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A strategic approach: Dynamic Enterprise Performance Management is a tool to help drive profitability.

As insurers look to optimize business performance in light of competition, profitability and productivity pressures, the need for more timely, relevant and actionable analysis is increasing. Enterprise Performance Management, also called Business or Corporate Performance Management, is gaining momentum as a strategic approach to improving business performance.

EPM connects metrics, methodologies, processes and systems used to plan, manage and monitor the performance of an enterprise, resulting in getting the right information to the fight people at the right time. EPM answers the questions: How is the business doing? Is everything going according to plan? What actions do we need to take to meet the plan? It links long-term strategic planning, annual business plans, forecasts and actual results. EPM enables communication of related goals, metrics and results with all levels of users across and throughout the organization.

Finance has long been charged with budgeting, planning and forecasting, as well as management and financial reporting. Industry leaders are now pushing performance management beyond the traditional realm of finance into corporate strategy and also into business units where action can be taken to impact the ultimate results.

EPM is composed of metrics, methodologies and analysis and reporting, often referred to under the broad umbrella of business intelligence. But traditional business intelligence often looks at past performance and trends. Further, all too often, information presented is on a monthly or quarterly basis, too late to modify processes or behavior that can improve results. EPM, a business intelligence evolution, focuses on the future, measuring actual against targeted results for strategic planning, budgeting, forecasting and financial reporting, forming a closed loop process. Under EPM, the goal is to modify business processes or behavior to improve business results.

There's no lack of financial measures or metrics to track. The challenge is in focusing on the few key drivers that can predict and measure corporate performance. Innovative companies are doing so through use of "leading" or performance-driven metrics. "Lagging" metrics such as combined ratio, cash flow, and return on equity are important but are historical or end results. More companies are looking to define the "leading," or dynamic driver-based performance measures that are more predictive and enable the operational areas to change their business processes and outcomes.

To identify these leading measures, key business objectives are associated with the drivers that are needed to reach them. For example, with distribution or sales, if the target goal is increased total written premium, then drivers might he number of agents, applications per agent, quote to issue ratio or renewal ratio. Similarly for claims, if the target goal is lower loss ratio or average claim payment, then drivers could be number of claims specialists, number of claims per claim specialist, cycle time per claim, or number of days to first claimant contact.

Different companies may use the same or similar metrics but would weight them differently depending on their dominant business models--product-, customer- or cost-focused--and the lines of business they write. While customer satisfaction is important to all companies, an insurer that's predominantly customer-focused would weight customer satisfaction differently than a product or cost-focused company.

Data presentation also is critical. Tabular business intelligence reports with drill-downs are very useful, but increasingly companies are using graphical dashboards for a concise snapshot at a point in time and scorecards for strategic linkage. In addition, alerts are being employed when performance crosses a threshold that warrants more immediate attention. Furthermore, geographic information systems and maps of multiple "layers" of data are being used in underwriting exposure accumulation, claims fraud detection and market analysis.

Timely, accurate information in the hands of decision makers allows organizations to outperform competitors and create sustainable shareholder value. The road from traditional financial performance management to dynamic enterprise performance management is an evolution, but insurers can accelerate this evolution though the use of industry data, business process and metrics standards. Those who can leverage their existing information and technology investments, identify leading value drivers and put financial and operational performance analysis and reporting into relevant decision-makers' hands will gain a sustainable competitive advantage.

Pat Saporito, director of insurance solutions with Business Objects Americas, is a contributor to Best's Review. She can be reached at
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Title Annotation:Technology: Technology Insight
Author:Saporito, Pat
Publication:Best's Review
Geographic Code:1USA
Date:Sep 1, 2006
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