The differences between BI and EDM
I am often asked "What is the difference between Business Intelligence and EDM?" so it seemed worthwhile to write a little on this topic. The simple answer is that Enterprise Decision Management differs from traditional BI in that it is focused on execution of decisions and actions rather than reporting. Let's drill into this a little.
One of the hottest topics in the field of business intelligence (BI) today is what many call “operationalizing” BI. At issue is how to bridge the gap between the insights BI brings to knowledge workers and decision makers in the back office and the tactical, everyday decisions and actions that determine an organization’s success. An enterprise drawing strategic intelligence from BI also needs a way to push the same degree of intelligence out into its operations and front-line systems.
Phrases such as “operational BI” and “decision-centric BI” may reinforce the feeling that what’s needed to bridge the gap is a logical extension of business intelligence technology. In fact, as some observers have noted, the kind of technology needed to bring insight-driven execution to tactical decisions already exists, and has had successful adoption in some areas of financial services, insurance and other industries. It just isn’t called BI.
Enterprise Decision Management then represents an opportunity for a logical extension of the gains companies have made with BI, giving them the power to embed greater intelligence in front-office applications and processing systems. This evolution from insight to automated action is the focus of Enterprise Decision Management. EDM is a systematic approach for automating and improving high-volume, operational decisions. It applies predictive analytics, business rules and other proven technologies to give businesses a much greater degree of control over decisions. Typically these are customer decisions that have revenue and cost impacts, but EDM technology also elevates processing and other non-customer decisions that require a systematic, complex application of rules, policies, procedures and decisions.
The crucial distinction between BI and EDM is that the former helps you understand your business, the latter helps you execute business. If BI is the bridge between your data and your strategies, EDM is the bridge between your strategies and your customers or transactions.
At the risk of simplifying two sophisticated disciplines, here are some other differences in approach between BI and EDM:
- Where BI solutions provide information access and insight on customers as groups, EDM uses customer-level insight to identify the ideal action to take in a particular transaction.
- Where BI is a back-room, offline operation controlled by knowledge workers, EDM is embedded in operational systems and processes. Some processes will call out to an EDM system for decisions during “live” transactions; other processes operate offline. In both circumstances, the decisioning must be tightly coupled with the operational system.
- Where BI analytics traditionally synthesize past performance, the analytics used in EDM frequently predict future behavior. Predictive analytics play a role in BI as well of course, but are more dominant in EDM systems.
Another way of differentiating between BI and EDM is to look at the kinds of decisions they support. BI and EDM generally operate on different ends of the “decision spectrum,” with some overlap in the middle.
- Strategic decisions have broad business scope but occur less frequently. These can range from M&A decisions or the decision to enter a new geographic region to product direction and store location decisions. These decisions can be supported by reporting, data and analytics, but are seldom automated.
- Tactical decisions determine the way in which the enterprise will manage processes, customers and procedures. For example, decisions about which segments of a customer base will receive which precise offer, or what level of risk an enterprise will allow in accepting credit applicants, would be tactical in nature. The entire process is seldom automated. although it may be supported by automation as well as reporting
- Operational decisions have the highest volume and deal with individual transactions. These include approve/decline, next-offer, authorization, fraud detection, processing and other decisions that often take place in real time. The speed required and volume of these decisions means they must often be automated.
Traditional BI tools are generally used to support executives making strategic and tactical decisions. EDM solutions are most frequently applied to operational decisions. Adding EDM to BI extends the value of analytics-driven insights, allowing businesses to make smarter strategic, tactical and operational decisions.
There is more on this in a great Cutter report which I will post soon and a longer white paper on this subject is available on Fair Isaac's website if you register - Beyond BI: Building intelligence into your operational decisions