Collecting a lot of data is really useless and a waste of money, time and resources if the data is not analysed for progressive purposes.
Yet, many small to medium organisations spend (not invest) many thousands of dollars in man hours and technological infrastructure just to produce a myriad of reports. The requirement of a vast majority of these reports are driven by sheer historical tradition. Often times, no one has really asked “why do we need these reports” or even attempted to make any major changes to the reports because it has always been that way since many years. It was adopted by someone in the past and the tradition continued. Only a few of these reports actually capture the business leader’s attention. The most popular ones are of course the P&L and Balance Sheet. Close to these two are Cash Flow, Account Receivables and Account Payables. These reports combined together gives the business leader all he/she “wants” (not needs) to know. Namely, whether the business is profitable, what is the cash balance, what the projected expenses are for the month and what the projected receivables are for the month.
Most critical and strategic business decisions aimed at business growth are often taken based on the business performance perception derived from these reports.
There are other important reports in the mix for most businesses. For eg: Sales analyses per product, sales analyses per channel, best-selling products, worst selling products, best sales territory, worst sales territory, most productive marketing activity, least productive marketing activity, cost of sales vs profitability, cost of marketing vs profitability, customer satisfaction, customer feedback and so on. These are still only pertaining to sales.
In addition, there are others like cost of dead inventory vs volume of production, production vs demand, cost of shipment delays and cost of machinery maintenance vs production volume. These are just a few examples.
How about HR reports other than just payroll costs? For eg: productivity vs man hours, cost of unplanned leave and so on.
In reality, the ongoing analyses of such reports are the ones that actually help make well informed “evidence based” strategic business decisions; which in turn will automatically have a positive impact on profitability and cash flow.
There are many organisations that do generate such reports and do analyse it to make strategic business decisions. Well done on them. However, there are many who simply generate reports and file them for audit purposes. They have no idea how much “not having” data analyses is costing them.
Let “$cost” be apportioned to the number of man hours spent in generating reports that eventually end up in a file. Add to this cost, the amount of dollars spent every year on things that are secretly eating away at your profitability. For eg: Dead inventory, ineffective marketing activities, unproductive man hours, production costs of least selling products, shipment costs to low performing channels and/or territories and so on.
Now add the total dollar value to the net profit and visualize how much better that looks!
This is the ROI of a good simple to use Business Intelligence software. In the simplest of terms, it reduces costs and increases profitability when used wisely.
However, this does not guarantee that investing in a BI tool and implementing it will automatically increase business profitability. Many organisations have invested in a good BI software tool, and ended up generating more reports than before with little or no business impact. Now that would be a total waste of investment. A lot depends on timely analyses of what the BI tool presents and then making informed strategic decisions. A portion of the cost benefit can be seen and experienced almost instantly. For eg: Generating complex reports that used to take weeks, will probably take a few minutes or hours. You will see an immediate cost reduction and efficiency gain in this area. In addition to this, as you continue to analyse data and make well informed strategic changes in the way the business operates, you will most definitely see a significant gain in overall productivity, efficiency and profitability.
Data analyses is critical for business growth and increase in profitability. This is true on the home front too. Many financially shrewd men and women monitor their home expenses against a pre-determined budget. They’d like to know where their money is going and ideally like to have control on their expenses. They determine what they spend on and how much they save. The really smart ones also stay out of debt or at the least have a clever strategy to get out of debt in the shortest possible time. Any individual with an aggressive debt buster attitude and a savings plan, will most definitely end up wealthy and financially secure. This is Business Intelligence in a simple form. There are several downloadable free apps that help you manage your own finances well. I use one too. It helps me monitor my spending habits, observe a trend and then take decisive actions against the ones that are eating away at my savings.
If BI is important for personal financial security and building wealth, how much more for a business enterprise? There are far more parameters to monitor in a business than one’s home personal expenses. It is critical to analyse data, watch the trends and make well informed timely decisions. But just collecting data is useless, unless it is analysed and prompts you to make strategic decisions.
Just as an accounting software package is an absolute necessity for a business, so also is a business intelligence tool. It is a necessity for the growth of any business. Now the BI tool need not be an expensive software package. It could quite simply be done on Microsoft Excel if not too complicated. But Business Intelligence as a concept is quintessential for the growth of any business. A mere collection of data and generating reports for the purpose of monitoring profits and cash flow alone will not suffice.
Data analyses and corresponding actions are a must to see change.
Santosh Chandran is the Business Development Manager for Business Intelligence at Olympic Software. He regularly blogs about business intelligence and corporate performance management. You can follow him on Twitter or on LinkedIn. Please contact him directly if you would like to find out how BI can improve your business results through better decision making, phone 09 980 3964 or email: santoshc@olympic.co.nz
