes. By continuing to look backwards as an organisation, you have no insight into any errors that will come into play if policy remains unchanged.

A good example of the consequences such behaviour can have is if you consider the management of your business as though you were driving a car. If you only drive a car (or a company) with information you glean from the rear-view mirror then a crash is, sadly, inevitable. That’s why you mostly look ahead through the windscreen in your car. You can also adopt the same approach as an organisation if you deploy Future Performance Indicators. In doing so, you can set out future planned performance against anticipated performance, using predictive operational process analysis.

In determining your Future Performance Indicators, the trick is to draw a distinction between the “foreseeable future” and the “non-foreseeable future”, to understand which developments can be foreseen and which cannot. FPIs are calculated on the basis of the foreseeable future. The image that you can form of the future based on the operational analysis of the data available in your information systems (like ERP) is crucial to this. By creating a number of links between the information stored in silos and analysing it, future developments and performances can be predicted.

For example, consider linking a purchase order to a client order, where a chain of multiple steps is completed. As an organisation you lay in a stock for the production of a semi-manufacture. Through a transport order, this semi-manufacture is shipped for further production, after which the end product is delivered to the client on the basis of a sales order.

By linking these sequential steps in your information system and gaining an insight into all the data associated with the process orders, it’s possible to analyse the entire process and to make predictions about demand and availability. Possible bottlenecks (like your raw materials being delivered too late) can be detected on this basis before problems occur.

As any successful entrepreneur will tell you, it’s important to keep looking forward and not rest on the laurels of what has happened in the past. For businesses, this has never been truer, and the good news is that analytics tools have helped us to envisage this future clearly.

Whereas once a prediction of what might lie ahead, or an attempt to anticipate problems might stem from a hunch, today these decisions can be made on the basis of facts. All of which begs the question – if you’re still living in the past and using old data to predict the performance of your business, how long can it be before you swerve off the road and suffer a costly accident?

Jacques Adriaansen

Jacques Adriaansen is the co-founder of Every Angle Software. Gifted with ability to creatively and colourfully share knowledge, Jacques is also responsible for the overall Every Angle Academy enablement program. From his research background and with his business experience, Jacques reduces methods and theories to their base: common sense. He shares his insights with business professionals in both in-company education and as a guest professor in university education.