Corporate Decision Flow
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Corporate Decision Flow Diagram

Figure below shows the most generic decision flow corporate structure. Each of these departments uses specialized solutions involving Descriptive Analytics. At department level these solutions are treated as cost centers.

Companies rely more and more on Predictive Analytic solutions which are in most cases connected or operated from the Finance department. These solutions should be treated as profit centers since a clear revenue flow can be associated with their operation.

Corporate Decision Flow Diagram

The distinction cost versus profit center is essential for understanding the economics and the human behavior under the two systems. A proper valuation needs to take into consideration the entire economic effect including all savings and change in revenue. This makes the cost center valuation more complex than it was intuitively necessary because it needs to expand to all entities that benefit from the work of that cost center.

When an entity is declared a cost center the economic benefits it may bring are officially associated with a different entity leaving only the cost. Over time the operations of this entity will be "optimized" to cut all cost not directly related with the list of some rigid requirements. However if the departments benefiting from their work have shifting needs or have to respond to threats the delay in changing requirements, allocating resources, and implementing the changes has a punishing effect.

Just to briefly mention other major constant of human behavior, never dismiss the cost component incurred by the clash of cultures between the IT's planning mode vs Finance's evolutionary mode.