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Analysis and planning are only the beginning of the performance management process. What counts is execution.

 

Performance is evaluated by comparing actual results to plan. We want to know if we are performing to plan, and, if not, why not.

 

Key Topics:

         Variance Analysis

         Reforecasting

         A Better Process

 

 

Variance Analysis

 

When evaluating variances of actual results from plan, we want to find out as quickly as possible whether we are meeting our planned performance. However, we know there is always random variance within any time period. We need to determine if the actual variance falls within this "normal" variation, or if it represents a trend away from plan - either positive or negative.

 

Performance Chain compares actual variances to the historic random variation to get a probability that the variance is random. Unlike other products' "stoplights" or "gas gauges," we do not set an arbitrary threshold for flagging variances. Normal "expected" variation differs among accounts, so one threshold does not "fit all." A 2% variance would be insignificant for the account in chart (a), but quite unusual for the account in chart (b).

 

 

Instead, we track over time the probability that the variances are random. The trend of these probabilities gives us an excellent indication of whether we are tracking away from plan. Significant variances are always identified, while false alerts are eliminated for large variances that are random rather than significant, avoiding needless distractions and wasted resources.

 

Because our models produce accurate forecasts and include all factors except random variation, even a few small variances can indicate our performance is varying from our forecast assumptions.

 

 

While there is no objective threshold for when variances are significant, and no one time period is conclusive, the trend of actual results from a good forecast is compelling evidence. This evidence ensures that any incorrect forecast assumptions will be identified as quickly as possible so corrective action can be taken.

 

With Performance Chain, evaluating performance is easy and meaningful

 

         Variances are instantly recognizable

         Provides probability that performance is on plan

         Shows probability trend

         Automatically adjusts for driver variance

 

 

Reforecasting

 

Once variances are confirmed, managers must determine the cause of the variance and adjust their forecast accordingly. Performance Chain provides variances for each key performance indicator, making it easy to identify the sources of performance variance. Managers can evaluate if initiatives have been properly implemented or if the initiatives and/or strategies are not as effective as expected. Good performance and effective initiatives are quickly identified and can be expanded and spread to other areas. Likewise, bad performance and ineffective initiatives can be addressed early in the process.

 

Performance Chain makes reforecasting easy

 

         Easy to reforecast in response to variances from plan

         Can reforecast while reviewing actual results

         Plan and targets are always up-to-date

         Spot issues with hitting targets while there is still time to do something about it

 

 

A Better Process

 

Because of its revolutionary approach, Performance Chain supports and facilitates a better performance management process. Grueling annual planning cycles are replaced with quick, more frequent strategic reviews. Managers make frequent reforecasts, so plans are always current - you approach "continuous" planning. This lets you quickly respond to changes in market conditions and spread successful strategies. Rolling forecasts come naturally, as there is no fixed time horizon. Budgets are not fixed, but are automatically adjusted as drivers change.

 

Most importantly, Performance Chain involves more people in performance management. Little technical knowledge is required, allowing you to include all levels of management in the process. All managers are aligned to your strategic goals, everyone has input to their targets, and everyone is accountable.

 

Everyone understands how performance is measured. Everyone has control over their performance. No more disputes over facts. No more questions about goals. No more excuses for poor performance.

 

 

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