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How do business decision analytics work?

How do business decision analytics work? Does it integrate with my accounting/ERP system? Is it automated or manual? What kind of analyses are run by the programs? Monte Carlo and/or others, and how are the assumptions driven? What size business should one have before making this investment? Does it work with Quickbooks scale companies?

Answers

Topic Expert
Ric Ratkowski
Title: Domain Expert Finance & Analytics
Company: SAP
(Domain Expert Finance & Analytics, SAP) |

Business decision analytics is an analytical approach to promote fact based decision making. It is an attempt (the discipline is evolving) to formalize and document the reasons and basis for a decision and to make better decisions that are repeatable.

If you think about it, many companies have typically been doing some type of either rough or well defined business case analysis involving soft and hard numbers as well as “gut” or “intuition” to support key corporate decisions. Business Decision Analytics attempts to add more rigor to that informal or semi-formal process and to document and frame the decision, in the context of risks, alternatives and levers to make the implementation of the decision successful. It incorporates the use of available relevant data (Business Intelligence systems are used here), modeling techniques (Corporate Performance Management Systems are used here) and an understanding of the industry constraints.

You can think of it as a way to create an objective approach to what are often times subjective decisions. In addition, social media type frameworks like a facebook type interface are used to “herd the cats” of all this various information to document these decisions (which is supported by the fifth principal in Bob Paladino’s book “Five Key Principles of Corporate Performance Management” "Manage and Leverage knowledge" (and document it so you can use it for better decisions next time).

That is the high level definition, in practice the challenge is decisions are all different and require different framing, inputs and risks. The following is just a high level framework of analysis that needs to be performed or considered within a decision:
- Business problem or decision area
- Stakeholder requirement and constraints
- Relevant business drivers and timing
- Relevant business processes
- Risks that impact the business
- Legislation, regulation and funding.

Probably the best example of where companies have successfully used Business Decision Analytics on a micro level in a repeatable method is related to issuing credit to customers based on an objective approach to analyzing history from information provided by credit agencies.

Topic Expert
Ric Ratkowski
Title: Domain Expert Finance & Analytics
Company: SAP
(Domain Expert Finance & Analytics, SAP) |

As you can tell from the above answer it is an approach to better systemize and track decisions, so in answer to your other questions

Does it integrate with my accounting/ERP system?

It would need to probably through a Business Intelligence application for decisions where the information required to make the decision is based on accounting and ERP information.

Is it automated or manual?

In the case of the credit example I used in my previous answer, it is often automated. In the case of strategic decisions it is often manual as there are many external inputs required beyond a company's internal systems.

What kind of analyses are run by the programs?

At a micro level there are industry specific program to help make decisions (think in terms of credit approval). Macro level decisions are just now starting to use software that provides a facebook like interface for collecting all of the inputs and mashing up information to help a decision maker make a decision (i.e. manual decision not automated). I have only seen very micro level decision (very defined inputs and responses) driven by statistical analysis or Monte Carlo simulation (i.e. Amazon suggesting folks that bought this book also like.....)

How are the assumptions driven?

Assumptions are driven by analyzing the particular decision in question. i.e. assumptions are unique for each situation and driven by the person quantifying the decision. For micro areas like credit, there is information available to help you define the assumptions through credit agencies, for macro decision like adding a new product line, there probably isn't information in the context of your business to make those decisions.

Cheers,

Ric

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