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Value-Driven Data Warehousing

Engineering the Information Supply Chain

For Greater, More Obvious ROI

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About Jay Foulkrod

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Mission: Two Core Convictions

1. Better connect Business Intelligence to business Results

2. Pass this know-how on to others via a workable framework

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Noteworthy Contributions

• Creator of the Value-Driven DW Framework• Fortune 100 Retail: Delivered possibly the largest

ABC / OLAP implementation on the planet• Inventor / Author: OLAP-based ABC Allocation Tool• Fortune 100 Oil & Gas: Enterprise Data

Warehouse Decommission & Re-construction• Fortune 100 Computers: Supply Planning System

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Overview

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What this workshop will cover:

Part One: The Case for a New ApproachObjective: Unpack a core issue that currently besets the DW / BI industry and define criteria for a solution

Part Two: An Intro to Activity Based CostingObjective: Learn what ABC is and how it works, via a hands-on exercise

Part Three: The VDDW FrameworkObjective: Learn the elements of the VDDW Framework, the nature of the insight provided, and business initiatives enabled

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Part One

The Case for a New Approach

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The State of the DW / BI Industry

Promise or Problems?

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Signs of Promise

• Vendor Consolidations• IBM/Filenet, Oracle/Hyperion, Microsoft/Proclarity,

SAP/Outlooksoft, BOBJ/ALG• A precursor to better, more interoperable tools?

• Projected budget increases and market growth

• Gartner: 6% growth in BI spending thru 2009

• Lexicon explosion (BI, CRM, SRM, CPM, MDM, DW2.0, BI2.0, EII, etc.)

• Innovation doesn’t happen in a vacuum

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Signs of Problems

• General Business Dissatisfaction with IT• The Offshoring Movement• HBR Commentary

• Is SarbOx keeping DW / BI afloat?• Internal Industry Confusion around various

players’ roles & value props• Failure to articulate / prove ROI• Numerous anecdotes of customer

dissatisfaction – from users to executives

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Promise or Problems?What do you think?

Let’s Discuss…

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One Big Problem:

A Critical Content Gap

Is this really the state of affairs?

Let’s Revisit some Basics…

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A Quick DW / BI Overview

The Information Supply Chain

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GOAL: Process Enablement

•Designed for speed of data entry

•Normalization & RI to protect data integrity

•Unit of work is an individual transaction

•Time scope is very current – data quickly stales

CHARACTERISTICS:

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GOAL: Transform Raw Data to Information Content

HOW:

Integrate, stage, cleanse, structure, allocate, score / stratify, and otherwise enrich it somehow

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CHARACTERISTICS:

•Big Data, Long Processing (an assembly line)

•Big Hardware

•Unit of Work is the Individual Query

•Read –Intensive

•Time-Scope is Historical-to-Current

17GOAL: Disseminate the Content

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SO WHAT?

The value of the Supply Chain metaphor:

Not just an explanatory aid…A diagnostic aid

19Let’s Zoom In: Can the ISC metaphor help explain issues?

20Why re-manufacture content between the factory and the channel?

21Why re-manufacture the content between the factory and the channel?

This means:

•Additional Storage•Additional Processing Time•Additional Handoffs•More Points for Failure•Inconsistency of Metric Definitions•Additional Admin / Support Effort

22How do users typically gain insight from the DW/BI system?

Let’s Zoom In on this…

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Answer:

Excel Hell!

(More Integration)

What are the Costs with this approach?

•Human Time & Effort

•Lost Opportunities

•Questions of Accuracy

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These are symptoms of a problem, but not the root of it.

What do all these layers of integration indicate?

25Re-integration downstream indicates deficient integration upstream

The problem originates in the factory

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Conclusion:

The goods coming out of the factory are deficient

The factory must somehow be:

•Re-engineered•Retooled

•Repaired

•Or Replaced

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Agree or Disagree?

Is this a problem?

Are we indeed data-richyet content-poor?

Let’s Discuss…

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What do we do about it?

First Step:

Dig Deeper…

…Unpack the nature of the deficiency

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What is the nature of the deficiency?

The Content Deficiency…

…reflects a Design Deficiency

The Design Deficiency…

…Flows from a Purpose Deficiency

The Purpose Deficiency

…Flows from a Knowledge Deficiency

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Content is a function of Design

Content Defined…

A repository of information that is:

RefinedInsightful

MeaningfulValuable

Usable

Good Content requires Design

Any debates on this point?

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Design flows from PurposePurpose Defined…

A complex of human drives, including:

IntentionsPriorities

AssumptionsGoals

Felt Needs

Design is the product of Human Aims

Any debates on this point?

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The Purpose of the DW

• Decrease the cost of information

• Enable better-informed decisions

• It depends on the business need

• Single Version of the Truth

Some commonly proffered viewpoints:

How Compelling are these?

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Questions for Reflection1. What human purpose(s) are reflected in the

design of my company’s DW / BI systems?

2. What are common design characteristics that flow from the views of purpose espoused on the previous slide?

3. Are there significant Unspoken purposes that also affect design? If so, what are they, and how do they affect it?

4. How are these Purposes often manifest within IT, more broadly speaking? In IT incentive structures? IT Job Performance Evaluations?

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A Different View of DW Purpose

The Business Person’s, not the Engineer’s:

Show me:

Where I am making and losing it

Why

What to do about it

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And the people said…

DUHHH !!!

What’s Your Point !?

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Why the Uninspired Response?

The Engineer’s Biggest Concern:

Not WHY, but HOW

Get things working! Keep them working!

This is our primary need… …our perceived Purpose

Why disconnected from How……does not compute!

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But this is a serious problem!

Why must govern How, for…Purpose drives Design, so…

What’s the solution?

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The Purpose Deficiency Flows from a Knowledge Deficiency

What do we need?

Answer: A Framework

A Framework…By which to decompose the enterprise as a piece of money-making, money-spending machinery

A Framework… that guides design and integration so as to close this financial intelligence content gap

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What would such a Framework do?

1. Expose Bottom-Line Profitability

2. Do so at the Transaction grain

3. Expose the drivers of that performance

4. Be valid financially and operationally

5. Harmonize performance measurement goals and vocabulary enterprise-wide

6. Produce a system that is fast and easy to use

Let’s Drill In…

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1. Expose Bottom-Line Profitability

Some Basics:

What is Profit?

…Revenue Minus Cost

Is there a standard way of looking at Profit?

… via a “P&L” or “Income Statement”

One example: Wal-Mart

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Wal-Mart’s Income StatementLet’s color-code the various elements…

…Revenues, Costs, Margins

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Which Line is the “Bottom Line”?

For our purposes, NOP (Net Operating Profit)

Why?

• It’s the next stage of Profit insight into which companies typically don’t have deep, reliable visibility

• It’s controllable with a cause-and-effect relationship to the products and partners with whom the company does business

• Keep this workshop simple and focused on learning the core concepts, which can be more deeply applied once learned

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Let’s put back on our Engineering Hats

Engineers, Data Architects, Modellers, what do you see here?…A Cube anyone?

What are the dimensions and measures in this cube?…HINT: Two dimensions, one measure

What is the granularity of this cube?…What additional dimensionality would be valuable?

TIME Dim

INC

OM

E

Dim

AMOUNT Measure

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2. NOP at the Transaction Grain

Why?

BEST PRACTICE for both DW Design and ABC, because of…

– Maximum reporting flexibility Value Capture

– Ease of Integration– ABC Allocation accuracy & auditability

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3. Expose Performance Drivers

Don’t just show me what the numbers are

…Show me why they are

…Show me what’s behind them

Why?– To know where and how to act upon them– Accuracy & Auditability

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4. Financial & Operational Validity

Numbers should tie back to financials…And also reflect real efficiency differences…

• Between Products, Partners, & Transactions• Validated by operational line managers• With real business cause-and-effect explanation

Why?

Accuracy Buy-In Use Value Capture

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5. Harmonize Perform. Measurement

Enterprise decisions are made…

…with Bottom-line visibility

And evaluated…

…for Bottom-line results

Why?

Value Capture

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6. Fast & Easy to Use

Why?

Use Value Capture

Many nuggets require Heuristic analysis

Heuristic analysis requires:– Speed– Ad Hoc Slice & Dice

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Meeting these criteriaHow close do companies typically get?

The Current State of enterprise profit insight

Options for closing the gap

Associated Issues

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The Current State

•Revenue and COGS are comprehensively analyzed•Available typically for all transactions, customers, & products

Why?

…ERPs track this data well

…This means Gross Margin is deeply available

•OPEX is available in the GL•There is no direct link of OPEX to individual transactions, partners, and products

Why?

…The relationship of OPEX to transactions is indirect…Not conducive to point-in-time transaction-based updates…incidental to the ERP’s core job of process enablement…therefore, not captured in the ERP

…And that’s OK!

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The Current StateSchematically Represented

Some Commonality

Some Disparity

• What are the strengths and weaknesses of the current state? • What insights can and can’t be provided?• Is there value in providing deeper visibility?

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Closing the GapHow do we present a combined view?

Bottom-line Financials…

With rich operational dimension analysis (customers, products, suppliers, etc.)

Put another way, how do we combine data of disparate dimensionality & granularity?

Two Options…

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Two Options for Resolving the Granularity Disparity

Aggregate

Allocate

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AggregationRoll up data to greatest common grain

This is not helpful…

…Insight reduced, not enhanced

(GL already has Rev & COGS anyway)

BECOMES

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AllocationPushing data deeper than its “natural grain”

Use of “drivers” to split a measure from source to target records

Allocation is the key to closing the financial-operational intelligence gap

BECOMES

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Basic Allocation StepsLet’s Practice

Locate Handout Page 10

1. Identify the Pool of Money to allocate

2. Determine the allocation targets

3. Determine the allocation driver

4. Compute the allocated results by:• Rolling up the driver • Computing the rate• Driving down the results

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Any issues with what we just did?

Some Common Allocation Issues:

• Highly Political• Tend to stir up debates over accuracy• Why?

• Accountability isn’t our natural preference• High Stakes Proposition• Allocation methodology is often arbitrary• Not based on business cause-and-effect

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Part Two

An Introduction to Activity-Based Costing

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ABC: A Brief History

• Brainchild of Robert Kaplan and Robin Cooper of Harvard Business School

• Excitedly received and implemented in the late 80’s / early 90’s

• Fell from favor in the 90’s. Reasons:• Too complicated to manage• Too much data• Questions of accuracy

– Continual Time Surveys– Handling of Excess Capacity

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ABC: A Brief History

• Currently Undergoing a Resurgence

• Reasons:• Maturation of Tools• Maturation of the Discipline

– Time Driven– Transaction Based– Capacity Aware

• Maturation of Information Architecture• VDDW represents a convergence of these now-

mature elements

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ABC Defined

• ABC = Activity Based Costing• A methodology for allocating costs• ABC Rests on the following premise:

An enterprise can be decomposed and mechanically described as follows:

The enterprise spends money to employ resources

with capacity to perform activities in support of partners and

products

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ABC Defined

• This sentence describes the sequence of steps by which the ABC system apportions cost

• It also indicates the major dimensional entities with which the ABC system interacts

The enterprise spends money to employ resources

with capacity to perform activities in support of partners and products

Steps in ABC cost flow...Major Dimensions

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ABC Decomposed

An ABC system has two major components:

1. A modelling tool:• Where allocation rules and cost flow paths are

defined

• “design-time”

2. A calculation engine:• Applies the model rules to input data

• Generates allocated expenses as output

• “run-time”

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ABC Modelling

First Question – What’s a “model”?

1. A representation of reality that is:• Value-added• Insightful• Reasonably approximate

2. Something iteratively built and refined

3. Something requiring human validation• Preferably assessable from multiple angles

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ABC ModellingBut why model OPEX consumption? Why not use

actual consumption instead?

1. Actual, point-in-time OPEX simply isn’t tracked

2. Doing so would be prohibitively • Costly• Complicated• And, a little spooky

3. Modelling is a faster, more cost-effective path to value capture

4. 100% Precision is not the goal. Maximum Value Capture is the goal.

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ABC ModellingIs an ABC model a data model?

…Yes & No

Yes…It includes a data model

…A static representation of the entities that Contribute to or Consume business processes

…And therefore Costs

No…It is more. It also includes dynamic elements

…A mapping of how cost flows from one entity to the next

…And the rules and variables which affect this flow

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ABC Modelling

$ $

$

An ABC Model can be thought of as a Network……of Nodes……with Paths defined between them down which $ flow……and Rules which determine how much $ should flow down each path……organized GL Resource Activity Cost Target

$$

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ABC Model Calculation

$ $

$

Operates upon Loaded or Referenced data implied by these model inputs

…Resolving rules to numeric weighting factors by which to apportion cost……via a batch procedure……that generates records of allocated cost at each node in the network……in this order GL Resource Activity Cost Target

$$$$

$

$

$

$

$$

$

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ABC’s ValueElucidating indirect costs (i.e., OPEX)

Therefore, prime candidates for ABC exhibit:

• Appreciable OPEX• High Volume, High Complexity, Low Margin:

• Where OPEX visibility is important, and…• Mere intuition is not likely to improve NOP

• Adherence to the following description:The enterprise spends money

to employ resources with capacity to perform activities in support of partners and products

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ABC MechanicsThe Ingredients

Look at Handout Page 12

What are ABC’s key ingredients?

1. A source of $

2. A list of corporate Resources

3. A list of business processes / activities

4. A supply of enterprise transaction & master data allocation targets

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ABC MechanicsThe Ingredients

Look at Handout Page 12What are ABC’s key ingredients?

4. A mapping of cost flow paths5. Expressions which resolve to numeric

weighting factors for these flow paths6. A supply of “Drivers” that plug in as the

variable values for the logical expressions in #5 above, to determine each path’s weight (consumed or contributed capacity)

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ABC MechanicsAssembling the Ingredients (10 Steps)

1. Identify core business activities2. Identify the Resources which perform those

activities3. Identify the Monies which pay for those

resources4. Map the contribution of Cost & Capacity from

GL to Resources to Activities5. Determine the Drivers of contributed cost6. Compute fully-loaded activity cost

Let’s Practice it Together…

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ABC Case StudyIdentifying Activities, Resources, and Cost-$ources

Read the Overview & Pressing Decisions sections of the Case Study (Handout Pages 14-15)

Activities• Selling

• Servicing

• Unloading

• Unpacking

• Put-Away

• Picking

• Packing

• Loading

• Driving

• Delivering

• Occupancy

• Admin Support

Resources• Management

• Sales

• Warehouse Hands

• Van Drivers

• Vans

• Stock Occupancy

GL• Salaries

• Commissions

• Rent

• Utilities

• Forklifts

• Vans

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ABC Case StudyGL – Resource Allocation

Let’s walk thru Together, then you complete (Handout Pages 21-22)

1. Map the GL Account to the Resources for which they pay (Handout 22, GL-Resource Assignment Matrix)

2. Define the Driver for the GL Account (Handout 21, GL Accounts)

3. Compute the Allocation: (Handout 22, GL-Resource Allocation Matrix)

• Rollup the driver

• Compute the rate

• Drive down the $

Question: Which steps are “Modelling” vs. “Calculation”?

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ABC Case StudyResource-Activity Allocation

Let’s walk thru Together, then you complete (Handout Pages 21 & 23)

1. Map the Resources to the Activities they perform (Handout 23, Resource-Activity Assignment)

2. Determine the %-Dedicated of each Resource-Activity (Handout 23, Resource-Activity Assignment)

3. Compute the Allocation: (Handout 23, Resource-Activity Allocation)

• Rollup the driver (% is easy! … but still the same basic operation!)

• Compute the rate

• Drive down the $

4. Compute Capacity Contrib.: (Handout 23, Resource-Activity Capacity)

• Define Activity Capacity Units (Handout 21, Activities)

• Drive down the Capacity Units

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ABC MechanicsAssembling the Ingredients (10 Steps)

7. Define the allocation target (cost consumers)

8. Declare each activity’s allocation Unit

9. Determine the drivers behind allocation units

10. Compute cost consumption down to allocation targets

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ABC Case StudyActivity-Transaction Allocation

Let’s walk thru Together, then you complete (Handout Pages 16-19, 21, 24-25)

1. Determine each activity’s capacity allocation unit (Handout 21, Activities)

2. Define the Drivers and Formula for capacity consumption (Handout Pages 16 – 19, Process / Activity Analysis & Handout 21, Activities)

3. Compute the Allocation: (Handout Pages 24-25, Transaction Detail)

• Resolve the Formula to Units for each transaction

• Rollup the Units (sound familiar?)

• Compute the rate

• Drive down the $

Allocate Txn IDs 1,21,22,38 and, if time, 2 & 39

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ABC Case StudyP&L Analysis

Take a look at the ABC P&L (Handout 26)…

…What do you see?

Compare to the P&L computed earlier (Handout 10)…

…What do you think?

Does Visibility beyond Gross Margin matter?

What about how one gets there?

Let’s skin another cat Elucidating Excess Capacity…

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ABC Case StudyP&L with Capacity Analysis

How would we determine Resources’ productive Utilization?

Utilization = Consumed Capacity / Contributed Capacity

Do we have this info readily available?Handout 23, Resource-Activity Capacity

Handouts 24-25, Transactions

Let’s Finish off Handout 26 Together…

• Compute the Utilization achieved for each Operating Activity• Recompute the Product P&L, excluding excess capacity• Total Up the Unused Capacity

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ABC Case StudyManagement Recommendations

Review the Pressing Decisions section of the Case Study (Handout Pages 14-15)

What would be the impact of making the currently contemplated pricing decisions, and what would

you recommend in that regard?

What other recommendations might you make to Dilbert’s?

Does Visibility beyond Gross Margin matter?

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Musings & Learnings

What is the group learning about:

…The requirements for implementing ABC?

…The value & strengths of this approach?

…The challenges & points for which to prepare?

How could you envision putting this sort of insight to use in your organization?

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Part Three

The Value-Driven

Data Warehousing Framework

(VDDW)

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VDDW = ABC & Dimensional Design Combined

A New Breed of Analytical Data Warehouse

A powerful integration

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What is VDDW?

VDDW is a target configuration

…Of tools and dimensional designs

…that when properly combined

…Yield unparalleled financial-operational intelligence

…In as streamlined a manner as possible

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Why call it a “Data Warehouse”?

1. Comprehensiveness of the data supply required to properly execute ABC

2. Overlapping purpose with the DW

3. Similar system topologies

4. It fulfills the DW’s highest purpose eliminating the need for costly duplication

5. Practical field experience where the ABC system becomes the de facto EDW

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Why the modifier “Value-Driven”?

Plant a stake in the ground as to the guiding purpose behind the DW:

Elucidate and Capture

Bottom-line Value

(Purpose drives design)

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Components of the VDDW Framework

1. Common Dimension Bus

2. Common Star Schemas

3. ABC Allocation Engine

4. The Activity Dimension

5. Activity Contribution Schemas

6. Activity Consumption Schemas

7. OLAP Hyper-Cube

A Picture is Worth a Thousand Words

(Handout 40)

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What VDDW does not address…

Other DW / BI / CPM concerns are neither

Precluded nor Presumed

Rather, VDDW provides the insight by which these can be

Justified and Prioritized

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VDDW Insights• NOP (Handout 34)• Activity Expense & Efficiency (Handout 35)• Driver Analysis (Handout 36)• Capacity / Utilization (Handout 37)• NOP Leverage (Handout 38)• Financial Traceback (Handout 39)

The VDDW Hyper-Cube makes analysis of these metrics completely ad-hoc, across the superset

of all dimensions

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Categories of Action

• Pricing Changes

• Process Changes

• Productivity Tools

• Policy Changes

• Structural Cost / Capacity Changes:– Hire / Fire / Re-Deploy / Re-Mix– Purchase or Sell Assets– Enter / Grow / Shrink / Exit

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Business Initiatives Enabled

• Menu-Based Pricing• Supply Chain Routing• Planning & Budgeting• Return on Advertising• Negotiating for NOP• Incenting /

Commissioning NOP• Sku Rationalization

• Customer Profitability• Customer

Segmentation• Benchmarking• Category

Management• Staffing Efficiencies• Process Costing

Others???

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Q & A

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Additional Slides

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