WHITE PAPER

ALIGNED RESOURCE OPTIMIZATION

How to optimally allocate resources in alignment with enterprise-level objectives

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Table of Contents
Executive Overview .......................................................................... 1 Aligned Resource Optimization The Resource Optimization Model ...... 3 Five steps to resource optimization.................................................... 4 The technology to support the Resource Optimization Model ................ 8 Underlying technology to support optimization ..................................11 Closing thoughts ............................................................................12 From SAS, the leader in business intelligence ....................................13 Examples Resource optimization across the enterprise ....................14 Optimizing retail revenue ............................................................14 Optimizing profit ........................................................................15 Optimizing human capital ...........................................................16 Optimizing for sustainability ........................................................17 Optimizing marketing campaigns .................................................18 Optimizing IT performance ..........................................................19

ALIGNED RESOURCE OPTIMIZATION

Becca Goren, Ed Hughes, Mary Crissey and others at SAS contributed to this white paper.

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Executive Overview
The fast-food franchiser has regional distribution hubs, a fleet of trucks of various capacities (some refrigerated and some not) and hundreds of stores needing on-time deliveries that vary from week to week. Given carton and pallet dimensions, sell by dates, distance, urgency, number of drivers, weather and restrictions on working hours, what is the best way to load trucks and route these deliveries? The catalog retailer wants to better manage its call centers, direct mail and e-mail channels. The millions of customers in its database represent the gamut of buying histories, buying propensities, profitability, demographics and cost to serve. Given capacity and costs for each channel, which customers should receive which offers through which channel? What will happen if you add a channel, trim budget for another or initiate a new contact policy? The manufacturing line has been underperforming on one shift due to periodic shortages of staff and materials, and bottlenecks in product inspection. Should the company invest in a just-in-time inventory system, add third-shift staff, reduce the sample size of post-production testing, cut one shift but add a new production line or outsource the more time-consuming processes? In each case, the answer would be, It depends. The best way to allocate resources depends on the nature of the resources and constraints at hand and the organizations mission. Is it a Six Sigma organization, striving to reduce process variability and increase product quality? Is it a lean manufacturing outfit, driving out every possible cost? Does the organization live and breathe Total Quality Management (TQM), where everyone is tasked to deliver ever-improving value to customers at continually lower costs? Does the organization embrace performance-based budgeting or Economic Value Added (EVA ) principles, which link costs to results yet recognize some costs as investments in disguise? Or has it adopted a balanced scorecard approach, which provides an organization-side approach to measuring and tracking performance against objectives?

By definition, optimization is the design and operation of a system or process to make it as good as possible in some defined sense. It is in the defined sense where things get murky. What is optimal for you, with your goals and values, could very well be suboptimal for the next person. Every performance management paradigm, every mission statement, could point to a different definition of success and therefore to a different way to optimally allocate resources (people, money, technology). Even within one organization, theres no one-size-fits-all proposition. If you legislate a sole method of resource optimization across the organization, you could miss out on the advantages of uniquely tailoring the approach to optimize the attributes of greatest interest in each functional area. Least cost, highest quality, greatest innovationdifferent teams could realistically have very different charters, all under the umbrella of a unifying, top-level strategy.
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However, on the flip side, when every department handles performance measures and processes in its own way, it can be difficult to determine exactly how resources are being applied to drive organizational strategy. Without a clear picture of resource use across the enterprise, including interdependencies across functional areas, managers cannot know how to allocate resources to optimize organizationwide results. How, then, does an organization do this well? How do you optimize resources in what ultimately is a dynamic and often poorly defined environment or one that is well-defined but ineffectively executed? In the past, these were daunting challenges. Resources, constraints and market conditions continually change. Even if you managed to get the necessary details to develop optimization models, complex models could take days to run. Opportunities might pass before they were even revealed. That was then. Technology has refined the possibilities. Now, strategic visions are shared and managed through scorecards and strategy maps. Hidden costs are transparent, their roots understood. Analytically derived intelligence drives performance improvements. Models that formerly took days to run can now deliver insights in minutes. Reports that once required special requests to the IT department can now be accessed on demand via self-service, Web-based interfaces. Sales targets and performance metrics that were once defined based on instinct and intuition can now be mathematically validated (or invalidated). Results can be automatically woven back into the process for continual improvements. Organizations that have embraced these new technologies report gains of millions of dollars and payback in just a few months. If that sounds good, read on for a look at the people, process and technology attributes that are the basis for aligned resource optimization.

Functional leaders must recognize that their departments are connected to each other, and how they are connected matters. A focus on functional optimization leads a company into the in isolation yes, in combination no sub-optimization trap.
Steve Beeler Director, Special Situations, Production Modeling Corp. (PMC)

Optimization helps you determine the best that can happen, so you can take action in ways that will deliver significant performance improvements. Advances in technology have made this process easier and more powerful. 2

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ALIGNED RESOURCE OPTIMIZATION The Resource Optimization Model

Effective resource optimization requires a certain rigor, consistency and agreement on process. Whether you are developing a mathematical optimization, or just trying to drive more effective and efficient use of resources across the organization, the resource optimization model would be based on the following components: An objective that is the goal of the optimization exercise; something measurable to be achieved. Examples include maximizing profit, minimizing distance traveled and minimizing unused raw materials. Decision variables, the available actions or choices, which can be represented numerically for mathematical formulation. Examples include production levels, price settings, and capital or human resource allocations. Constraints specifying requirements or rules, placing limits on how the objective can be pursued by limiting the permissible values of the decision variables. Constraints can be finite, available resources, such as raw materials, machine processing capacity per hour, customer demand by sales territory or monetary budgets. Constraints can also be soft considerations, which encourage but do not compel compliance with the rule. For both types of constraints, consider the greater sphere, including suppliers, customers, partners, market conditions and regulatory requirements. Within this framework of objective, decision variables and constraints, the purpose of optimization is to maximize or minimize, as appropriate, the performance metric in the objective by assigning values to the decision variables that satisfy the constraints.

Description of goal to be achieved.

Objective

Data Inputs
Historical or current operational data or analytically derived information.

Decision Variables

Actions or choices that can realistically be carried out in pursuit of the objective.

Resource Optimization Model

Constraints

Requirements, limitations or rules restricting available decisions.

Recommended actions
The optimal course to meet the objective balanced against constraints and decision variables.

Implementation
Execution on recommended actions.

Results Measured/Model Updated

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Five steps to resource optimization

Step 1. Define the objective, reflecting organizational mission and strategy.
As mentioned earlier, the so-called optimal way to allocate limited resources will depend on how your organization defines success and that may vary even within the organization, from one team to another. The resource optimization model must reflect not only the well-defined, often narrow departmental objectives, but also the objectives that are most important to the organization as a whole. There also needs to be an understanding of how activities will support these objectives, and how success or failure will be measured. Relevant relationships and interdependencies among departments must be factored into the optimization. If not, expect suboptimal results. Cross-functional teams should collaborate to identify the elements of the model: objectives, constraints and decision variables. An effective optimization model defines realistic decisions/ decision variables and ties them to measured results. Scorecards and strategy maps, supported by business intelligence and analytics, capture organizational dynamics, along with the executives vision and mission, and help clarify the right key performance indicators (KPIs) to pursue, across functional units.

Its not enough for executives to agree on the goals, business rules and constraints, and decisions that will be made. An aligned process will ensure the best choice for each decision variable the recommended actions will actually be implemented, and that requires accountability and commitment from all parties.

Step 2. Get buy-in and foster accountability.

Will people act on the information provided by the resource optimization model? Who has decision-making authority, influence and incentive and who does not? Which decisions will actually be made as a result? Is there commitment to acting on recommendations? Will people be accountable for expected results? In a February 2007 study by BusinessWeek Research Services, consultants said lack of accountability was both a primary stumbling block and primary benefit of efforts to align resources with overall objectives. But you have to do more than plaster a slogan on the company walls. Accountability demands measuring and aligning the results with the organizational structure in a way that makes it clear which managers are responsible for which results, says Steve Williams, President of DecisionPath Consulting. Mark Graham Brown, business consultant and author of three books on balanced scorecards (an established performance management methodology), says creating a culture of accountability is a matter of three simple steps that organizations rarely follow: 1. Set clear and measurable goals and expectations for employees with little overlap in responsibilities. 2. Develop a scorecard for all employees that provides feedback on key performance measures at least monthly. 3. Provide personal and powerful positive and negative consequences for good and poor performance via promotions, perks, compensation and performance ratings.
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Successful organizations identify a champion an executive with power and influence to endorse the resource optimization project. Champions can help scope the project, identify obstacles and implementation issues, and ensure accountability to drive the project to completion. Armed with an effective scorecard and strategy map, this champion can share this information with other executives, managers and employee teams, so everyone across the organization can work together and understand how their daily activities contribute to the companys success.

Step 3. Define the conceptual resource optimization model.

Determine what input data is available. An optimization model is only as effective as the data going into it. Are you collecting the right data? Do you have enough for a meaningful model? The cleaner and more accurate the data, the better. The more historical depth and relevance, the better. During this assessment, you might identify the need to collect more data before even attempting a resource optimization exercise or you might choose to test a model or two in the hopes that the model results will be useful even without all the data that would be ideal to have. When modeling a new scenario where no historical data is available, you have to do some guesswork and tests to refine the model. Identify decision variables and decisions that can realistically be made. This may seem self-evident, but many organizations establish metrics that have no associated action or responsible party. Results may show a trend in the movement of a metric, but there has been no decision made about what will happen under those conditions, and who will do it. This inertia can be avoided if responsive tactics are determined in advance, where possible. Consider the ripple effect. To be effective on an organizationwide level, you must be aware of how decisions will affect other departments, and how department-level objectives support the organizations objective or not. What are the cause-andeffect relationships among functional areas, resources and metrics upstream and downstream? How will resource decisions help or hinder departments? What are the political and customer relations ramifications? A myopic or department-level view will lead to models that dont reflect the actual complexities of organizational processes. To prevent unwanted backlash from well-intentioned resource optimization efforts, get all affected parties and key decision makers involved in the decision making. Conflicts or weaknesses can then be identified and addressed early.

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Step 4. Define the descriptive resource optimization model.

At this point you have documented the discoveries of the previous steps; you have defined the business problem and how important factors relate to each other in the decision-making process. This conceptual model can later be expanded to incorporate more data or fill in any process gaps that may be uncovered later. Although it is tempting to stop with the conceptual model, which is no easy feat to create, it is the descriptive model that can best support resource optimization. With a model that leverages analytics, you gain competitive advantage because youll be armed with quantitative metrics that guide the organization toward optimal decisions and actions. Step 4 is the translation of your conceptual model into a descriptive model with more rigor and detail, by representing it in mathematical terms. In this formulation step, you begin to formally code the key elements of the optimization model objective, constraints and decision variables. The objective is expressed as a measurable function of the decision variables. Constraints are expressed as equalities or inequalities involving functions of the decision variables. Decision variables represent decisions by ranges of allowable values, each corresponding to a permissible assigned choice. There is no single right way to use mathematical expressions to represent the elements of a decision problem. The same business scenario can be expressed differently, depending on the mathematician doing the formulation. Translating the conceptual model into mathematical terms involves both art and science. Consider that two artists, looking at the same subject, will create unique sculptures or paintings. Similarly, mathematical modelers will have unique approaches. Some may prefer to create simple basic models that capture essential ingredients without attempting to capture all minute details. Others will try to quantify every known influence. In reality, every formulation represents a compromise because no mathematical representation can reflect every detail of a real-world scenario. Such a model would probably be too large to solve efficiently. Furthermore, its directives would be so detailed that they would amount to micromanagement, likely to be selectively ignored by the people tasked to implement them. Get buy-in from key executives and implementers. Those who have bought in to the conceptual model may be wary of a more specific descriptive model that is clearly tied to decisions and outcomes. Beyond executives, it is important that implementers agree to support the decisions that will be made. Before investing significant effort into the resource optimization exercise, confirm the descriptive model and decision-making processes with all parties who will be involved in or affected by the activity.

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Step 5. Implement and update the model.

Run the model: Using analytical software such as SAS, build and implement the descriptive model. Its output can provide recommendations as to the best combination of decision variables to support the objective, given the constraints and data available. For real-world examples, see the supplementary chapter of this paper, Examples: Resource Optimization Across the Organization.

Test the optimization model for suitability. No software can determine the most appropriate representation of a decision problem by an optimization model. Software is a tool that guides you. Training and experience, often from an optimization modeler, will help you to choose the best model. This means that once youve built the model and used it to produce a solution, you need to consider whether the mathematically derived optimal solution is suitable for the original business problem. At this point it is not unusual to discover that some key element of the model has been overlooked or misconstrued, making the optimal solution (and the decisions that it represents) unsuitable. The model might be correct, but some data used by the model might be incorrect. Or your understanding of the original business problem might be flawed. In these and other such cases, you need to step back through the modeling process, address the difficulty and then move forward with the improved model. This iterative process is quite common and represents another aspect of the art of optimization modeling. Fine-tune the conceptual and descriptive models in an iterative process. Models can and should be updated as needed, and should always be flexible. You wont always choose the best one from the start. Dont let this deter your efforts. Define an initial model and refine it as you move forward and learn more. One of the key differentiators of SAS software is that users are never stuck with black-box calculations. After looking at the output generated from the analytical model, you can go back and tweak the model by relaxing certain constraints or adjusting the primary objective to be optimized. This iterative, what-if process, reassessing assumptions to tweak the formulation, also adds valuable insights into the organization and process at hand. Early assumptions may be overturned by the insights revealed by analytics. For example, you may have initially assumed staff resources were fixed and then find that hiring extra staff yields optimal output that more than compensates for the additional cost. Establish formal mechanisms for learning from past actions. You would want to know how well the model works in the real world, and incorporate the knowledge from previous iterations into future ones. What did the implementation look like in the end? Were decisions made? If so, were they based on facts rather than gut instinct? Were those decisions effective in driving improvement in alignment with organizational goals? If not, why? How can the process be improved? Were we measuring the right things?
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How did this decision or process affect related business units or the organization as a whole? Did the optimization recommendation make sense? In other words, was it workable or unworkable? Why? If the result was not what you would expect from a mathematical optimization model, revisit the model to determine whether objective, decisions, constraints, resources and so on were properly identified. The results of this assessment should be automatically incorporated back into the system to continuously improve models, metrics and future results.

The technology to support the Resource Optimization Model

The technology for aligned resource optimization must enable decision makers to see, manage and improve business performance. See how value flows through the organization and how resources contribute to outcomes. Manage resource allocations for maximum advantage. Improve outcomes through mathematical optimization and continual refinement of models and processes. These elements are especially vital when trying to achieve aligned resource optimization across the organization. The technology is readily available to excel in all these areas and it doesnt come from renegade spreadsheets and siloed information systems.

Technology enablers See it.

See the big picture across functions, departments and the enterprise. Which resources, constraints and bottlenecks are present? Who is doing what and why? How are resources applied to support organizational goals? Which resources/ activities are misaligned with the organizations objectives or undermine another divisions performance? These are tough questions for most organizations to answer, because traditionally there has been little or no sharing of information and metrics across functional areas. That makes it hard to get a uniform picture of resources, risks and results across units a viewpoint that is essential for resource optimization. Todays technology removes these limitations. See the costs and the profits. You cant maximize profitability without seeing all the costs, but many organizations make broad-brush averages of costs across products, customers, channels and so on. To accurately account for resource use and whether resource allocations support strategic goals you need a close understanding of how costs relate to activities, not just to traditional accounting units, such as departments, line items or product categories. With activity-based costing, organizations can better understand which resources are consumed by an activity and the financial consequences.

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Technology enablers Manage it.

Manage optimization efforts at an enterprise level. Performance management (PM) applications help align resource optimization efforts with the organizations mission and objectives. With this big-picture view, you can better manage the allocation of resources across business units and functional areas, balancing resources of all types (people, money or technology) against desired outcomes. You cannot optimize in isolation. Seen or unseen, interdependencies are an inescapable reality. If the business is measuring and tracking the right key performance indicators (KPIs), performance management can help clarify how well resource allocations and activities are supporting division and organizational goals or why certain areas are underperforming. These insights are critical in determining where best to focus optimization efforts. Manage interdependencies among metrics. Are your resource allocations driving success? A combination of analytical methods helps you zero in on meaningful measures of success. Exploratory data analysis, combined with predictive analysis, can reveal important relationships between variables. You can determine if the movement of one variable simply coincided with the movement of another, or is consistently associated with it. Using advanced modeling techniques, these causal relationships can then be isolated and highlighted. Once these relationships are known, organizations can more effectively bring business units and resources into alignment and use the insights to guide ongoing optimization efforts. Manage for actionable results. Integrated scorecards reflect what needs to change where and by how much. The scorecards dashboard can give executives an at-a-glance picture of organizational health and performance. Users should be able to see within seconds which resource allocations have the greatest impact, where to focus and where to drill deeper to discover the root cause of an issue.

Minimum cost does not equal maximum profits. Otherwise, companies would have no people and no assets. Missing in many companies are enterprise-level analytical tools to enable collaborative efforts to continuously improve financial and operational performance.
Steve Beeler Director, Special Situations, Production Modeling Corp. (PMC)

Resource optimization must support organizational goals. Scorecards and strategy maps help show the interdependencies among resources and objectives, and how resources do or do not support organizational goals.

Technology enablers Improve it.

Technology should do more than support resource allocation decisions and track the effects; it should also proactively influence desired outcomes. Improve outcomes with optimization software. Operations research (OR) systems can apply sophisticated mathematical programming capabilities to answer all manner of complex business questions, from resource allocation to product management to supply chain optimization any problem for which variables, constraints and desired outcomes can be mathematically defined. Analysts can choose from a broad array of optimization, project management, scheduling, simulation and decision analysis techniques to identify the actions that will produce the best results, while operating within resource limitations and other relevant restrictions. You can build and update a unique model for each optimization initiative.

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Improve outcomes with multiple analytic techniques. With or without optimization software, analytics have a powerful role in resource optimization. With analytic intelligence, you can confidently anticipate the result of a strategy in advance, test various scenarios and use optimization software to select the best of all possible courses. You can explore and understand complex relationships among resources, behavior, systems and processes; assess the impact of changes in KPI values; and respond more quickly with fact-based decisions. Then this technology helps you learn from past results so you can use that knowledge to realign indicators and improve resource allocations at the next iteration. Unlike generic business intelligence software reports on what has happened (forcing you to figure out what will happen next and what to do about it), optimization software and business analytics identify the best forward-looking course of action the best use of limited resources to achieve strategic objectives. Balancing goals against limitations, you can answer questions such as these: Is what were trying to accomplish possible? How are we doing now? How can we do better? Whats the best we can do? What happens if conditions change? The organization that could successfully answer these questions would have a clear advantage, yet few have capitalized on the (readily available) means to do it.

Your chosen technology can be implemented in low-risk stages. Start with a pilot project, prove its worth and expand it as the business case warrants. This phased approach is made possible with a technology platform that is affordable at the startup level yet scalable to the enterprise level.

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Underlying technology to support optimization

Examples in the last section of this paper highlight several varieties of optimization toward different objectives, such as optimizing profitability, marketing campaigns, IT effectiveness, sustainability and workforce management. Here are foundation technologies that support such optimization initiatives.

Technology Data integration and data cleansing

What it does Integrates data from across the organization, transforms and cleanses it in real time, and ensures accuracy and consistency. Answers diverse business problems for which variables, constraints and outcomes can be mathematically defined. Monitors and displays key performance indicators that tie to strategy, with at-a-glance visuals.

How it supports resource optimization Creates a common foundation for delivering trusted information throughout the enterprise. Adds value to corporate data and ensures access to the best possible data for operations and decision support. Mathematically calculates optimum resource allocation to achieve stated objectives, given multiple, weighted decision variables and constraints. Helps organizations focus on performance and opportunities to take appropriate action, align resources and day-to-day activities with corporate strategy, and adapt to meet changing conditions. Helps align the organization and its resources by articulating goals and the initiatives that support those goals throughout the enterprise. Clarifies how resources are consumed by an activity, and the financial consequences; identifies the cost constraints of an optimization exercise. Helps synchronize financial and operational strategy across the organization, to every level with repeatable, sustainable processes for financial reporting, risk analysis and achieving goals.

Optimization

Dashboards/ scorecards

Strategy map

Provides a visual macro view of an organizations strategy.

Activity-based management

Helps determine accurate costs and cost drivers at the activity level.

Financial management

Used by business-unit heads for budgeting and planning and by finance executives also for consolidation and reporting.

Department-level performance/ resource management Industry solutions

Manages processes and Delivers function-specific analysis and insights resources at the department that can be incorporated into optimization level to support strategic goals. models and feedback loops.

Provides packaged solutions with prebuilt models and metrics for specific industries.

Delivers analysis and insights that can be incorporated into optimization models for specific industries, such as banking, insurance, retail, government, education and manufacturing.

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Closing thoughts
Fast, cheap, quality: pick any two. Good for a chuckle but hardly wise counsel for market success. Classic resource optimization questions are a balancing act of all three, within the resources and constraints at hand colored by the organizations unique mission. In the past, this was a daunting challenge. Optimization must address factors that span functional areas and multiple stakeholders. Without high-level sponsorship, the project would lack the necessary data and consensus. Without big-picture perspective, the optimization model would yield suboptimal results. And without buy-in, even the best mathematical models could generate answers that no one actually implements. This document outlines a conceptual model and five-step process that address these organizational challenges of resource optimization projects: Step 1. Define the objective, reflecting organizational strategy and objectives. Step 2. Get buy-in and foster accountability. Step 3. Define the conceptual resource optimization model. Step 4. Define the descriptive resource optimization model. Step 5. Implement and update the model. Organizations that have embraced this process, in one form or another, report gains of millions of dollars and payback in just a few months. SAS provides the technology foundation to make it possible. If the possibilities of resource optimization sound intriguing, be sure to read the supplementary section of this paper, Examples: Resource Optimization Across the Organization, for a high-level look at optimization exercises in support of various objectives, from maximizing profit to improving marketing campaigns to revealing the most productive workforce strategies and sustainability initiatives.

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From SAS, the leader in business intelligence

SAS provides the broadest, deepest range of offerings for resource optimization in the context of enterprisewide performance management. All our software is built on a single enterprise intelligence platform that seamlessly integrates data integration, storage, business intelligence and analytic intelligence. Of particular note, SAS has the broadest range of analytical capabilities, enabling you to identify, quantify and prioritize improvement opportunities, mitigate threats and measure results. Integrated forecasting and simulation, coupled with correlation analysis, enable you to anticipate the future state of operations. Only SAS can forecast and provide a confidence interval for its projections. SAS for Performance Management brings context and direction to business intelligence initiatives and supports a continuous process for improvement across the enterprise. Together, SAS capabilities let you do more than manage the performance of your organization; they help you improve it. Thats why customers at 44,000 sites use SAS to gain insights from vast amounts of data. Since 1976, SAS has been giving customers around the world THE POWER TO KNOW .

To find out more about SAS solutions for performance management, visit www.sas.com/solutions/pm. Visit the sas.com resource center to download the companion white papers: The Aligned Organization: How performance management can align activities and resources with enterprise-level strategy and market conditions. Optimization with SAS/OR : What it is, whats new and how it adds value

Predictive Performance Management: Continually improve performance by applying the power of analytics

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EXAMPLESResource optimization across the enterprise

Organizations that have implemented the types of resource optimization projects described earlier achieve notable successes not just in isolation, but in alignment with organizational goals. Some of the examples here relate to a specific functional area, but they also reflect a realistic first step toward enterprisewide optimization.

Optimizing retail revenue

Competing in retail has always meant offering the right product to the right customer at the right price. But just what is the right price? A mere 1 percent increase in product price can raise operating profit by as much as 8 to 11 percent or prompt the customer to buy from the low-price competition. The margin for error is small. Every day, strategies for pricing, promotions and markdowns must be based on accurate, predictive intelligence, using reliable information about what customers want now and are likely to want in the future. Retailers must rapidly identify and focus on the most value-generating activities, the ones that repeatedly maximize margin and revenue across all products and all stores. How SAS can help: The SAS Revenue Optimization Suite enables retailers to manage revenue and margin through the entire merchandise life cycle. This suite combines advanced data management, forecasting and optimization capabilities within an easy-to-use interface that helps retailers set and manage regular prices, plan optimal promotions and execute the most successful markdown strategies. Sample case: A large clothing retailer needed to liquidate clearance goods more profitably at a faster pace. The goal was to reduce end-of-season product clutter on the selling floor and drive higher sell-through of regularly priced merchandise. Using SAS Markdown Optimization, the retailer achieved all these goals. In fact, the companys margin guidance for one quarter increased 10 to 20 basis points over the previous year and 30 to 40 basis points the following quarter. Example of a price optimization model
Objective
Data Inputs
Store level demand forecast, historical data on item purchases, and customers and price, competitive pricing, price elasticity, projected inventory, product cost.

Maximize sell-through/items sold.

Decision Variables
Determine optimal price for each product by store.

Resource Optimization Model

Constraints

Business performance, costs, demand, distribution spread, time/season, store location.

Recommended actions
List of optimal price per product per by item by store.

Implementation
Fed into price execution and core merchandising system.

Results Measured/Model Updated

Regularly update model with new purchase data.

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Optimizing profit
Understanding and maximizing profit used to mean little more than reporting the bottom-line profit and loss results of legal entities and ferreting out costs wherever possible. Now it also means interpreting financial performance to predict the future impact of business decisions and having profit-and-loss information for each customer and product, calculated at the individual transaction level. The challenge is that many organizations combine inaccurate cost information from traditional costing systems with other financial and operational data to generate reports on customers and products. This approach doesnt show true profitability, so it does not accurately reveal which customer, product or channel mix scenarios will be optimal. How SAS can help: SAS Financial Intelligence helps businesses improve the financial performance of the entire organization. The suite includes an enterprise business intelligence platform, integrated consolidation, budgeting and planning, scorecards and strategy maps, and cost and profitability management. Sample case: A state department of transportation sought to satisfy diverse mobility needs, address concerns for public safety and the environment, and maximize the use of existing resources within the agencys $430 million annual budget. The agency adopted SAS Financial Intelligence to identify the costs associated with business processes and to determine if activities and resource allocations were aligned with the organizations mission. As a result, employees gained a better sense of how their work contributed to the agencys objectives. In addition, the elimination of various high-cost, low-benefit activities saved the agency $2 million in the first year alone. Example of a profit optimization model

Maximize profitability by understanding individual customer profit and loss.

Objective

Data Inputs
Customer dimensional data, individual order line transactions, product dimensional data, customer behavior rates.

Decision Variables

Allocation rules to individual transactions, trim unprofitable segments or segments.

Resource Optimization Model

Constraints

Widely distributed, drillable profit and loss reports needed per customer reporting timeliness.

Recommended actions
Determine appropriate service levels to customers based on profitability.

Implementation
How will customers react to different service levels?

Results Measured/Model Updated

Update model if loyal customer response is negative.

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Optimizing human capital

According to recent studies by McKinsey, the biggest focus for management in the next decade is vying for top talent in an intensively competitive global marketplace. This reality requires organizations to use human capital information in a focused, deliberate and proactive way to optimize the work force. At its most basic level, workforce optimization means getting the right employee in the right position at the right time and in the right place. More specifically, it can mean minimizing vacancy time and cost, maximizing retention of critical workers, or optimizing reorganization and downsizing. Unfortunately, most organizations lack a consistent and holistic view of the work force and the needed analytics to perform workforce optimization. How SAS can help: SAS Human Capital Intelligence helps customers optimize their work force by providing the relevant, holistic and predictive human capital information that drives strategic decisions. With this insight and foresight customers can address workforce demands at every stage of the talent life cycle and support critical business decisions. Sample case: One of the oldest banks in Europe needed a way to identify which of its 5,000 employees were most likely to resign and prevent loss of these valuable and expensive intellectual assets. Using SAS Human Capital Intelligence, the bank consolidated important employee data, performed ad hoc, what-if analysis and salary simulations so managers could quickly answer questions that previously had taken days. With a SAS predictive analysis retention model, the bank now has an accurate way to identify employees likely to leave and has reduced employee turnover to 3-4 percent. Example of a workforce optimization model
Data Inputs
Maximize workforce distribution.

Objective

Employee location, job titles, salary/salary grades, employee skills and profiles, # of employees needed per site/per season/per hour.

Decision Variables
Allocate X # of Y type of employee to Z location.

Resource Optimization Model

Constraints
Cost, supply, demand, time/ season, site location.

Recommended actions
Prioritized # of employees, skills, job titles and location combinations to pursue.

Implementation
Will we need to hire to fill the gap? Do we need to reallocate resources?

Results Measured/Model Updated

Add relocation costs when quantified.

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Optimizing for sustainability

Across industries, organizations are responding to the critical imperative to be socially, environmentally and economically responsible. But there are constraints on how much investment can be made in pursuit of this mission. Organizations must transform complex information into effective, cost-conscious strategies, and determine which eco-investments will optimize results. Environmental penalties can be quantified. So can the costs of implementing green policies and practices. The economic benefits of being a responsible corporate citizen can be estimated. By applying trusted analytics to these inputs on opportunities and constraints, organizations can identify and prioritize the most productive sustainability practices as well as the ones that most effectively increase brand value. How SAS can help: SAS sustainability solutions provide an analytic performance management framework for measuring, analyzing and optimizing key sustainability indicators. Sample case: In the energy industry, the flaring and venting of natural gas is a safety mechanism to burn off excess gases and maintain safe operating pressures during the production process. However, this process is strictly regulated, because the emissions contribute to climate change. Gas flaring activities around the world emit some 390 million tons of carbon dioxide every year. To better manage the production process and minimize regulatory penalties, a large publicly owned energy company has implemented a rigorous performance management system, supported by robust analytics. The system combines data on various events to help the organization target resources, manage its business more effectively and have more immediate access to accurate information about performance on key environmental indicators to facilitate executive and operational decision making. Example of a sustainability optimization model

Maximize return on investment in sustainable practices.

Objective

Data Inputs
Project-specific inputs such as utility utilization, activity costs, projected fines, waste disposal options.

Decision Variables

Prioritize list of sustainability projects that minimize risk while maximizing ROI.

Constraints Resource Availability of alt. Optimization Model energy/fuel sources,

water, product demand, budget, personnel costs, technical expertise supply chain flexibility.

Recommended actions
$X initial investment with $Y monthly incremental cost will yield $Z return/avoidance of penalty in #T years.

Implementation
Apply resources to develop and execute project plans.

Update model based on actual fines/new disposal options.

Results Measured/Model Updated

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ALIGNED RESOURCE OPTIMIZATION

Optimizing marketing campaigns

In spite of the proliferation of marketing automation products, many organizations are still not reaping all the return they could from their marketing campaigns. Automation makes campaigns faster, but it wont necessarily tell you if campaign A would make more sense than campaign B. How do you know you have the proper mix of customer, channel, offer and timing to maximize overall profit from these campaigns? When you run hundreds of campaigns a month, this question cannot be answered with intuition or marketing savvy alone; it requires mathematical optimization. How SAS can help: SAS Marketing Optimization provides the ability to plan and prioritize outbound customer communications in order to maximize results, while balancing the capacity to deliver and customers likeliness to respond. Sample case: A direct-marketing insurance company uses marketing optimization to manage more than 600 projects, optimizing on present value of future profit. The companys former, homegrown optimization model took three days to run and sometimes crashed. Its SAS model assesses multiple constraints and inputs across direct mail and telemarketing channels, and delivers optimized results in minutes. Supporting more effective use of limited marketing resources, the software paid for itself in only two months. A regional telecom service provider uses SAS to optimize its monthly promotional campaigns for DSL, wireless, cable and phone service optimizing on customer lifetime value. The company reported $6 million a month profit gains during the trial phase alone. Example of a campaign/offer optimization model

Maximize return on direct and telemarketing campaigns.

Objective

Data Inputs
Business requirements, priorities/service levels, capacity, existing projects.

Decision Variables

Which customer segment should be targeted with which offer for which type of campaign.

Resource Optimization Model

Constraints

Minimum number of customers, budget, product availability, privacy requirements.

Recommended actions
Which combination of offer channel/customer to use.

Implementation
Determine campaign timing, prioritize by segment purchase behavior.

Update model based on campaign response. Add loyalty and house-holding data to customer segments.

Results Measured/Model Updated

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ALIGNED RESOURCE OPTIMIZATION

Optimizing IT performance
CIO responsibility extends far beyond keeping the IT infrastructure afloat, juggling data and applications, and delivering on service level agreements. Todays CIO is expected to contribute strategic thinking about how to add value to corporate data, create new insights to drive success, and optimize IT resources in alignment with the organizations mission and goals. In the quest to optimize IT performance, CIOs face a host of conflicting objectives. They are pressured to provide more processing power, servers, storage space, redundancy, bandwidth, power and self-service capabilities than ever. And they have to deliver it on less than ever: fewer people, dollars and days. To succeed, CIOs need a full understanding of resource utilization and costs, optimized in alignment with business requirements and service level agreements. How SAS helps: SAS IT Intelligence is a comprehensive solution for IT that helps you optimize resources, services and financial impact, all in support of strategic business goals. Sample case: A major European financial services organization, with more than US $694 billion in assets and 56,000 employees, had been growing rapidly through acquisitions and attained more than 5 million retail banking customers. But the IT organization faced major challenges in integrating the acquired systems and keeping more than 1,900 applications running smoothly especially as Internet banking grew by 40 percent. Capacity management was a process of crisis management. With SAS IT Intelligence, the team was able to align IT direction with the corporate bottom line, while bridging organizational gaps. According to the institutions IT operations manager, the bank can now ensure that adequate resources are available and functional at the required time, and that everything performs according to specifications, while correctly accounting for and allocating all costs. Example of an IT optimization model

Maximize IT activities and resources to best support business requirements.

Objective

Data Inputs
Business requirements, priorities/service levels, capacity, existing projects.

Decision Variables
Match activities resources, service levels and support capacity.

Resource Optimization Model

Constraints

IT capacity, budget # of resources, project length, available technology, service level agreements.

Recommended actions
Prioritized list of IT activities/projects and associated resources and service levels to support business requirements.

Implementation
Build recommendations into documented, monitored and automated processes/controls for example ITIL, CMMI, PRINCE2 and update/document/communicate IT goals within scorecard/performance management application.

Results Measured/Model Updated

Update model based on adjustments to priorities, capacity, resources, etc.

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