Welcome to Love Your Reports. I’m Paul Felix, your host, and this is episode number four. This week, I want to continue the conversation about value, everything we’re doing here to create your Reportopia. It is all about adding value for your organization, helping you reach your goals. So, it’s really important that we identify the value that we’re trying to capture. And one of the nice things about business intelligence and what we’re trying to achieve here, is we really do not need to do much guessing. We can identify the value opportunities, and then we can look at what’s possible, what we can achieve with reporting, and determine, at that point, is this something we want to go after.
And that’s what we’re going to talk about today. How do we go through that process? How do we find the value that we want to capture? And then, once we do, we just go through a little math process and figure out if this is something that we think is feasible. And if so, does it have the return that makes the whole process make sense to undertake?
Okay so to quickly recap here, we talked last week about the three categories of value being increasing revenue, decreasing expenses, and risk reduction. And today, we’re going to talk about, what I believe, are the three critical questions that you need to ask in order to uncover value. And it’s really going to revolve around these three same categories of increasing revenue, decreasing expenses and reducing risk.
What I’m going to describe is the process that I go through when I’m working with my clients to uncover value. Now, before I jump into the three questions, I want to start out by saying, if you’re just now starting this process, you likely already have some motivation for considering it. I guess, the most typical scenario would be your CEO, or your CFO, or some high-level executive has said, “I need these reports.” So now, someone is out there trying to build these reports for them. And that’s fine. There’s definitely value to be had if that is the scenario where your leadership doesn’t have the reports that they need to make good decisions or understand what’s going on in the business.
But I would still really encourage you to go through this process to quantify that value. If you don’t quantify the value that’s going to be added here, then one of the downsides is that the overall process is going to be looked at as a cost center. And by capturing the value and showing that you’re actually adding to the organization’s overall success that really changes the way you and others might look at this overall process.
Let’s just say, you’re out there, you are looking for value, maybe you are a business analyst. You could be someone working for the organization, or maybe you’re even a consulting going in and working with an organization. And the goal here is to identify the value that we want to try to capture with reporting. So, the first thing we want to do is figure out who we are going to talk to. And what we are trying to do here is trying to give people the information that they need in order to operate efficiently and make good decisions. So, we need to find those people that we can actually assist with these reports.
A lot of times the organization is going to already know where the opportunity lies. That may be a straightforward thing. Or it could be a little more difficult. It could be that you’re just going to simply go through various levels, or various managers within the organization, or even individual contributors and try to find this value. Once you find this person and let’s just say, in our example, that this person is a process owner of some kind. You‘re going to have to sit that person down and ask them a few questions with the goal of figuring out if we can assist that process by injecting reporting strategically.
And I would set the stage for this person by saying something like this, “If you could magically have all the information you need in the format that you needed…..” I don’t want them to come to this conversation thinking about what’s possible. I want them to think that anything is possible. “How could I improve if I had any information that I could possibly use to improve this process, in the format that I would need it?” Then we’re going to go into these questions. And really, the three questions are all derivations of the same question.
So, “If you could magically have all the information that you need in the format that you need it, then how would you reduce the cost of X process?” I would do it that simply, how would you reduce the cost of this process? Now, that person that’s running this process has a good understanding of what the bottlenecks are within this process. And if you set the stage by saying, “If you could have all the information you need, and the information in the format that you need it,” That I think triggers someone to start thinking. “Okay, well, how could I improve this process, if I had this information?” And often they’ll come back and say, “Well, this particular part of the process is inefficient because we’re having to do___________. And we could improve that if we had the right information.” If that person had the information they need at that juncture.
Once they identify that opportunity, then it’s a matter of just simply quantifying. And then you just need to say, “Well, how much cost could we cut out, if you had that perfect report?” And then they’re going to come back with a number, or they’re going to say something like, “That’s really hard to say. I don’t know if I can really quantify that. There’s a lot of other variables.” The thing I’d say about that is this part is not a perfect science. We’re not looking for something down to the penny here. We just need a broad stroke, some best guess at what the expense reduction would be in this case, if we’re able to achieve that magical report that this person is thinking about.
We haven’t even talked about exactly what that report is yet, I understand that. But if we’re able to achieve this, what is the opportunity? That’s what we’re trying to get at here. And if we’re off by $1,000, or we’re off by some number, it’s fine, but we do need to quantify it. We need to quantify it in respect to time at a minimum. So, you need to say that if we can do this, then we can save $50,000 a year. Or if we can do this, then we can save $10,000 a month. Sometimes it can be broken down in a more granular manner. We might be able to save X amount per region per month. At a minimum, you want to put time around this number.
So, that’s the first thing that you can ask this person, “How would you reduce the cost of this process.” It’s not rocket science. We’re just basically asking them how they would add value, but the way you frame this question is important. You can get much better results, I believe if you frame the questions in the way that I’m proposing here.
Then the next two questions are the very similar. Letting this process owner know that if you could magically have all the information you need in the format that you need it. Question number two is how would you increase the money generated by this process? How would you increase the revenue generated by this process? And by how much could you increase it?
Just as an actual example, if we’re talking to someone that’s in revenue cycle management, maybe someone in the Accounts Receivable department, and we’re talking to them about how they’re collecting on aged AR. Maybe there’s some information that they need; like, if they could focus their time on the most likely to be collected accounts, then they could be more successful at collecting on those accounts. That’s actual revenue increase. That’s great. Now, we’re collecting more revenue because we’re doing things efficiently.
And the second question, or follow-up question applies, how much? How much opportunity is there to collect more revenue on this aged AR? If you knew exactly which accounts to focus on, or if you knew which accounts are most likely to be collectible. That’s a straightforward question that someone that’s intimately familiar with that process would likely be able to answer. So, that’s question one and two.
First is how would you reduce the cost of this process? Then, the second question is how would you increase the revenue generated by this process? The third question, you probably can already guess, is how would you reduce the risk of failure of this process? How would you reduce the risk of failure? I must say that all three of these are always going to apply. The person might say, “Well, I don’t really see any expense reduction opportunity here.”. You might press a little harder to figure out, “Okay, well, where are your expenses within this process? And why do you think that there’s no opportunity to reduce the expenses by increasing efficiency?”
And it may be absolutely true that there’s no expense reduction opportunity. But we need to ask those three questions to help the person we’re talking to really think about it in those three ways, expense reduction, revenue increase, and risk reduction.
Now for risk reduction, the follow-up question to how much portion of that is a little more subjective. We still need to put a number to it. As an example, if you’re talking to the CEO and the CEO doesn’t have any reports to help understand a particular function within the business. Basically, the CEO is blind to this process. By providing this report, we’re just providing the basic monitoring report as an example.
So, what is that worth? What’s it worth for the CEO to be able to see what’s going on with this process? It’s not an easy question to answer. One way to frame it up is, “Well, if that process fails what would that cost you? And if that process fails, because you’re unable to see it failing what would be the delay in you seeing that the thing is failing. If you don’t have any reporting such as the current status?”
So, you might come up with a number there. You could take that and call it the risk reduction value. If we can eliminate the risk of failure, eliminate the impact of the risk of failure by providing the CEO with some early indicators to the particular business function that could be adjusted possibly, and limit the losses involved with the failure. Well, then there’s the value that we’re adding by reporting.
Okay so, those questions really are all three derivations of the same question. We’re just asking someone in the business that is intimately familiar with a particular process. It could be anybody from a C-level to a mid-level manager, a process manager to even an individual contributor that really understands what is going on with this particular business function.
Just to recap, I just think it’s so important that you set the stage by saying, “If you could magically have all the information you need in the format you need it, how would you reduce the cost of this process? How would you increase the revenue generated by this process? And how would you reduce the risk of failure of this process.”
With those three questions asked and follow-up questions asked how much would that actually equate to? Then, we can just take those three numbers and add them together. It may just be one number. Again, we don’t necessarily have to have expense reduction, revenue increase, and risk reduction. If we just have a process that’s a risk reduction that’s fine. That’s our opportunity. If we have all three, well, let’s add them all together. That’s the opportunity that we’re trying to go after. That’s what we want to try to capture through reporting.
So now, that we know how much opportunity there is, then the question becomes how much of that opportunity can we realistically expect to capture through reporting. This is where your data architect, your data model, your report author, whoever you feel like has the best understanding of your systems of record, or your data sources can go in and look at your system of record and figure out what’s possible. The opportunity sort of represents a very broad stroke of requirements. We’re just saying, “Hey we think we’ve got this opportunity out here to do this thing. Do we think we can get this ideal report pulled together?” And by report, I mean, can we get this information pulled together so this person can gain the insights needed to improve this process?
So then, someone needs to go out and look at those systems of record and figure out, “Well, yeah, some of this is possible. All of this is possible. This is a no brainer. Or this is really not doable. We would have to do all these other things.” Somehow, we must figure out how much of that opportunity could be captured. That’s just a factor. Let’s just say that we think we can get half of the opportunity based on what we have readily available to us. If we have a $50,000 a year opportunity and we think, after doing some initial research, that half of that opportunity can be captured through reporting, well, you’ve got a $25,000 a year opportunity at that point. Or, sorry, you feel like you can capture $25,000 worth of that opportunity.
The other thing that is obviously important here is what is it going to cost to capture that opportunity? We’re not trying to do some type of proforma here. We just want to get an idea of what it’s going to cost to create this report that this particular process owner needs to operate more efficient. We want to do this in broad strokes. We don’t want to go out and do some long-winded requirements collection process. And then, also go out and actually design the data model and figure out what the report layouts… That’s not what we want to do here.
You just need someone that understands what it takes to build these things to make an educated guess at the effort and the corresponding cost involved in creating this report. So, in our scenario, we said we had a $50,000 opportunity that we thought we could capture half of. We’re left with about a $25,000 opportunity that we think we can capture if that’s going to cost us $10,000 to create initially well then, in that first year we’ve got a $15,000 ROI.
Maybe after that, there’s no basic cost involved. Typically, we are automating these reports and there may be no additional cost other than the shared cost of the overall solution, which might be a couple thousand dollars or something like that. In the end, we’ve got a mathematical formula that we can go through. We’ve got a maximum opportunity we think we can capture. We then say, “Okay, of that amount, how much can we realistically capture given our data sources and any other factors we need to consider?” That gives us our net opportunity. We subtract from that whatever our cost is to actually create the reports required.
One of the nice things here about these solutions, business intelligence and data warehousing solutions, is what I like to call Reportopia. They are building blocks in a way. On day one, you’ve got nothing. You’ve got nothing built at all. And you’ve got to start by building the foundation. No matter what business you’re in there is some foundation that has to be built. Once you build those building blocks, those beginning pieces of your solution, you’ll begin to see that the cost of supporting additional requirements is often greatly reduced. It is reduced because you’re not having to consume that initial cost of building the solution.
Now, I want to be careful here because I’m not advocating for going out and building a bunch of stuff on day one, thinking that you might need it in the future. Not at all. I’m 100% about building only as you have identified the need. The first thing we must do is we got to identify the opportunity, determine whether there’s a positive ROI involved in capturing that opportunity. And if so, let’s build that piece. Once we have that piece in place, well, let’s move on to the next one. And let’s just prioritize all of these opportunities however, we think is fit for your organization. It might just simply be well let’s rank these opportunities by the largest amount to the least amount.
There might be other factors, like difficulty to capture because we don’t have easy access to the source data. Maybe we’re constrained from human resources. Whatever the case is, we just need to find those opportunities. And then, start building the solution for each of those in a priority order that makes sense for the business.
And if we’re doing this in a sound manner, we’re doing this using tried and true processes and modeling technique. We are going to find that after we take care of the first one or two reports that we’re trying to get out, we will have pieces of the solution. They’re going to be reused to fulfill report number 3, 4, 5, and so on. And therefore, your cost reduces as you move forward. Sometimes, once you get a year or two down the road or less, it just depends, you’re going to find that there’s no real development required to fulfill the next report. Or to actually create the thing that’s required to capture this next value opportunity you’ve identified because the underlying model is already in place. All we need to do is author a report. The data used to support that report is readily available.
Even better, once you get to the point where your business owners, and your process managers are more familiar with utilizing this reporting solution, you may not even have to go through the process of generating a report for them. They may be able to self-serve. There’re a few things involved with getting to that point, but that does reduce your cost as well. And that’s important because we’re trying to capture value. If we can keep our costs down, then we can capture more value. The ROI is going to be positive in more cases, which makes the overall solution much more viable long-term.
This podcast, Love Your Reports is all about helping business builders and process managers reach your reportopia. And I’ve said in the past, but I’ll say it again, reportopia is not a plateau that you reach and then you’re done. As you can see here, we’re going to actually have to find the value and then figure out if we can achieve that value and go through the process of creating the reports that are needed. But once you get to that point and then you say, “Okay, great. I just cut the cost in half for this particular process.”
Now the question becomes, “Okay now, what can we do to improve?” It’s that constant improvement process that has to be kind of embedded in the culture of an organization in order to really be at this ideal state where you’re constantly improving, you’re constantly reducing your costs, you’re constantly looking for value opportunities. When you get there it’s just a wonderful state of being, in my opinion, because you’re very competitive. Overall, it helps your organization succeed. It helps you have all sorts of other opportunities, hopefully, so that you can expand, or do whatever it is that your organization is trying to do.
If any of you want to reach out to me, my address is firstname.lastname@example.org. You can also find me on Twitter @PaulBFelix . Happy reporting.