Cost Analytics: Competing with Data Article
All businesses run on data. But those businesses who harness the power of data have the potential to set themselves apart from the pack. For the past decade, experts have opined about the importance of business intelligence tools. Unfortunately, just knowing performance results from the last month, quarter or year is not information that helps companies gain a significant competitive advantage. But, knowing how to use that information does. Business intelligence provides historical information on past performance – how many units were produced, how many labor hours were accrued, what was the cost of raw material inputs, or how many hours a machine was offline. While this type of information is necessary for reporting purposes, the real value comes from manipulating the data to learn how to improve performance in the future. Aside from this, companies can also learn other concepts such as “What is Six Sigma Master black belt certification?” to help their businesses thrive.
Enter Business Analytics. The intention of a business analytics program is to continually analyze and investigate past performance to glean insights that drive business planning. Furthermore, business analytics is not locked up in the world of IT. Business leaders, department managers, and finance teams must have the tools to develop ad hoc reports using real data to keep up with the speed of business. Finally, business analytics needs data – and lots of it. Having a robust repository of granular data allows companies to develop detailed, specific models that allow for a wide range of analysis to help form strategies and best practices.
Business analytics takes data from the past and uses it to learn something about the future. Companies have started to use business analytics as more than a tool to run their business, but a competitive advantage that differentiates them from others in the market. In a world where it is more and more difficult to corner the market with product development, business processes have become one of the remaining ways that companies can stand apart.
Getting to the data
One of the most challenging parts of building a business analytics process is having the right data. In a recent survey from Accenture, managers indicated that they spend on average two hours a day looking for data and find that nearly half of the information was ultimately deemed useless. Even more troubling is that result that 59% of these managers feel that they miss vital information daily because they don’t have access to information and 42% cite that they use incorrect information at least once a week.
Why can’t they find the information they need? Most of the managers surveyed said that they kept their most valuable information on their own computers or in individual email accounts thereby limiting access by others in the organization. Only half of those managers surveyed felt their companies had an understanding of the types of data each part of the organization requires or even understand how to manage information distribution. For finance and accounting groups in particular, only eleven percent of managers feel their companies have invested in the right technologies to help them get the information they need. Thirty percent also felt that they missed valuable information more than five times a week.
The Achilles heel of most organizations is the process of collecting, storing, and accessing information. Without it, business leaders are prone to make uninformed or poor choices that ultimately effect the profitability and competitiveness of the organization. Developing processes to gather and store information is a key activity that all organizations should incorporate into their overall business strategy.
Once you have the data, then what?
Thomas Davenport published a case in the Harvard Business Review called “Competing on Analytics” where he researches companies that compete on the basis of how well they capture, process, analyze and act on data. After analyzing dozens of companies, he dissected the anatomy of an Analytics Competitor into three parts:
- Widespread use of modeling and optimization. Companies who compete on analytics spend lots of effort building complex models to predict the effects of operations on their financial performance. In a recent article in CFO Magazine, “Imperfect Futures”, the author noted that “80% of finance executives say their departments are spending more time on forecasting revenues and other metrics […] with an equivalent number ramping up scenario planning in an effort to gauge the impact of alternate realities.”
- An enterprise approach. In order to have an effective business analytics environment, critical data must be centralized and easily accessible by different parts of the organization. Eliminating silos of data reduces the potential for multiple versions of the “corporate truth” and allows for better evaluation of results.
- Senior executive advocates. Companies that embrace analytics from the top-down are more successful at building a competitive advantage around business processes. But leaders should not rule by results alone. Effective leaders should know when to base their decisions on data and when to go with their instinct.
Costing Analytics for Process Manufacturers
One of the most examined areas of business performance for process manufacturers is the effect of production costs on profits. Successful cost and profitability analytics programs spend considerable effort developing detailed cost models that account for every step of the manufacturing process. Data for the models is supplied by shop floor and manufacturing execution systems that collect information from the plant floor and financial systems that keep detailed spending, budgeting, and revenue data. Building analysis models using actual data gives more credibility to the results since assumptions are limited to the variables tested. Impact:ECS connects to both financial and shop floor systems, making it simple to build dynamic scenario analysis models using the same logic and data as the product cost model. By tightly integrating data and logic in a centralized system, results are based solely on the variable changes tested in the specific scenario. The system also includes a number of options to report and post results, ensuring that the right people have access to the most accurate cost information available.
For process manufacturers, production costs on average comprise more than 80% of all costs. To make the best decisions, analysis of costs for future periods is an essential task is only effective if it produces results in which business leaders are confident. The dual role of Impact:ECS as both the product cost and profitability, and the scenario analysis system allows companies to make informed decisions based on their specific business conditions.
Impact:ECS is the leading enterprise cost and profitability management solution for process manufacturers. 3C Software, developers of Impact:ECS™ and Impact:3C®, was founded in 1989 and is a leader in detailed cost management systems for process manufacturers. Headquartered in Atlanta, Georgia, 3C Software serves clients in several manufacturing industries including automotive, textile and apparel, pulp and paper, semiconductor, chemical and rubber, and food and beverage. 3C Software’s rapidly implemented solutions work with all accounting methods, are simple to maintain, and handle unlimited calculations and variables.
To learn more about how 3C Software can help you get the most out of your data, Start Here!