BI crucial to making the right decision: business intelligence is all about collecting useful information from multiple sources and then presenting it in an easy to understand format. (Special Report: Business Intelligence).

The major difference between a personal purchase decision and a business decision is the potential results measured in dollars. These results can be positive or negative, but are rarely neutral. Your decisions can result in gains or losses that exceed last year's total revenue, or the result can be a major gain or loss of market share to competitors. Every decision has to be supported by relevant data. How you make smart decisions is based on your ability to combine information and intelligence before, during and after the decision-making process.

Information is the heart and soul of the expanding digital economy. Business intelligence is created from data and resources that owners and managers collect and retain. It represents a synthesis of all kinds of numerical data: standard accounting, economic factors, sales statistics and expense analysis. The data is created in many forms, in many places and with varying degrees of volume. Obviously, the number of daily stock trading transactions is far greater than the number of airplanes sold in one day.

Business intelligence focuses on two key components: data, and your ability to make decisions from that data. This process demands that you obtain as much data as available, from sources both inside and outside the enterprise. Collecting this data extends beyond financial transactions and should include other facts and opinions, which may require terabytes of storage, depending on the company's size and the scope of the issue.

While technology has enabled major improvements in business intelligence, its core processes are not new; for many years, people have managed businesses using their intuition and a gut understanding of their markets. While their decision-making process was not formalized, the process seemed to work well enough. Key questions to ask include:

* What is working and why?

* What is broken and why?

* Are you spending too much money for the previous results?

* What processes are taking too much time and why?

* Where do you think you are missing opportunities?

* What decisions created a bad result?

* What decisions created a good result?

BI Components: Data Gathering

Business intelligence is all about collecting useful information from multiple sources and then presenting it in an easy to understand format.

Once this information is easily grasped, necessary actions become clear. Typically, data might include: bookkeeping records; text documents such as memos or reports; picture or graphic images (still or video); speech or music sounds; databases; Web page content and URL identifications.

The data needs to be collected in electronic form, which may require equipment that can convert paper to digital, such as scanners and digital cameras. This also makes the selection of accounting software important. Financial information is a critical component of business intelligence. Some accounting software provides the ability to track non-financial information and have containers for scanned images.

Data Extraction and Transformation

This component takes data from one or more data sources and performs analytical operations, such as aggregating the data and presenting the results in a concise management report or storing the results in a separate database. This component may also include tools to support data mining.

Data mining is the technique of extracting useful information from the huge amounts of data that has been collected. It is used to sift through the raw data to find connections between bits of apparently unrelated data. Techniques used include:

* Slice-and-Dice: Viewing data across any dimension or combination of dimensions.

* Drill Down: Starting with the summary data, such as an income statement, and then pushing though each summary number to more and more detail.

* Data Visualization: The technique used to identify patterns and their distinguishing features to see the frequency and distribution of the data elements.

Data Analysis/Synthesis

The data collected is most useful when there is no initial filtering at the point of collection. For the moment, you may not know what is relevant and what is not. By taking all data available, there can be an opportunity to relate previously unrelated data.

Transforming data into useful knowledge is a critical component of business intelligence. It is about estimating trends, summarizing dissimilar data and predicting missing data. Typical analysis tools can use a variety of mathematical and statistical algorithms. The key is to facilitate the interaction of multiple data components to determine if there are any conclusions that can be drawn from the collection.

Through analysis, the data starts to take on a usable framework so that kernels of information can be in the right place for comparison and analysis. Developing the relevant data bits for your business is mandatory. This is the next transformation step, converting data to usable and applicable information. Situation awareness narrows your view to focus on the context in which to understand the data and to make effective decisions.

Risk Assessment

Risk is loosely defined as making decisions when all the facts are not known. Even with the best data collection support, you can't have all the possible data to support your decision. However, at some point you have to pause the collection process to do the analysis and situation review.

Risk assessment is all about bridging the gap between what you know today and what you don't know that can happen in the future. Often, this assessment results in multiple answers based on a series of best- and worst-case scenarios. With a range of answers, you can more fully evaluate the options ahead.

Decision Support

There are a variety of decision support software programs that can help with the analysis and assessment of your data. You may be satisfied with simply viewing the data analysis done on a spreadsheet. If you have a lot more data, you need a tool that can manage the higher volume to support reformatting and reorganization of the data and to generate the reports in whatever electronic format works for you.

You can seek information for a smaller defined period, such as a month, a quarter or a year. However, it is typically better to assess information over several years. By comparing multiple years, you can avoid the spikes or valleys that may have impacted a particular business cycle.

Typical questions you may want to ask are:

* What are the best-selling products or services?

Where does the most selling occur?

Which salesperson sells the most, and what do they sell?

Which customers purchase the most, and what do they buy?

What products have the highest margin, and what percentage of total sales do these products represent?

* Who are my most loyal customers?

Where are these customers?

Who is dealing with these customers?

What are the customer demographics -- gender, age, income range, hobbies?

* Where is the most profitable location?

Does this location have the most profitable individual performers?

Does this location have the biggest customers?

Does this location have the lowest operating costs?

What are the economic conditions surrounding the best location?

Why Get Involved with BI?

With the current speed of business, making decisions based on last year's numbers amounts to looking through the wrong end of the telescope. We all need to look to the future and make better decisions for the world ahead of us. In an increasingly competitive business environment, you need to:

* Improve the reliability of the data available to you.

* Determine how to differentiate yourself in the marketplace.

* Seek a competitive advantage by the use of timely analysis of business data.

Business intelligence is a process that will improve any organization using it. It's all about making the right decisions for the right reasons at the right time.

Wayne Harding is CEO of AccTrak21, a provider of online, real-time business management and business intelligence software for small to medium-sized businesses. For information, email [e-mail] or visit www.acctrak21.com.