Operational, IT, or Financial?

In response to my earlier post titled “What’s In A Name”, a reader named Stephen agrees that financial and workforce performance management are different things but asks:

“… what’s IT performance management or operational performance management? Is the product [needed to support them] any different?”

Point taken, Stephen. I used the terms but never defined them. Outside of workforce performance management, I see three primary categories: financial performance management, IT performance management, and operational performance management. Other uses of the term such as supply chain performance management (operational), network performance management (IT), innovation performance management (operational), and acquisition performance management (financial) are specific examples of the general categories.

As I said in my response to your comment, financial performance management covers compliance, risk and other financial management issues that ultimately help CFOs improve budgeting and financial planning.  IT performance management, on the other hand, helps the CIO reduce costs and manage existing portfolios so that the organization can better maximize value from technology investments, reduce risk from IT, decrease architectural complexity, and optimize overall technology expenditures.  Operational performance management focuses on customer operations and process effectiveness, addresses the growing pressure on the COO to increase revenue and manage costs, while meeting expanding customer demands. 

The chart below depicts where and how the three categories are often applied in organizations:

Although it’s not always that simple, you can usually tell which category is best for you by which group you report to.

 As far as Stephen’s question about products, solutions have evolved to include specific features that address the significantly different needs of each market.  For example, financial performance management products support highly distributed budget creation, multi-level financial consolidation, rolling forecasts with integrated long-term forecasting, “what-if” analyses, and debt schedulers – to name but a few special features. Operational performance management solutions, on the other hand, include resource prioritization, structured operational reviews, sparse data handling, and subjective metrics based on surveys.

Partly this is a result of their user communities. While financial performance management is typically used by a relatively small number of analysts and power users, operational performance management is focused on the larger number of line managers and casual users.  The differences in their source data cause differences in the products as well. The metrics used in financial performance management (i.e. sales, profitability, EBITA) often are based on currency and therefore tend to be very regular and structured with similar ranges.  Operational performance management, however, must also deal with irregular and alphanumeric metrics (i.e. satisfaction grades, efficiency indices, promotional periods). 

 I hope this explains the differences between the financial, IT, and operational performance management markets and I’ll try to be a little more careful to define my terms in future posts. Thanks for the comment, Stephen.