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8/7/2019 Process Performance Measurement
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Process Performance Measurement
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Importance and benefits of Performance measurement
³Measurements are key. If you cannotmeasure it, you cannot control it. If you cannot control it, you cannot
manage it. If you cannot manage it,you cannot improve it.´
No business should invest time andresources to improve a process if they
did not know what they have tomeasure to improve
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Importance and benefits of Performance measurement
When you can measure what you arespeaking about and express it innumbers, you know something about it.
µYou cannot manage what you cannotmeasure¶.
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Importance and benefits of Performance measurement
Should be able an answer the followingtwo questions:
1. Is the current performance of thebusiness process better than it wasyesterday?
2. To what degree are the to-be valuesfulfilled?
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Performance measurement
Universally used to assess how well someone orsomething has done against set objectives or peers.What Are Performance Measures? Performance measures quantitatively tell us something
important about our products, services, and theprocesses that produce them. They are a tool to help
us understand, manage, and improve what ourorganizations do. Performance measures let us know: how well we are doing if we are meeting our goals if our customers are satisfied if our processes are in statistical control
if and where improvements are necessary They provide us with the information necessary to
make intelligent decisions about what we do.
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Performance measurement
A performance measure is composed of a number anda unit of measure. The number gives us a magnitude(how much) and the unit gives the number a meaning(what).
Performance measures are always tied to a goal or anobjective (the target).
Performance measures can be represented by single
dimensional units like hours, meters, nanoseconds,dollars, number of reports, number of errors, length of time to complete a process, etc.
They can show the variation in a process or deviation
from design specifications. Single-dimensional units of measure usually represent very basic and fundamentalmeasures of some process or product.
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What is a Metric?
A metric is nothing more than a standard measure toassess your performance in a particular area.
Metrics are at the heart of a good, customer-focusedprocess management system and any programdirected at continuous improvement. The focus on
customers and performance standards show up in theform of metrics that assess your ability to meet yourcustomers' needs and business objectives.
Overall purpose of understanding metrics is so that amanager can attribute a value to improving or
changing a process as part of process performancemanagement
Effective metrics are generally referred to as keyperformance indicator or KPI
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Key Performance Indicator (KPI)
A KPI is a measure reflecting how an organization is doing in aspecific aspect of its performance. KPI or Key Success Indicators (KSI), help an organization
define and measure progress toward organizational goals. A KPI is one representation of a critical success factor
(CSF)²a key activity needed to achieve a given strategicobjective.
Organizations that measure performance identify the handfulof critical success factors that comprise every strategicobjectives
Examples The percentage of income the organization derives from
international markets.
The number of customer complaints about orders filled incorrectly The amount of aid that is granted to different entities. Graduation rates of its students Percentage of customer calls answered in the first minute Number of clients assisted during the year
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KPI 12 characteristic
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Key Process Performance Definitions
All processes have a metric or measurement associated with the work oroutput of the process that is performed. These metrics are based on thefollowing dimensions:
Time²is a measurement of process duration Cycle Time²measures the time it takes from the start of a process to the
completion of that process in terms of output
Cost²is a measure of the monetary value associated with a process Resource cost²is a measurement of the monetary value associated with
resources (human or non-human) required to complete a process Opportunity cost²it the value that is lost from the process by not the resultant
output of the process (sales order is lost due to error²quality metric)
Capacity²this an amount or volume of a feasible output associatedwith a process (no. of transactions associated with a process) Usually a revenue connotation associated with a process Also have a throughput connotation associated with a process
Quality²is usually expressed as a percentage of actual to optimal ormaximum in process terms and can take many forms Satisfaction²is a measurement of customer satisfaction which is usually
associated with a service level expectation on the part of customer Variation²this is a measurement of the amount, extent, rate or degree of
change and is generally expressed as the difference between the actual andtarget or expected result
Error or Defect²is an example of variation in the measurement of errorsassociated the output of a process
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Efficiency and Effectiveness
Effectiveness: A process characteristic indicatingthe degree to which the process output (work product)conforms to requirements. (Are we doing the rightthings?)
Efficiency: A process characteristic indicating the
degree to which the process produces the requiredoutput at minimum resource cost. (Are we doing thingsright?
These measurements are generally a function of one ormore of the four fundamental metrics:
Time
Cost
Capacity
Quality
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Value added versus non-value added
Value added²a process is values addedeither when it is required to generate theoutput required by the customer of theprocess or when customer is willing to payfor the process or activity that generateoutput or to maintain quality andconsistency of the component resources oroutput or to provide continuity or transportdepending on circumstances. Simply an
activity is value added if it enhancescustomer experience even when it does notcontribute directly to the specific service
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Monitoring & Controlling Operations
It is important to measure a process but itis even more important to continuallymeasure, monitor and control theprocesses in order to achieve the desired
results
As business changes, the desiredperformance of the process also changes
Process changes cannot be determinedwithout process and the performance of the
process are monitored and controlled to theneeds to the customer requirements
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Alignment of Business Processand Enterprise Performance
Time dimensions Delivery Performance, request Date Order Fulfillment Lead Time Product Development Lead Time
Quality Dimensions Product Launch Variance
Forecast Accuracy Cost Dimensions
Sales cost Manufacturing Cost Logistics Cost Inventory Days of Supply
Capacity Dimensions Customer Dollars Per Order (Wallet Share) Customer Growth Rate Market Share
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Examples
Some examples of cross functionalprocesses that drive enterpriselevel metrics are:
Order to cash
Procure to Pay
Campaign to quote
Plan to fulfill
Manufacturing to distribution
Issue to resolution
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What to Measure?
Best way to understand what to measure ina process is first to understand the desiredresults
The information required for measuring thefollowing dimension can be obtained as
follows: Time²from entire process²that is from supplier
to customer Cost²based on the resources needed to perform
the process itself Capacity²from output information of the process Quality²can be obtained at both the input and
output of the process as well as the overallprocess when it comes to service level satisfaction
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Measurement Methods
Two very common methods for measuring aprocess
Manual²collecting data by hand and eitherdrawing it on paper or entering into a
spreadsheet or modeling tool Automated²sophisticated software such as
business process management suits orenterprise software modeling tools that is:
Value stream mapping Activity based costing
Statistical methods
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Value Stream
All the activities required to fulfill customerrequirements from order to delivery
A value stream is simply all the things done to create avalue for the customer
VSM is a method of creating a ³one page picture´ of allthe processes that occur in company, from the time acustomer places an order for a product, until thecustomer has received that product in their facility.
VSM goal is to depict material and information flowsacross and throughout all Value adding processesrequired to produce and ship the product to the
customer. VSM document all the processes used to produce and
ship a product both value adding and non-value adding(Waste) processes.
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Value Stream Mapping
Value stream mapping is a Lean process-mappingmethod for understanding the sequence of activitiesused to produce a product.
Starts with a current state map describing the currentservice to customers
Continues with a future state map, which shows how theprocess will look in the future with waste reduction andprocess improvements
Is ³a high-level look at the company¶s flow of goods orservices from customer to customer´
Contains 7-10 steps
Captures metrics such as cycle times, defect rates, waittimes, headcount, inventory levels, changeover times,etc
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Use Value Stream Mapping When:
You need to locate the bottleneck in aprocess
You want to identify opportunities for
future improvement efforts You have a limited time to document a
process and find problem areas
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Detailed Process Map:
Identifies the major output, and outputswithin a process
Identifies and classifies process inputs
Provides a very detailed look at a process
Follow the sequence of events for each input
Use Detailed Process Mapping When:
You already know the bottleneck in a process
You want to find waste at the micro-level You have time to take a very in-depth look at
a particular process
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Value stream Mapping
A technique used to identify and stripwasteful steps out of a company's flowof information and materials. The endgoal of the technique is to make the
company "lean," meaning free of wasted effort. Toyota is generallygiven credit for the development of lean production techniques, which
have been adapted and added to bysucceeding generations of managersand consultants.
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Value Stream Mapping
The value stream map (sometimes also known as the "Learning toSee"map or "Cartoon") has emerged as a very popular and clear way to
illustrate the current and future state of a process. The method maps all the physical and information flows necessary to
deliver what the customer requires. It is called a value stream map becauseit depicts the value-adding activities necessary to produce what thecustomer requires, in the sequence in which they happen. The value streammap differs from the process map in that it shows both the physical and
information flows on one diagram, thus enabling you to see what thesituation is and why this is the case. Value stream mapping is quick to learn because it uses simple boxes to
indicate stages, and other obvious symbols such as trucks, factories, andkanban cards. Typical symbols are shown in one of the content objects inthis Knowledge Stream.
VSM are very clear and can be used for planning and participationmeetings, from shop floor to top management. As a reference tool they can
be placed on boards in meeting areas, and ideas can be added by Post-itstickers. Progress can be chartered.
The process involves identifying the value streams, creating the currentstate map, analysis of the current state map and creation of the futurestate map.
It is possible to map the value stream for the whole supply chain, includingsuppliers and customers. However, as a starting point for makingimprovements it is advisable to consider your organization and theboundaries of authority the team has for making change.
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Difference between Value and Waste
Value²In its broadest sense, value is adding to theproduct something which the customer wants or needs.In paper mill example, value steps are those that givethe paper the desired dimensions, color, composition,etc.
Waste²is any step that does not add value. The mostcommonly cited forms of waste are: movement of the product, equipment or employees
unnecessarily;
maintaining an inventory of raw materials or products waiting tobe worked upon;
making more parts or products than there is customer demandfor;
processing a component more than the customer actually needsor expects;
quality checks; or the subsequent reprocessing of defects.
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7 categories of "Muda" (waste)
Waste is anythingwhich does not addvalue to a productor service, in any
office ormanufacturingactivity, eg: sittingin storage, being
moved around,queuing awaitingprocessing, beinginspected, etc.
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7 categories of "Muda" (Waste)
Transport: Movement of materials is a waste. Minimize theamount of movement by arranging processes in closeproximity to each other.
Inventory: Too little inventory can lose sales, too muchinventory can hide problems. Aim for "Just in Time" (JIT)manufacturing to expose problems to be eliminated andreduce cost.
Motion: Remove unnecessary motion of the operations andimprove the ergonomics of the workplace.
Waiting: Minimize waiting time and maximize "value adding"time. Aim for a smooth flow.
Overproduction: Always aim to make exactly what thecustomer orders, just in time, to the correct quality standard
OverProcessing: Use machines which are of an appropriatecapacity and capable of achieving the required qualitystandard.
Defects: Reducing the number of defects directly reducesthe amount of waste. Aim for zero defects.
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The New Wastes
In addition to Ohno's original seven wastes,seven "new" wastes have been added to thelist:
The Waste of Untapped Human Potential
The Waste of Inappropriate Systems
Wasted Energy and Water
Wasted Materials
S
ervice and OfficeW
astes Waste of Customer Time
Waste of Defecting Customers
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Activity-Based Costing (ABC)
A methodology that measures the costand performance of activities,resources and cost objects.
ABC assigns costs to activities using
multiple cost drivers, then allocatescosts to products based on eachproduct¶s use of these activities.
Using multiple activities as costdrivers, it reduces the risk of distortionand provides accurate costinformation.
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Activity-based Costing (ABC)
In an ABC system, the total cost of a product equalsthe cost of the raw materials plus the sum of the costof all value adding activities to produce it.
In other words, the ABC method models the usage of the organization resources by the activitiesperformed and links the cost of these activities tooutputs, such as products, customers, and services.
Each product requires a number of activities such asdesign, engineering, purchasing, production andquality control. Each activity consumes resources of different categories such as the working time of themanager.
Cost drivers are often measures of the activitiesperformed such as number of units produced, laborhours, hours of equipment time, number of ordersreceived.
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Activity-based Costing (ABC)
In traditional cost accounting systems,direct materials and labor are the onlycosts that can be traced directly to theproduct.
By using the ABC system, activitiescan be classified as value-added andnon-value-added activities.
In order to improve the performanceof the system, non-value-added canbe eliminated.
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Statistical Methods S
cience of collecting, analyzing, presenting and interpreting data Axiom All work occurs in system of interconnected processes Variation exists in all processes Variation may occur in at least two forms:
Random²natural variation due to the nature of the process, maybe reduced bit not eliminated
Systematic²variation due to some consistent cause that can be
addressed and eliminated Variability is what drives errors rate or inefficiency Understanding what reduces the variability will help improve the
process
used to understand and then reduce or eliminate variability inprocesses for improvement
focuses on data (the X¶s [input] which drive the Y [output]
determine which processes are primarily responsible for drivingthe X¶s then focus on those processes for improvement
When to use: High rate of error Inconsistency of outputs
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Simulation
Enactment or representation of the behavior or characteristics of onesystem through the use of another system In essence a process is modeled in software with all the parameters
associated with a process entered into software Cycle time parameter for each activity:
In-queue time (before work begins) Work delay time (from start of resource involvement until start of work) Work time (from beginning of work to production of output
Out-queue time (from output production to release of output Cost Parameters are:
Labor (total staffing costs allocated by headcount The resources associated with each activity The cost of each resource
Material Direct cost²material consumed each time an activity is performed
Overhead (administrative costs allocated as a percent of labor)
Indirect costs²allocated to activities requiring resources that are incurredover an interval of time
Other considerations with respect to the parameters are: How many times the process runs per interval (X times/hour/day) Decision points in process ( example²60/40 split between Path A & Path B
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Simulation
Modeling & simulation provide an experimentallab to do the process reengineering effortsbefore the actual implementation
It is not a substitute for the actual field work
nor it is a perfect method of determining thefuture state process
Major benefit:
It will automatically calculates the benefits of the
process improvement via the Time, Cost, Capacityand Quality dimensions to help to build a data drivenbusiness case for processimprovement/reengineering
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Consideration for Success
Most important part of any BPM effortis the soft skills needed to manage thepeople impacted by the businessprocess change
Competency matching Roles and responsibilities
Organizational structure
Empowerment with accountability Performance measures and objectives
Personal growth opportunities
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Critical Success Factors
Focus on
PEOPLE as much as possible Education²ensure that everyone knows the entire process
and not just ³their´ part of it Everyone has the same understanding of what a process is Everyone understands why process is important People who design and approve the activities are the same
people who do the activities Attempt to ³Over Communicate´ the goals and objectives
(performance metrics) of the process Assign a Process Manager who is someone with
accountability and authority for the end to end performanceof the process, helps create the new process and lives withthe result who: Manages process performance Ensure the process is documented and reflects actual practice Defines performance measures and targets Monitors process performance Takes action to address process performance