Strategic Decision Making: Performance Analysis that Works
Most qualitative analysis in performance reporting falls short. Yet, business leaders depend on performance reporting to tell them what’s going on at the front lines. Learn how to make your data work for you to optimize your decision-making process.
When leadership teams meet to review their Balanced Scorecard results, they often suffer from deficient performance analysis, compounded with a less-than-objective decision making process. This can translate into the life or death of an initiative, product or even an entire organization.
As data collection gets easier, many businesses mistakenly believe that more frequent or detailed data equals better decision making. They are wrong. Unless they contextualize and interpret performance data, organizations undermine the potential effectiveness of the reporting process.
Most organizations generate reports that simply display raw data values for their performance measures. Any additional comments typically reiterate the data displayed in the graph, with little explanation or context setting. However, the whole point of qualitative analysis is to contextualize and interpret performance facts and figures to provide a foundation for sound decision making and action. They should cite the circumstances which made way for the data, and go as far as offering suggestions for the preferred course of action.
Managers depend on performance reporting to monitor operations and progress toward goals. Effective qualitative performance analysis puts the information into perspective, helping decision makers identify trends, looming problems, improvements, potential risks or shortfalls, enabling them to assess their options and take action promptly.
It doesn’t take special expertise to compose insightful, actionable analysis. By following a simple “reporter’s” approach (asking “what?” “why?” and “what next?”), organizations can convert data into information, information into insight, and insight into actionable recommendations.
To write effective performance analysis, executives need accurate data, and enough of it to get a sense of a trend, and of whether that trend is normal or abnormal.
We recommend graphing measures and target data values so they can be easily compared and executives may know whether performance results were favorable or unfavorable, and which way their progress is heading.
Strategy Review Meetings should include effective visual representations. In graphs, the x-axis should show the time series, so that the trend is visible, and the y-axis should display the units of measurement along a clearly marked scale. They should be kept simple as including too many variables can make the graph too complicated and confusing.
The commentary accompanying the charts should ground the audience in the topic by stating up front, clearly and concisely, exactly what the reader should be seeing when looking at the graphic.It should complement and expand on the illustrated data and should aim for high value, high impact content, and brevity.
Why did it happen?
Identifying the causes of the performance is at the heart of valuable analysis; it’s the critical information that enables substantive, worthwhile discussion and action. It implies studying both the internal and external environment.
The performance analysis should answer:
- What internal changes may be affecting performance? These are the most identifiable and most controllable in terms of making improvements.
- What external factors are at play? Having a clearer idea of the most likely factors is essential before any action, remedial or otherwise, can be taken.
To understand external forces: competition, overall market trends, and other factors, as well as their impact on performance, executives should seek sources such as industry publications, customer feedback, general market trend reports, and new reports. Understanding the impact of the external environment will also lead to a better understanding of the risks and opportunities the organization faces.
It is not always possible to know for sure why a measure performs one way versus another. The point of analysis however, isn’t to seek the one answer, it’s to provide informed hypotheses that will aid in discussion. Don’t try to represent hypotheses as facts; rather, state them as possible explanations for performance and justify them appropriately.
What are we going to do about it?
Executives should be prepared to offer suggestions about how best to improve performance or perpetuate success. This requires not just an understanding of the current situation and performance gaps, but also of risk and opportunities. Building on this knowledge involves identifying options and weighing them based on relative constraints, costs, and benefits as they develop the most viable recommendation.
Recommendations can take many forms, from a minor follow-up task to a major initiative designed to close a performance gap, or to just maintaining the status quo.
The analysis should communicate the risks, both internal and external to future performance, as well as what the organization is doing to mitigate those risks. It’s equally important to discuss current or future opportunities and what the organization is doing, or could do, to take advantage of them.
All recommendations should be action-focused. Recommending further analysis is not wise. For one thing, it’s not an action. In addition, it not only delays decision making, but shows that the job wasn’t done properly the first time.
Openness to bad news
In some corporate cultures, communicating bad news is almost prohibited. Yet, although no manager wants bad news, failure without warning is far worse. It’s not easy, but every organization must strive to encourage candor and objective assessments, based on relevant facts, and done not as finger-pointing but in the spirit of common cause. Reality checks through good analysis enable proactive decision making that can mitigate or arrest failure, or yield important improvement.
An element of competitive advantage
A combination of clearly represented graphical data and qualitative analysis that provides context, plausible explanations, outlooks, and recommendations will foster the discussion needed to drive strategic performance, helping assess progress and driving healthy decision making. It’s a critical component of business intelligence and the organization’s competitive advantage.
At Trissa we know how important it is for you to have a good strategy but, even more so, for it to be correctly executed. Therefore, we have developed an array of services that will guide you through your strategy reporting process, help you get started on the right foot in your strategy execution.
Author: Trissa Strategy Consulting
Source: The Palladium Group