One of the most asked questions is what the heck is BI?
BI, Analytics and KPIs are all interrelated, and explained at a high level in this blog post. Before we go there, we can also look at each in its least complex manner, making the concepts just a little easier to grasp.
People don’t always agree what’s included in BI, but the earliest and best known BI was the lowly budget. It’s been around for years and has served many of us pretty well.
The idea was simple
Create a business plan, estimate how much you are going to sell, what you are going to sell it for and what kind of costs you might have to incur to make those sales.
Do you need an office, how many employees will it take, how much for office supplies and equipment, and will you buy or lease… you get the picture.
Then you set up shop, start up operations, record your company’s actual costs… and that can be a shocker.
If you do nothing else with your data, that wouldn’t be very helpful. But if you start to analyze the accounts and categories with the biggest differences, now you have business intelligence.
Let’s say you decide that you want the company’s profit to be not less than a certain percentage, or even a specific dollar amount; that’s a KPI.
The methodologies that you use to predict and achieve the KPIs that you target, those are Analytics.
A simple example of Analytics would go something like this:
Your company decides that it needs to earn a net profit of $500,000 this year. In order to achieve this goal, your company has the following options: it can increase sales by $100,000 or decrease expenses by $20,000.
In this example, Analytics is predicting ways to get to the goal that your company has set. While these are simple examples designed to explain the concepts, they will be helpful when we move on to the industry descriptions below.
What is BI?
BI is an abbreviation for Business Intelligence, and refers to the technologies, applications and practices that allow for collection, integration, analysis and presentation of business information.
Some of the best known BI applications include Microsoft’s Power BI, SQL Server Reporting Services (SSRS), IBMs Cognos Analytics and Oracle’s Business Intelligence, just to name a few.
Technology types might include data warehouses, dashboards, reporting, data discovery tools and cloud data services. Data management solutions collect both historical and present data using statistics to analyze the data that’s been collected. The purpose of BI is to better support business decision making using both BI and Analytics.
What’s the difference between BI and Analytics?
Opinions vary on the differences between BI and Analytics. But, at the ten-thousand-foot level, BI is looking at primarily historical data (what happened) and Analytics is focused on predicting the future (why it happened, what might happen next) and it’s generally considered wise to use both.
It’s also important to define and use KPIs appropriate to your industry and company’s growth stage to target and measure your company’s goals.
What Are KPIs?
Understanding the basics of KPIs will help you get started. First and foremost, there are different types of KPIs to consider: quantitative (can be represented by a number), qualitative (can’t be represented by a number), leading indicators (that can predict outcome) and lagging indicators (that present success or failure). Most KPIs fall into one of these groups.
Defining your company’s KPIs comes next. Base them on your company’s goals, focus on your top three metrics, consider your company’s stage, identify both leading and lagging performance indicators, and realize that KPIs vary greatly based on your industry and business model.
Examples of KPIs that are common across many industries include: growth in revenue, net profit margin, gross profit margin, cost reduction, operational cash flow, current accounts receivable, increased customer satisfaction, inventory turnover and EBITDA.
Defining and using KPIs for targeting and measuring your company’s goals is beyond the scope of this blog post, as there are scores of books and articles written based on your industry, business model and stage of growth.
So give these basics some thought, choose the few that are meaningful to you company and decide how your company needs to proceed.
Once you’d made those decisions you can move on to look at the technologies, applications and practices that are available to achieve them!
Defining your company’s best choices…
BI and Analytics, and KPIs can feel like a bit of a circular process, and that’s okay. Start with the top three things your company wants to change and decide why that change is important.
You might want to consider what might happen if your company doesn’t make those changes and go from there. Technology changes all the time, as do your company’s needs.
Whatever else you do, look towards technologies that are scalable to accommodate your company’s growth and please look at the ROI of your potential investment.