Aug 18, 2011 12:00
#3 – Business Intelligence Helps Assess Risk within an Organization
In the #4 way Business Intelligence Transforms Your Business, I discussed measuring the ROI of each segment of your business. Measuring ROI is critical to implement the #3 way Business Intelligence Transforms Your Company: Mitigating Risk. I challenged you in the last post to deploy some form of BI system or analytics in your organization, and I walked you through how to calculate a simple profit contribution analysis. Now, I want you to take those results and think about risk. Did the profit contribution analysis show a 25% concentration of profits in one SKU, product category, supplier, or customer? Perhaps your #1 customer’s profit contribution to the entire organization was greater than 25%? So what does that mean in terms of risk?
I want you to imagine that one customer’s business suddenly depleting. What happens to your profits then? What if your #1 supplier bankrupts and leaves you scrambling to find an alternative vendor for raw materials? Business Intelligence identifies and helps you mitigate that risk. Deploying a BI system will allow you to know the exact concentration of profits for each segment of the business, and knowing is half the battle. Once you know the risk, you then can develop plans to mitigate concentrated risks across your entire organization. You can plan for the loss in demand of a highly profitable product.
I’ll close with an example. Last year, I began implementing a BI system for a client who manufactures and distributes environmental products to the government. Due to changes in environmental regulations, one specific product was no longer being offered at the beginning of the following year. Because of the BI system, we were able to quantify the exact impact that this regulation change would have on the profits of the business. We knew when the product was sold, to whom, and how much profit it contributed to the organization. The client was then able to immediately deploy tactics to replace the lost business by promoting his new replacement product while his competitors were left in the dust! A BI system is a tool that arms you with the ability to mitigate risk, maximize profits, and plan for the future. In my next post, I will discuss how I use the BI system to plan for the future.