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BA 553 Course Review
Assistance for student revision efforts: Class sessions 1 through 7
Enterprise BPM Methodology: Course Model
“Managing the Process-Centric Organization”, presentation by Paul Harmon.
BA 553: Business Process Management 2
Build Process Management
Capability
Session 5Session 5 Sessions 8 & 10
Session 5
Session 8 Session 8
Session 10
Sess. 4
BA 553: Business Process Management
BA 563: Process Improvement
BA 553: Business Process Management 3
What is BPM? Process
The act of taking something through an established … set of procedures to convert it from one form to another, as a manufacturing or administrative procedure.1
Business Process
At its most generic, any set of activities performed by a business that is initiated by an event, transforms information, materials or business commitments, and produces an output.2
Business Process Management
Aligning processes with the organization's strategic goals, designing and implementing process architectures, establishing process measurement systems that align with organizational goals, and educating and organizing managers so that they will manage processes effectively.2
A holistic management approach that promotes business effectiveness and efficiency while striving for innovation, flexibility, and integration with technology. Business process management attempts to improve processes continuously. It could therefore be described as a "process optimization process." 1
1 www.wikipedia.com website, January 2010.2 www.bptrends.com website, January 2008.
From session 1
BA 553: Business Process Management 4
Complete Systems Diagram
Enabling MechanismsFacilitating individuals, groups, processes, and work environment factors that improve the efficiency and
effectiveness of the transformation process and output value
Transformation process
Environment
Equipment
Methods
People
Materials
SuppliersWho is the
input coming from, or who do you see if it is
defective?
Customers
Environment
Equipment
Methods
People
Product/scrap
InputsWhat is being
delivered?
ConstraintsFactors that restrict the
way in which the transformation process
can be undertaken
Who is the output going to, or who will
care if it is defective?
OutputsNew thing
(everything that goes in must come out in some form)
From session 2
BA 553: Business Process Management 5
Functional Hierarchy vs. Product/Service Flow
Can you explain this picture?
Direction of Process Flow
Direction of Control
CEO
Dept. 1 Dept. 2 Dept. 3 Dept. 4
Functional Hierarchy
From session 2
Strategies for Competing
Cost leadershipThis involves offering the product or service at the cheapest price. It can be accomplished by relying on economies of scale, controlling the supply chain, or increasing efficiency.
Can you think of an example?
DifferentiationThis involves providing better or more desirable products and services. This enables the organization to obtain a higher price for the item. It can be accomplished by using more expensive materials, a unique design, or superior craftsmanship.
What are other ways to differentiate your organization?
Can you think of an example?
Niche specializationThis involves focusing the marketing effort on specific buyers, specific market segments, or particular geographies. It can also involve offering only a subset of the industry’s products or services.
Can you think of an example?
BA 553: Business Process Management 6
From session 3
Aligning Strategy with Process Metrics
This is a process for ensuring alignment among the organization’s performance measures, strategic plans, improvement projects, and budgets. The items in grey will be covered in later sessions.
BA 553: Business Process Management 7
1. Establish the organization’s key goals
2a. Develop and deploy the enterprise strategy to the process level
2b. Establish KPIs associated with the organization’s key goals, and measure performance in these
3. Establish process measures (if not already existing)
4. Enterprise KPIs are then recalibrated and aligned with process-level metrics
5. Once the metrics are aligned at all levels, identify process improvement projects
6. Allocate budget aligned with the process improvements needed to achieve the strategic goals. This requires that the budgeting process be scheduled after the strategic planning process
From session 3
BA 553: Business Process Management 8
The Seven Principles of Hoshin Planning
Participation byall managers
Focus onprocess
Catch ballunderstanding
Qualityfirst
Individualinitiative andresponsibility
Focus onroot causes
No tie toperformanceappraisals
King, Bob, Hoshin Planning: The Developmental Approach, Methuen, MA: GOAL/QPC, 1989.
From session 3
BA 553: Business Process Management 9
The Hoshin Planning System
5-year vision
President’sannualaudit
Monthlydiagnosis
Detailedimplementation
Deploy todepartments
1-year plan
Plan
Audit Execute
King, Bob, Hoshin Planning: The Developmental Approach, Methuen, MA: GOAL/QPC, 1989.
From session 3
BA 553: Business Process Management 10
Examples of Performance Measures/KPIs
Performance measures indicate the organization’s performance in areas that affect the continued existence of the company. Examples include:Net incomeNet income growthReturn on investmentActual vs. estimated budgetStock price increaseMarket shareSales volumePercentage of satisfied customersAnnual inventory turnoverTotal rework or scrap dollarsLabor cost per sales dollarDirect vs. indirect labor dollarsOvertime cost per sales dollar
From session 4
BA 553: Business Process Management 11
Understanding the Balanced Scorecard (BSC)
It is a management system that enables organizations to clarify their vision and strategy and translate them into action. It provides feedback around both the internal business processes and external outcomes in order to continuously improve strategic performance and results
Originated by Drs. Robert Kaplan (Harvard Business School) and David Norton as a performance measurement framework that added strategic non-financial performance measures to traditional financial metrics to give managers and executives a more 'balanced' view of organizational performance
The balanced scorecard has evolved from its early use as a simple performance measurement framework to a full strategic planning and management system
The “new” balanced scorecard transforms an organization’s strategic plan from an attractive but passive document into the "marching orders" for the organization on a daily basis
www.balancedscorecard.org website, accessed 12 April 2010.
From session 4
Integrating BSC and Hoshin Planning
Starting with a vision and strategy, as described in session 2 of the class, the activities for Hoshin and BSC can then be aligned.
BA 553: Business Process Management 12
Hoshin Planning Balanced Scorecard
1. Develop 5-year vision 2. Create destination statement (vision of the future state)
4. Establish integrated 1-year plan
3. Develop strategy map (strategic objectives and their relationships
5. Deploy to departments, identify measures and targets
6. Develop balanced scorecard
7. Execution of the plan 9. Report on progress regularly
8. Audits (monthly and yearly) Change direction if needed *
10.Update 5-year and 1-year plans as needed
11. Update destination statement, strategy map, or scorecard
* This activity is part of both approaches, but is not listed in either as a separate step.
From session 4
BA 553: Business Process Management 13
Value Chains
The value chain categorizes the generic value-adding activities of an organization
The value-chain concept has been extended beyond individual firms. It can apply to whole supply chains and distribution networks
Identifying value chain processes enables process improvement efforts to be focused on the processes that could potentially add the most value to the customer
The goal of identifying and improving the value chain is to offer the customer a level of value that exceeds the cost of the activities, thereby resulting in a profit margin
The firm's profit margin then depends on its effectiveness in performing these activities efficiently. A competitive advantage may be achieved by reconfiguring the value chain to provide lower cost or better differentiation
http://en.wikipedia.org/wiki/Value_chain, accessed on 16 March 2010.
http://www.netmba.com/strategy/value-chain/, accessed on 16 March 2010.
From session 5
BA 553: Business Process Management 14
Value Chain: Graphic View
These activities are typically shown in a graphic format first developed by Michael Porter, the person who first wrote about value chains:
Porter, M. (1985), Competitive Advantage: Creating and Sustaining Superior Performance (Free Press: New York).
From session 5
BA 553: Business Process Management 15
A Process Network View of the Organization
SuppliersCustomers
Internal to the organization
From session 5
BA 553: Business Process Management 16
Downstream Processes of Outage Maintenance
Equipmentavailable
DoingOutage
Maintenance
Providing
Clearances
Manpoweravailability
Managing the Workfor
ce Ordering Parts
ManagingContract
ors
Contractorsand their work scope
Materials/Parts
W/O’s with status ofequipmentto be fixed
Creating Work Orders Planning
Outages
Planned schedule
Planned budget
Planned work scope
Outage W/O’s
EquipmentworkingActual schedule
Actual budget
Actual workcompletedPaperwork done
Amount of contractor work complete
Used partsLevel of satisfac-tion with contractor
Doing Daily Maint.
Operating Plant
Storing or
Disposing of Scrap
From session 5
BA 553: Business Process Management 17
PMI’s Project Management Process NetworkInitiating
Planning
Executing
Controlling
Closing
From session 5
BA 553: Business Process Management 18
What is a process enterprise?
An organization in which senior executives rely heavily on process concepts and techniques to manage the organization
An organization in which senior executives rely heavily on process performance measures
It’s an evolving concept. Some organizations are completely organized around their business processes but most process-centric organizations have a mix of functional and process structures
The key is the interest and commitment on the part of corporate executives to the use of process concepts
Harmon, Paul (2007), Managing the Process-Centric Organization, presentation, BPMTrends.
From session 6
Organizational Structure
This does not have to be an “either-or” decision: matrix management is an approach that enables a focus on function AND a focus on process
The approach depends on key decisions such as: Who owns the resources? Who owns the budget? Is there a dedicated group of process managers?
BA 553: Business Process Management 19
Project Management Institute’s classification of the 5 organizational types
From session 6
Coordinating the Management of Processes
BA 553: Business Process Management 20
From session 6
Why standardize processes? Reduces costs:
Lowers salary costs due to collaboration between units (employees can fill in for each other) Lowers overhead costs due to sharing documentation and training materials across company Reduces materials costs (ordering larger quantities of standard parts and materials provides
purchasing leverage: buyers benefit from suppliers economies-of-scale) Increases quality:
Reduces variability in product / service quality, as all employees perform the process in a similar manner
Improves product / service quality through the use of continuous improvement and sharing of best practices
Reduces cycle time: Reduces rework and inefficiency - less work at business unit level as processes are developed
once instead of ten times Improves organizational management:
Facilitates early identification and proactive management of risks Improves accuracy of estimates Provides a stronger foundation for any organizational restructuring, as processes are similar
across similar job functions Facilitates various organizational reviews (e.g., SOX reviews) Increases organizational flexibility, as resources such as people and assets can be reassigned
according to market requirements Enables implementation of process control methods (collecting similar metrics and reporting on
them)
BA 553: Business Process Management 21
From session 6
BA 553: Business Process Management 22
Steps in Process Standardization
1. Clarify the purpose of the standardization effort (e.g., reduce product cost, increase product quality, improve product cycle time)
2. Identify which aspects of the process need to be standardized to achieve the stated purpose
3. Document a single version of the process
4. Use impact analysis to identify consequences for the organization, e.g., equipment or paperwork changes required
5. Identify and document any training needs based upon standardized process design
6. Develop a plan for implementing the standardized process
7. Train employees in the new process
8. Roll out the new processes to the various regions
9. Identify decision authority for future modifications to the standardized process design
From session 6
BA 553: Business Process Management 23
Process Standardization: Principles for Success
Beginning standardization effort with a pilot process to demonstrate success
Selecting processes for standardization that are part of the value chain
Design process to achieve improved metrics around process time, cost and quality (as described earlier)
Employee involvement in designing the process, including identifying best internal practice
Employee ownership of the standardized process
Management buy-in to the process design
Management commitment to make the infrastructure changes necessary to enable standardization (e.g., purchase of common systems and software)
Process simplification wherever possible (standardization should not lead to over-complication)
Train employees as needed in the differences between their local processes and the standardized process
From session 6
BA 553: Business Process Management 24
Types of Measures for a Given Purpose
The goal for the improvement effort must be established prior to selecting metrics
If the intent is to improve process efficiency (productivity), the following types of measures might be collected:
Time-related metrics (cycle time, delays, on-time delivery, etc.)
Cost-related measures (total cost, procurement cost, etc.)
Utilization of people or equipment
If the intent is to improve process effectiveness (quality), the following types of measures might be collected:
Quality of incoming parts
Customer satisfaction
Measures of product defects (such as number of returns, cost of post-production customer service, etc.)
From session 7
BA 553: Business Process Management 25
What to Measure: Where in the Process
You will want to collect output measures to show improvement to the entire process, but you also want to collect in-process measures to show how the changes you made to parts of the process are improving the process outputs
Inputs OutputsSub-process A Sub-process B Sub-process C
M 1 M 2
In-process measures(collected from customers internalto the process)
Work Process
Input measures(collected
from the
customer forthe inputs -
you)
Output measures(collected fromcustomers in
next process, or externally)
M 3 M 4
From session 7
BA 553: Business Process Management 26
Linking In-Process Measures to Process Output Measures
It’s important to link your in-process measures to process output measures to show the results of your improvements
However, you must establish process output measures in such a way that not too many items will influence your measure: otherwise, your process improvements may not show up
For example, if you improved the production process and then measured cost per unit built, you might not see the effect of your improvement, because the cost of raw materials or supplier parts could have risen
It would be better to measure the reduction in rework, or the number of parts coming off the line per day per worker
From session 7
BA 553: Business Process Management 27
Example: Linking Process Measures to KPIs
Performdaily
maintenance
In-process measuresWait time for
parts
Number of times parts not
available when needed
Inputmeasures
Number of parts of various types in
warehouse
Correct min/max for parts in
material management
system
Performance measures
Forced outage rate
Availability
Ops & Maint. budget
Process output measures
Work orders
Equipment working
Maintenance costs
Work orders signed off
Equipment working• Amount of equipment fixed
Work orders signed off• Number of work orders signed off
Maintenance costs• Cost of expedited parts• O/T costs
Run theunits
Managethe budget
Power Plant Core Processes
Power
ExpensesParts
Equip.history
From session 7
Example: Linking Process Measures to KPIs
Process Measures KPIsInput In-process Output BSC
measures Number of parts of various types in warehouse
Wait time for parts Amount of equipment fixed
Forced outage rate (EFOR), availability
Overtime expense
O&M (non-Capital) budget
Correct min/max for parts in material management system
Number of times parts are not available when needed
Amount of equipment fixed
Forced outage rate (EFOR), availability
Cost of expedited parts
O&M (non-Capital) budget
BA 553: Business Process Management 28
From session 7
Example: Linking Process Measures to KPIs
Process Measures KPIsInput In-process Output BSC measures
Number of parts of various types in warehouse
Wait time for parts
Amount of equipment fixed
Forced outage rate (EFOR), availability
Overtime expense
O&M (non-Capital) budget
Correct min/max for parts in material management system
Number of times parts are not available when needed
Amount of equipment fixed
Forced outage rate (EFOR), availability
Cost of expedited parts
O&M (non-Capital) budget
BA 553: Business Process Management 29
From session 7
Estimate Impact of Projects on KPIsBSC Category and Item
Objective Measure Current Target Initiative/ Project
Impacts KPI
Financial
Warranty costs Decrease warranty costs
Repair cost, $
$20M $15M (-$5M)
Impr. quality of incoming parts
$3M
(Same as above) (same) (same) (same) (same) Train field personnel
$2M
Customer
Customer satisfaction rating
Impr. reliability of shipments
On-time shipments %
80% 95% (+15%)
Impr. inventory processes
5%
(Same as above) (same) (same) (same) (same) Impr. shipping processes
10%
Internal Process
Production rate Reduce rework
Rework, % 7% 3% (-4%)
Impr. quality of incoming parts
2%
(Same as above) (same) (same) (same) (same) Impr. mfg. processes
2%
Learning/Growth
etc.BA 553: Business Process Management 30
From session 7