eis and metrics

7/31/2019 EIS and Metrics

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MGS 8020 Methods of BusinessIntelligence 1

Executive Information

Systems and Metrics

Source:Decision Support Systems in the 21st

Century, 2nd Edition by George M. Marakas
http://www.gsu.edu/index.html


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An EIS is

An EIS is a special type of DSS designed to support decision making

at the top level of an organization.

An EIS may help a CEO to get an accurate picture of overall

operations, and a summary of what competitors are doing.

These systems are generally easy to operate and present information in

ways easy to quickly absorb (graphs, charts, etc.).

The EIS will allow the executive to drill down from any figure to see

its supporting data.

The executive can select a level of detail (for example, sales by state)

if further investigation is needed.

This top down approach should lead to better decisions.


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Executives are different because

They are enterprise-oriented in thinking

The possess the broadest span of control

They are responsible for establishing policy

They represent the organization to the external environment

Their actions have considerable financial and human consequences

Disturbance management may require around-the-clock attention.

Entrepreneurial activities require the executive to predict changes inthe environment.

Resource allocation tasks require the manager to choose when andwhere the limited resources are deployed.

Negotiation requires up-to-the-minute info to help build consensus.


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Handling

Disturbances,

42%

Entrepreneurial

Activites , 32%

ResourceAllocation, 17%

Negotiation, 3%

Other, 6%

Executives typically spend their time
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Disturbance management may require around-the-clock attention.

Entrepreneurial activities require the executive to predict changes in

the environment.

Resource allocation tasks require the manager to choose when and

where the limited resources are deployed.

Negotiation requires up-to-the-minute info to help build consensus.



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Accounting systems that relate revenue to specific operational areas

are more important than traditional accounting systems.

Information about markets, customers and suppliers is valuable in

determining strategy.

The information required is often spread across several computer

systems and located throughout the organization.

The information used is often short-term and volatile.

Information that represents key business performance indicators

(metrics)

Types of information executives use


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An EIS requires no specific or unique hardware.

A key issue is to be sure that the EIS components optimize and

conform to the organizations computing resources.

The system must be configured so that the resources are well-matched

to the executives using them.

EIS hardware components


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In contrast to hardware, software is usually highly specialized to the

problem domain.

This specialization is often achieved by using off-the-shelf components

for the EIS backbone, and customized modules to meet specific needs.

Lotus Notes is a good example. It can be used alone, or can

accommodate third-party plug-in modules.

SAS is another robust system. [SAS interactive tour]

EIS software components
http://www.isixsigma.com/offsite.asp?A=Fr&Url=http://www.sas.com/solutions/bsc/http://www.isixsigma.com/offsite.asp?A=Fr&Url=http://www.sas.com/solutions/bsc/http://www.gsu.edu/index.html


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Cost: a 1991 survey showed an average development cost of $365,000

with annual operating costs of $200,000.

Proportion still holds today, but higher $$.

Technological limitations: the EIS needs to be seamlessly integrated

into the companys current IT architecture, so it is a formidable

challenge to the designer.

Organizational limitations: the organizational structure might not beright.

EIS limitations


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Agendas and time biases: the EIS represents only part of executives

total agenda, and it may become easy to be overly reliant on it.

Managerial synchronization: heavy reliance on the timely, ad-hoc,

EIS reports may disrupt stable, well-established reporting cycles.

Destabilization: fast EIS response may cause the executive to react

too swiftly, leading to less stability in the organization.

Organizational limits


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Lack of management support

Political problems

Developer failures

Technology failures

Costs

Time


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The intelligent EIS: advances in AI technology will be deployed in the

EIS

The multimedia EIS: multimedia databases will allow future

integration of text, voice and image

The informed EIS: future EISs will make wider use of data external to

the company

The connected EIS: high-bandwidth communication allows greater

interconnectivity

EIS of tomorrow


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Performance Management:

The Balanced Scorecard

Purpose of Balanced Scorecard:

A method of implementing a business strategy by translating it into a

set of performance measures derived from strategic goals that allocate

rewards to executives and managers based on their success at meeting

or exceeding the performance measures.


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The Balanced Scorecard (Source: Kaplan & Norton, 1996)

Reasons for the Need of a Balanced Scorecard

1. Focus on traditional financial accounting measures such as ROA, ROE,

EPS gives misleading signals to executives with regards to quality and

innovation. It is important to look at the means used to achieve

outcomes such as ROA, not just focus on the outcomes themselves.


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2. Executive performance needs to be judged on success at meeting a mix

of both financial and non-financial measures to effectively operate a

business.




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3. Some non-financial measures are drivers of financial outcome measures

which give managers more control to take corrective actions quickly.

(Example: controls in jet cockpit for pilot)




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4. Too many measures, such as hundreds of possible cost accounting

index measures, can confuse and distract an executive from focusing

on important strategic priorities. The balanced scorecard disciplines an

executive to focus on several important measures that drive the

strategy.



f


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1. Financial: How do we look to our Shareholders?

2. Customer: How do our Customers See Us?

3. Internal Business Process: What should we do that is Excellent?4. Employee and Organization Innovation and Learning: Can we continue

to Improve and Add Value?

Balanced Scorecard Perspectives



P f M


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Cycle Times Customer

Satisfaction

Customer orderfulfillment

Product assembly

cycle time

ROA

EVA

EPS

Drivers Moderators Outcomes(lead indicators) (lag indicators)

Quality

Defect rateScrap rate

Manufacturing

Unit Costs



B l d S d


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Drivers Moderators Outcomes

(lead indicators) (lag indicators)

Employee Employee Growth

Satisfaction Retention Rate

Revenues

Employee Product and

Suggestions Process Innovations

Balanced Scorecard

Chain of Causality of Performance Measures(Source: Kaplan & Norton, 1996)


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Financial Measures & the Balanced

Scorecard(Source: Kaplan & Norton, 1996)

Financial measures are outcomes that represent the executives success

at achieving strategic performance goals

Financial measures are influenced by the Stage of the Life Cyclewhich reflects different strategic priorities


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Financial Measures & the Balanced

Scorecard(Source: Kaplan & Norton, 1996)

Sustain/Maturity

ROCE

EVA

Earn excellent

return on capital

invested

GrowthSales Growth

Revenue

Productivity

Generate new

accounts &

increase market

share

Harvest/DeclineCash Flow

Reduce Unit

Costs

Obtain

immediate

payback on

investments fromcash cow

Life Cycle Stage

h l d


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Business Business Inventory cycle time

Quality defect rate

Distributor satisfaction

Customer satisfaction

Distributor price margin

Business Distributor/Dealer Customer

Different Customer Models Relevant Customer Metrics

Customer Measures & the Balanced

Scorecard (Source: Kaplan & Norton, 1996)

C & h l d


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Business Customer Customer order fulfillment cycle

time

Customer satisfaction

Customer price margin

Different Customer Models Relevant Customer Metrics

Customer Measures & the Balanced

Scorecard (Source: Kaplan & Norton, 1996)

Internal Business Process Measures


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and the Balanced Scorecard(Source: Kaplan & Norton, 1996)


Quality

Yield

Throughput

Cycle time

Cost efficiency

Order Fulfillment

Procurement

Repair service quality/downtime

Warranty quality



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Service

to the

Customer



Model of Internal Business Process Logistics

Customer

Need

Identified

Innovation

Process

Operations

Process

Post-Sale

Service

Process

Customer

Need Satisfied

Identify

Market

Create

Product

Build

Product

Deliver

Product

Relevant

Metrics:

DevelopmentCycle Time

Quality

Defects

MCE

Delivery

Cycle

Time

Service

Satisfaction



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Manufacturing Cycle Effectiveness (MCE)

Processing Time

Throughput Time

Throughput Time = Processing time + inspection time +

movement time + waiting/storage time

MCE 0, implies inefficient process

MCE 1, implies less wasted time, greater efficiency



MCE =

Employee and Organization Capabilities


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for Innovation and Learning Measures(Kaplan & Norton, 1996)

What are employee and organization capabilities for innovation and

learning measures?

Represent ways to improve the other 3 scorecard outcomes or

measures.

They nurture the other 3 areas



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for Innovation and Learning Measures(Kaplan & Norton, 1996)

Learning Measures

Employee skill levels (certification

rate)

# suggestions per employee

Employee learning curve (time toreach acceptable level of output or

quality)

Employee Measures

Employee satisfaction

Employee retention

Employee productivity

B l d S d C di G l


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Balanced Scorecard: Cascading Goals

# Employee

Suggestions

Corporate

SBU

Department

Team

ROCE

Corporate

SBU

Customer

Satisfaction

Corporate

SBU

Retail Store

I ti C ti f E ti ith


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Incentive Compensation for Executives with

the Balanced Scorecard

Executive Bonus Pool is designed as a percentage of Base Salary

The bonus pool represents potential earnings from the bonus for an

executive if all performance measures are achieved

Partial success with meeting performance measures results in theallocation of a bonus representing a lesser amount of the total potential

bonus.

Example: The bonus pool for a CEO equals 100 percent of salary.

Range of bonus equals 0 to 100 percent of salary depending on success

of CEO performance.

E l A t bil C B l d


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Example: Automobile Company Balanced

Scorecard Reward Matrix for Bonus

Category Measure Weighting

Financial (50%) EVA 25%

Unit Profit 15%

Market Growth 10%

Customer (20%) Customer satisfaction survey 10%Dealer satisfaction survey 10%

Internal (20%) Above average rank on

Process industry quality survey 10%

Decrease in dealer

delivery cycle time.. 10%Innovation (10%) Suggestions/employee 5%

and Learning Emp. satisfaction survey 5%



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Critical Thinking Questions

1. What happens to the balanced scorecard when the strategy changes?

(example: moving from a growth to an extract profits strategy)

2. How should resistance by executives or managers to new measures behandled?

3. What if executives or managers sub-optimize and only focus on

categories in the reward matrix with the largest payoffsuch as EVA

and Customer Satisfaction?

Metrics attributes


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Customer-centered

indicators that provide value to customer (quality, dependability,timeliness)

associated with internal work that address system cost, wastereduction, team work, innovation, customer satisfaction

Measure performance across time (trends, not snapshots)

Provide information directly at level they are applied (no furtherprocessing)

Linked to business mission, strategy, and actions

Contribute to organizational direction and control Collaboratively developed by those who provide ,collect, process anduse the data

Metrics attributes(K. H. Rose, 1995)


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Sample scorecard

0

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Learning Organization Quality Metric

2004 YTD: 79.5%

2004 Target: 80.0%

Sample Quality Metric

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2004 YTD: 79.5%

2004 Target: 80.0%


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2004 YTD: 79.5%

2004 Target: 80.0%


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Learning Organization Productivity Metric

Resource Hrs per Instruction Hr Developed

2004 YTD: 58 hr / hr

2004 Target: 40 hr / hr

Sample Productivity Metric

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2004 YTD: 58 hr / hr



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2004 YTD: 58 hr / hr


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Sample productivity indicator metrics

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Customer Service Productivity MetricResource Hrs per Instruction Hr Developed

2004 YTD: 48 hr / hr


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E-Learning Productivity MetricResource Hrs per Instruction Hr Developed

2004 YTD: 625 hr / hr


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Six Sigma Productivity MetricResource Hrs per Instruction Hr Developed

2004 YTD: 78 hr / hr


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Enterprise Productivity MetricResource Hrs per Instruction Hr Developed

2004 YTD: 38 hr / hr


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Leadership Productivity MetricResource Hrs per Instruction Hr Developed

2004 YTD: 66 hr / hr


Sample Business Unit 1

Productivity Metric


Productivity MetricSample Business Unit 3

Productivity Metric

Sample Business Unit 4Productivity Metric


Productivity Metric

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2004 YTD: 48 hr / hr


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2004 YTD: 625 hr / hr


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2004 YTD: 78 hr / hr


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2004 YTD: 38 hr / hr


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2004 YTD: 66 hr / hr



Productivity Metric



Productivity Metric



Productivity Metric

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2004 YTD: 625 hr / hr


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2004 YTD: 78 hr / hr


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2004 YTD: 66 hr / hr



Productivity Metric



Productivity Metric



Productivity Metric

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2004 YTD: 78 hr / hr


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2004 YTD: 38 hr / hr


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2004 YTD: 66 hr / hr



Productivity Metric



Productivity Metric



Productivity Metric
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MGS 8020 Methods of Business

Intelligence 37

Sample quality indicator metrics

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Six Sigma Quality Metric

2004 YTD: 79.0%

2004 Target: 80.0%

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Leadership Quality Metric

2004 YTD: 77.0%

2004 Target: 80.0%

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Enterprise Quality Metric

2004 YTD: 76.0%

2004 Target: 80.0%

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E-Learning Quality Metric

2004 YTD: 81.0%

2004 Target: 80.0%

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Customer Service Quality Metric

2004 YTD: 83.0%

2004 Target: 80.0%

Business unit 1

quality metricBusiness unit 2

quality metric

Business unit 3

quality metric

Business unit 4

quality metric

Business unit 5

quality metric

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2004 YTD: 79.0%

2004 Target: 80.0%

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2004 YTD: 77.0%

2004 Target: 80.0%

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2004 YTD: 76.0%

2004 Target: 80.0%

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2004 YTD: 81.0%

2004 Target: 80.0%

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2004 YTD: 83.0%

2004 Target: 80.0%

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2004 YTD: 79.0%

2004 Target: 80.0%

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2004 YTD: 77.0%

2004 Target: 80.0%

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2004 YTD: 76.0%

2004 Target: 80.0%

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2004 YTD: 81.0%

2004 Target: 80.0%

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2004 YTD: 83.0%

2004 Target: 80.0%

Business unit 1

quality metricBusiness unit 2

quality metric

Business unit 3

quality metric

Business unit 4

quality metric

Business unit 5

quality metric

eis and metrics

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