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The PERC Methodology
Improving OperationsUsing Data Mining Techniques with a
Common Sense Approach to Doing Business
The PERC Methodology
Performance Evaluation Report Card (PERC) Methodology
One of the ten finalists in the 2010 WIPRO/Knowledge@WhartonInnovation Tournament
The PERC MethodologyTypical Application Scenario
• Business or Government Entity with Several Similar Operating Units– General Motors, Ford -- Automotive Dealerships– Health and Human Services – Medicare, Medicaid, etc.– McDonald’s -- Hamburger Franchises – FDIC – Commercial and Savings Banks – Walmart, Target, Retail Stores – Multiple Outlets– Department of Education -- Schools, Guaranty Agencies– Etc. Etc. Etc. . . . Etc. Etc. Etc.
• Large Volume of Data Resources That:– Seem Unmanageable or Incomprehensible– Unwieldy, Making Easy Access to Important Information Difficult– Typically Require Non-Business IT Types to Access– Result in Lost Opportunities From Information Mismanagement
The PERC MethodologyTypical Application Scenario (continued)
• Opportunities Exist to Improve Operations with Better Information Management and Technology– Improve Productivity
– Move All Units Towards Best Practices
– Gain Competitive Advantage
– Increase Shareholder/Stakeholder Value
– Reduce Costs
– Reduce Risk or Potential Fraudulent Activities
– Increase Awareness of Critical Success Factors Throughout Organization
– Increase Customer/Client Satisfaction
The PERC MethodologyThrough Improved Data Management
Quantitative AnalysisStatistical Analysis
Expert Systems
Data Source 1 Data Source 2 Data Source 3 Data Source 4
FraudDetection
ExpertSystems
ExecutiveInformation
Systems
ManagementSummary Reports
ForecastingModels
The PERC MethodologyDrive Toward Best Practices
Time
Per
form
an
ce R
ati
ng
s
Worst
Best
Identifying performance differences drives business
towards best performances. As the poor performers
improve, so does the average or normal business improve.
The PERC MethodologyThrough Quantitative Business Analysis
Risk ManagementCost Reduction
Growth OpportunityBudget Solution
Policy DevelopmentProfit Increase
Operational Efficiency
NormsVariances
RegressionsCorrelationSampling
AlgorithmsNPV
FinanceOperationsBudgetingMarketingAccounting
Planning
TrendExpert
ModelingGraphics
RatiosDemographics
Quantitative
Business
AnalysisStrategic
ManagementInformation
The PERC MethodologyThrough Improved Data Management
Quantitative AnalysisStatistical Analysis
Expert Systems
Data Source 1 Data Source 2 Data Source 3 Data Source 4
FraudDetection
ExpertSystems
ExecutiveInformation
Systems
ManagementSummary Reports
ForecastingModels
Changes inPolicy & Operation
Improving OperationsUsing the PERC Methodology
Approach
The PERC MethodologyThe Eight-Step Approach
• Step 1: Establish a Strong Business Oriented Focus Group or Executive Dictum
• Step 2: Clearly Define Business Objectives at the Start
– Simplify and Clarify
• Step 3: Identify and Evaluate Available Data Sources for Solving Objectives
– Determine Data Quality -- Comprehensiveness, History, Value & Integrity
– Depending on Findings -- Stop or Move Forward -- If Forward,
• Step 4: Perform Rapid Quantitative Business Analyses
– Identify Relevant Indicators, Establish Benchmarks, Trend History
– KISS -- Keep It Simple Stupid
– Add Complexity Only As Necessary -- Probably Better in Feedback Cycle
• Step 5: Present Findings and Concept for “Smart” System Products
• Step 6: Design & Develop “Smart” System Products for Accomplishing Objectives
• Step 7: Implement, Evaluate, and Obtain Operational Feedback
• Step 8: Refine or Revise and Update Appropriately
The PERC MethodologyThe Eight-Step Approach
• Step 1: Business Oriented Focus Group Phase
• Step 2: Business Objective Phase
• Step 3: Data Evaluation Phase
• Step 4: Rapid Quantitative Business Analysis Phase
• Step 5: “Smart” System Concept Phase
• Step 6: Design & Development Phase
• Step 7: Implementation Phase
• Step 8: Refine & Update Phase
The PERC Philosophyto Improving Operations
KEEP IT SIMPLE STUPID
ADD
COMPLEXITY ONLY AS NEEDED
KISS + COAN
If what is done cannot be understood
then the value, itself, is questionable
The PERC MethodologyStep 1: Establish Business Oriented Focus Group
• Organize a Team of Individuals With:
– A Business Oriented Focus
– Relevant Systems Knowledge
– Operational Knowledge and Experience
• Include Both Line and Staff Level Personnel
– Decision Making Authority
– Enthusiasm for Rapid Development Projects
• Alternatively– CEO Directive
– Executive Dictum
The PERC MethodologyStep 2: Business Objective Phase
• Clarify the Fundamental Business Objectives – Improve Productivity?
– Reduce Costs?
– Increase Sales & Revenue?
– Increase Shareholder/Stakeholder Value?
– Improve Customer Satisfaction?
– Investigate Fraudulent Activities?
• Keep the Objectives Simple -- But Not Too Narrow (e.g.,– Correct Payments or Cost Savings -- Why not Both?
– Default Risk or Improved Operations -- Why not Both?
– Improved and Timely Management Information
• Identify Data Resources for Benchmarking Objectives– Obtain Access for Analytical Purposes
The PERC MethodologyStep 3: Data Evaluation Phase
• Evaluate Available Data Sources for Solving Objectives– Determine Data Quality -- Comprehensiveness, History, Value & Integrity– Depending on Findings -- Stop or Move Forward
• Discuss -- How Do We Go About Doing This?– Simply, Logically and Quickly– Entire Population, Sample Population, or Pilot Group– Frequency Distributions of Coded and Date Fields– Identify Potential Outlyers -- Negatives, Min’s, Max’s, Variances, Missing Data– Obtain Sums on Every Numeric Field -- Begin Establishing Controls or Numbers to
Validate -- Eliminate Outlyers If Appropriate– Slice & Dice the Key Numeric Fields by Codes and by Month/Year, Year, Etc.– Create New Variables to Help in Validation Process -- Algebra is o’k– Putting It All Together -- Does It Make Sense? Are Key Variables Available?
Can Benchmarks Be Established for Performance Measurements?
The PERC MethodologyStep 3: Data Evaluation Phase (Continued)
• Data Quality Evaluation -- What Did You Learn? -- Presentation of Findings
• Graphically Present Findings -- • By Program Meaningful Codes • By Time Intervals (e.g., Month/Year, Year, Week, etc.)• By Logical Peer Groups (size, product type, etc.)• While Seeking New & Creative Perspectives for Evaluation
– Provide Supplemental Detailed Outputs Supporting Findings
• Decision Point -- Stop or Move Forward to Analytical Phase– Provide Recommendation– Decision Should Be Clear
The PERC MethodologyStep 4: Rapid Quantitative Business Analysis Phase
• Perform Rapid Quantitative Business Analyses
– Determine if Conceptual Control Groups Exist
• Establish Best Practice Groups -- Poor Performing Groups
• If Unable, Then Establish Common Sense Business Practices as Initial Measuring Tools (e.g., net income, sales/employee)
– Begin Developing Set of Potential Performance Indicators
– Segregate Data by Peer Groups and/or Other Logical Criteria
– Evaluate Effectiveness of Individual Indicators using Statistical Correlations by Peer Group
• Determine Norms, Variances and Outlyers for Performance Indicators
• Determine Indicators’ Ability to Be Applied Comprehensively
• Consider Amount of Bias in Indicator (May Require Feedback)
The PERC MethodologyStep 4: Rapid Quantitative Business Analysis Phase (Continued)
• Perform Rapid Quantitative Business Analyses (Continued)
– Seek Monitoring Solution with Multiple Indicators
– Mix and Match Indicators with Different Weighting Schemes to Look for Best Monitoring Mechanism
– Consider Different Rating Evaluation Methodologies• A, B, C, D, F
• 1st Quartile, 2nd Quartile, . . .
• Relationship to an Expected Norm for the Population
• Simple Ranking per Peer Group (e.g., 21st out of 212)
• Ten Point / Hundred Point Scale
– Begin Formulating Concept For “Smart” System Design
The PERC MethodologyStep 5: “Smart” System Concept Phase
• Determine How This New Knowledge Should Be Implemented– Alternative Media Options
• Database -- LAN, Web-based Intranet, Software
• Report Card -- Hardcopy
– Periodicity of Rating Evaluation
– Forcefully or Experimentally
– Peer Group or Entire Population
– Relative Measurement or Absolute Measurement
• Develop Alternative “Smart” System Concepts, Providing– Pros and Cons
– Recommendation
The PERC MethodologyStep 6: Design & Development Phase
• Design Output Formats Appropriate For Chosen Media
– Group Information Logically
– Provide User-Friendly Textual and Numeric Displays
• Good, Average, Poor --- High, Medium, Low --- A, B, C
• Color Code Numerics -- Percentiles, Standard Deviations -- Factor Above/Below Norm
– Present Rating Mechanism or Evaluation Clearly
– Provide Information Regarding Peer Group Benchmark Norms
– Show Trend -- Emphasizing Improvements– Seek Self-Improvement Through Fairness
The PERC MethodologyStep 6: Design & Development Phase (Continued)
• Develop Design
– Program Design Layouts
– Program Rating or Monitoring Mechanism
– Test Program Logic
– Document Program Logic and Production Update Process
– Develop User Documentation / Operating Manuals, Explaining• Business Objectives
• Performance Measurements
• Rating Mechanisms or Methodology
• All Relevant Output Variables
• Feedback Mechanism for Improvement Considerations
The PERC MethodologyStep 7: Implementation Phase
• Implement System– Install System Pilot or Full Comprehensive Implementation
– Provide User Training• Explain Objectives
• Key Operating Features
• Stress Importance of User Feedback
– Provide Users with Operating Manuals and Contacts for Feedback
– Over Time -- Monitor Benchmarks for Improving Operations
– Focus Group -- Seek Feedback for Improving System
– Evaluate Usefulness and Value of Making System Enhancements
The PERC MethodologyStep 8: Revise and Update Phase
• Update System
– Update System Based upon Logical Processing Periodicty
– Ensure Update Receives Quality Control
– Identify Major Changes between Previous Period and New Update
– Keep Trend Information
• Revise System– If Feedback Points to Cost-Effective Improvements--Revise
– Can Help Ensure User Acceptance
– Can Reduce Earlier Unforeseen Biases
– Revisions Should Be Somewhat Minor and Quick to Implement
– Remember, Add Complexity Only as Necessary -- KISS
Improving OperationsUsing the PERC Methodology
Analyze Performance
Standards
Analyze Performance
Standards
Analyze Performance
Standards
Drive Towards Best Practices
Focus on Poor Performers
Evaluate Success and Refine Approach
Improving Operations thru PERCDrive Toward Best Practices
Time
Per
form
an
ce R
ati
ng
s
Worst
Best
Placing pressure on poor performers drives them
towards best practices. As the poor performers improve, so does the industry average.
The PERC MethodologyTypical Project – “Fast Track” Implementation
• Focus Group Phase -- (0 weeks) --Done Prior to Project Start
• Business Objective Phase -- (1-2 Days)
• Data Evaluation Phase -- (2-4 weeks) -- Starts Upon Receipt of Data
• Rapid Analysis Phase -- (3-4 weeks) -- Can Start During Previous
• “Smart” Concept Design Phase -- (2-3 weeks)
• Development Phase -- (3-6 weeks) -- Depends on Design Complexity
• Implementation Phase -- (2-4 weeks)
• Refine and Update -- (1-2 weeks) -- Updates Dependent on Periodicity
Typical Project: Fast Track Implementation Requires 3-6 Months