The technologies that underpin Big Data, such as in-memory’ computing, are already proving their worth in Enterprise Performance Management, (EPM), by calculating budgets and financial closes almost instantly and providing access into vast amounts of multi-dimensional cost and profitability data in nano-seconds.
But I’m not sure that Big Data itself needs to infiltrate into every area of EPM. Sure we now have the technology that can make it possible and there is perhaps a natural tendency to make budgeting models and cost models ever larger – just because we can – but will it deliver any additional value?
Vilfredo Pareto
Let’s start with Vilfredo Pareto, an Italian social theorist, who in the first decade of the 20th century discovered that roughly 80% of the harvest of his pea crop came from just 20% of the pods, exactly the same ratio as he had found when studying patterns of land ownership. It is simple math that says where something is shared among a sufficiently large set of participants, there must always be a number k between 50 and 100 such that “k% is taken by (100 − k)% of the participants.”
There is nothing special about the number 80% mathematically, but in real life it’s the number that comes up most times so that we find that 80% of crime is committed by 20% of the criminal population; 80% of healthcare costs come from 20% of patients – and, as software vendor will tell you, fixing 20% of the bugs in beta releases usually satisfies 80% of clients! The same 80:20 ratio occurs time and time again in performance management:
- 80% of expenditure usually comes from 20% of line items in a budget.
- 80% of net profit typically comes from just 20% of your customers; something SAP Profitability and Cost Management can help you uncover and improve.
- 80% of the work involved in financial disclosure originates from complex minority holdings – which thankfully the SEC is taking a more relaxed view on – but SAP Disclosure Management will help expedite the workload.
We already recognize the importance of the 80:20 rule in strategy management where we call the things that really matter ‘Key’ Performance Indicators and we should exercise the same caution in the approaches we adopt to budgeting and all the other aspects of EPM; don’t let it become ‘Big EPM’ just because we now have the technology that enables it. Here is my checklist of the exceptions where I think it makes sense;
Big Cost and Profitability Reporting
Gaining a multi-dimensional view of profit by customer, product and channel by calculating the profitability of every sales order line for a business with millions of customers and thousands of SKUs, was always verging into ‘Big Data’ even before the label was created. All you knew is that these models took a while to calculate and were unwieldy to query. Now with tools such as SAP COPA Accelerator powered by SAP HANA all that has gone away.
Under-pinning KPI’s with bigger data sets
While any strategy guru will warn against proliferating KPIs, there is a business case for under-pinning high-level indicators such as customer loyalty with metrics based on the real-time analysis of larger, unstructured data sets such as basket mix and sentiment analysis from social media.
But unless you can suggest other good user cases for marrying Big Data into EPM, that’s about it from me. As yet I see no obvious benefit of moving towards ‘Big Budgeting’ by incorporating yet more line items and responsibility centers into charts of accounts as I’ve yet to be convinced that it will result in any increase in accuracy and only mean extra work for an enlarged number of contributors . Levering in-memory solutions such as SAP Business Planning and Consolidation powered by SAP HANA with alerting, amending and approval steps extended to mobile devices to create a process faster that helps organizations become more agile looks to be a more beneficial route to follow.
But, as ever, I’m always open to other viewpoints…..
Let me close with mention of another lesser known law, this time from Theodore Sturgeon (1918-1985), the American science fiction author and critic, who wrote that, ‘Ninety percent of [science fiction] is crud, but then, ninety percent of everything is crud’. Seems like a good adage to keep in mind when reading, and writing, blogs – if ever there was one.