ANSWER

Model-Based Management refers to the activity of managing and making informed decision regarding the future direction of a business, process, or system(s) based on information gleaned and understood from models that document the current state.

More recently, the term Model-Based Management has been used with increasing regularity to describe the use of models for strategic business planning.  Emphasis has been placed on the importance of models as it relates to capturing the complex nature of a business’s structure, operations, systems, and the economic environment in which it operates.

A model is simply an abstraction of reality.  In this context, it is a representation of the current state of the business and the environment in which it operates.  Some models are already popularly used today for strategic business planning.  Consider financial models such as the balance sheet, income statement, and cashflow statement.  Each is an abstraction of the current state of the business.  While the importance of these models and their use in budgeting and financial planning are well know, the use of models for decision making in all other aspects of a business is less ubiquitous.

Committing to a Model-Based Management approach across an entire organization can yield significant benefits:

• Models (if maintained) can always provide a clear representation of the current state of the business, mitigating the risk of making decisions based an inaccurate understanding of the business.
• Models can reflect different viewpoints of the same situation.
• Models can help identify bottlenecks or issues with a business process that would otherwise go unnoticed.
• Models can be used to anticipate outcomes of proposed changes to a business.
• Models can ensure completeness of a solution which is to be implemented.
• Models can increase the consistency and clarity of the communication of business change or solution.
• Models can provide a means of tracking the specific value of a business activity, system, or service, by understanding the larger end-to-end process that it supports and the revenue produced by that process.  This allows executives and manager to determine its true ROI.

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Chris Adams
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