S PRI NG 2010 IBM Center for The Business of Government 41

Forum: Successful Performance

Management
Forum: Analytics and Risk Management
Tools for Making Better Decisions
IntroductionAnalytics and Risk Management:
Tools for Making Better Decisions
Decisions based on bad information can lead to poor results and be quite costly to orga-
nizations. This may culminate in the squandering of opportunities, taking on unnecessary
risk, misallocating resources, and ultimately not achieving strategic goals or objectives. At a
time of shrinking budgets and increasing expectations to do more with less, making better
decisions based on informed judgment has taken on even more significance for both private
sector and government organizations. In a world inundated with all kinds of information,
timely, relevant, and more predictive data can drive better decision making. This forum
explores the usefulness of two toolsanalytics and risk managementthat can, when
employed at an enterprise level, assist government agencies in strengthening their decision-
making capabilities and, in turn, improve their overall performance.
Tom Davenport, distinguished professor in information technology and management at
Babson College, kicks off this forum with an in-depth conversation on the strategic impor-
tance of analytics, how government can leverage analytics, and ways to improve decision
making using analytics. Professor Davenport was a guest on The Business of Government
Hour, and the first contribution to the forum is based on that interview. Davenport points
out that analytics and fact-based decision making can have as powerful an effect on the
achievement of governmental missions as they can on the accomplishment of corporate
business objectives. Analytics, says Professor Davenport, is the extensive use of data,
statistical and quantitative analysis, explanatory and predictive models, and fact-based
management to drive decisions and actions. Analytics uses datastructured and unstruc-
turedto uncover patterns, identify opportunities, seek parallels, formulate predictions,
and inform decisions. It has the potential to transform information into insightstaking
diverse volumes of data and predicting the most likely outcomes of key decisions or events.
These insights can make a real difference and enhance an organizations performance.
From doctors managing treatment better, to the Social Security Administration adjudicating
disability claims more quickly and accurately, or to tax collection agencies ferreting out fraud,
success is all about turning analytics into action. Analytics, explains Davenport, starts to
give you an idea of why something happened, which is always useful, and then, once you
have a model that [helps you understand] the past, you can start to predict the future, and
thats incredibly useful. All this rests on having access to quality data, robust algorithms,
sufficient computation power, and strong leadership. It is this capacity to predict trends,
anticipate events, and identify risks that makes analytics a potentially valuable tool for todays
government leaders. The Obama administrations emphasis on transparency and account-
ability provides the promise of analytics with an opportunity to make a real difference.
It is this emphasis on accountability and transparency that has also prompted a renewed
focus on risk and controls. In addition, recent high profile financial failures have also
placed increased attention on properly managing risk at an enterprise level. Risk is a
By Michael J. Keegan
The Business of Government www.businessofgovernment.org 42
Forum: Analytics and Risk ManagementTools for Making Better Decisions
fundamental condition of existence; it cannot be entirely eliminated, but taking unneces-
sary risks or not fully understanding the risks associated with strategic decisions can have
tremendous consequences. Enterprise Risk Management (ERM) is the second tool explored
in this forum. While analytics is the extensive use of data, statistical and quantitative analy-
sis, explanatory and predictive models, and fact-based management to drive decisions and
actions, ERM also rests on taking data seriously in order to analyze potential risk and make
informed judgments. In many ways, it can enable organizations to meet their missions
while avoiding hazards and mitigating loss. Holistic ERM starts with a focus on the poten-
tial events and their classification into opportunities and risks. Its about balancing risk and
opportunities; that requires an organization to go beyond simple regulatory compliance
and embed this discipline into its organizational strategy, governance, and culture.
The forum provides three distinct yet complementary perspectives on the importance of
strategic enterprise risk management.
Karen Hardy introduces the concept of ERM. She outlines the benefits and challenges of
ERM, highlights certain best practices of ERM being pursued by federal agencies, and offers
recommendations for getting started.
The next contribution is based on a Center report by Professor James Bailey, Strengthening
Control and Integrity: A Checklist for Government Managers. It follows Hardys piece on
enterprise risk management and focuses on managing risks by strengthening the financial
control and integrity process. Taken together these two articles provide state-of-the-art
overviews on how governments at all levels can improve their control and risk management
activities, which in turn, can lead to better decision making.
The final contribution is based on a Center report by David H. Schanzer and Joe Eyerman,
Improving Strategic Risk Management at the Department of Homeland Security. It explores
how the federal government can enhance its capability to use strategic risk management
in safeguarding the nation. Schanzer and Eyerman describe the recent history of strategic
risk management in the U.S. Department of Homeland Security and set forth a series
of findings and recommendations directed to the Executive Office of the President, the
Department of Homeland Security, and Congress. A key recommendation is that the
department should enhance its analytical capability necessary for strategic risk manage-
ment. The recent creation of an Office of Risk Management and Analysis is an important
step toward the departments strengthening its strategic risk management capability and
enhancing its decision-making process.
This forum highlights possibilities; it explores two powerful toolsanalytics and enterprise
risk managementthat can strengthen decision making and, in turn, improve organizational
performance.