Everything that happens in an enterprise has a financial impact. Sometimes, the impact directly affects one or more of the key performance measures for the enterprise. Other times, the impact is not so direct, and can in fact be quite circuitous; it can be very difficult to quantify some costs or benefits. Managers of business units, processes, and capabilities often cannot directly affect important financial measures, instead relying on proxies they do control. The business architect is uniquely situated to understand the relationship between these proxies and specific key financial measures. This provides the business architect the opportunity to coach business unit leaders and process owners on the best ways to change their unit or process’s performance in order to achieve the desired financial outcomes.
The key tool of the business architect for assessing the current state of a business or process is a set of structural performance measures that provide a picture of the performance potential of a business unit, process, or capability. The business architect has many other tools at their disposal to understand and model the many ways that the structural performance of a business unit, service, process, or capability are linked to financial outcomes.
Starting with basic financial statement analysis that provides most of the financial performance measures currently in use, the business architect can use time-driven activity based costing to quickly and easily determine the capacity cost and capacity required for a business unit, organization, or process. This information will help determine where bottlenecks are currently and will likely arise as investments are made to improve processes or capabilities.
Financial methods include an understanding of the differences between and uses of:
- Capital and operational expenses (CapEx and OpEx)
- Costs to operate an operating model and investments to change the operating model
- Financing a project with debt and financing it with working capital
In some cases, the appropriate measure to use can be hard to measure. In these cases, the business architect can draw on several methods to determine measures that are close enough to what is required to serve as a proxy.