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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:
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Variance Analysis
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Reforecasting
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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
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Variances are instantly recognizable
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Provides probability that performance is on
plan
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Shows probability trend
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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
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Easy to reforecast in response to variances
from plan
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Can reforecast while reviewing actual results
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Plan and targets are always up-to-date
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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.
3Plan
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