BPM chap 1

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Introduction To BusinessProcess Design

Chapter 1

Business Process Modeling, Simulation and

Design

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Overview

• What is a business process?

– Three deinitions

– Process t!pes and hierarchies

– "omponents o process architectures

• The essence o Business Process Design #BPD$

• Wh! is BPD important?

– BPD and o%erall business perormance

– BPD and strateg!• Wh! do ineicient processes e&ist?

• 'cti%it! classiication and BPD

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What is a Business Process?

1) ' pragmatic deinitionA Business Process describes how something is done in

an organization

In general terms…

Business - Organizational entity that deploys resources to provide

customers with desired products and services

Process (Merriam-Webster’s Dictionary

(i ! natural phenomenon mar"ed by gradual changes

that

lead to a particular result

(ii ! natural continuing activity or #unction

(iii ! series o# actions and operations conducing to anend

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!he Process "iew

'n! organi/ation entit! or business can be

characteri/ed as a process or a net0or o processes

Based on the simple transormation model o a process as its origin in the areas o manuacturing and 3ualit!

he trans#ormation model o# a process

-nputs +utputsProcess

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() ' more comprehensi%e process deinitionA business process is a networ# o connected activities and buers

with well deined boundaries and precedence relationships$ which

utilize resources to transorm inputs into outputs with the purpose

o satis%ing customer re&uirements

Process

"ustomersSuppliers

5esources

-nputs +utputs

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Process !%pes and 'ierarchies

1) -ndi%idual processes – "arried out b! a single indi%idual

2) 7ertical or 8unctional processes – "ontained 0ithin one unctional unit or department

() ori/ontal or "ross 8unctional processes – Spans se%eral unctional units, departments or

companies

Make up

Make up

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(ar#eting Operations Accounting

C)O

+rder 5e3uest

+rder 8ulilled

Production planning

Vertical process Horizontal process Individual process

Bu!ing a T7

commercial

Illustration* Process !%pes and 'ierarchies

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1A

Components o the Process Architecture

Inputs and Outputs

+low units

Inormation structure

,esources

!he networ# o

activities and buers

ProcessArchitecture

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Inputs and Outputs

•

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!he networ# o activities and buers

• The 0or perormed on a ob mo%ing through a process can be di%ided

into an ordered se3uence o acti%ities

• The buers represent storage or 0aiting points 0here the ob 0aits beore

mo%ing to the ne&t acti%it! #3ueues, 0aiting rooms, etc)$

• Dierent t!pes o obs⇒

dierent paths through the net0or • Deining acti%ities is crucial in process anal!sis

– Tradeo bet0een process and acti%it! comple&it!

Process "omple&it!

-ndi%idual 'cti%it! "omple&it!

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,esources• Tangible assets utilized to perorm acti%ities in a process

• "an be di%ided intoC

Capital assets – real estate, machiner!, e3uipment, -T s!stems

-abor – people and their no0ledge and sills

• 5esources are utilized 0hile inputs are consumed

Inormation structure

• Speciies the inormation re3uired or maing decisions and

perorming acti%ities in a process• imited inormation a%ailabilit! is a common cause or process

ineiciencies

– -normation enables coordinationE

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Wor#low (anagement .%stems

• Management o administrati%e processes in the ield o-normation S!stems is oten reerred to as 0orlo0

management

• Worlo0 management s!stems

– "ontrol actions taen on documents mo%ing through a business process

– Worlo0 management sot0are=s!stems are used to control

0ho does 0hat to a speciic document

• Fsing our comprehensi%e process deinition

⇒ Process G Worlo0

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1.

!he )ssence o Business Process /esign

• 'n eicient process 0hich does not deli%er customer %alue is useless

o0 to do things in an eicient and eecti%e 0a!@

' 0ell designed process does the right things$ rightE

(ore ormall%…

• BPD is concerned 0ith coniguring the process architecture to satis!

customer desires in an eicient 0a!

– "ustomers can be both internal and e&ternal• -nternal customer re3uirements must be aligned 0ith the desires o the

e&ternal customers in the business strateg!

We ma#e a clear distinction between process design and implementation

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!he )ssence o Business Process /esign

• BPD oten most %aluable 0hen considering comple& cross

unctional processes – "hallenging coordination issues

– Process ineiciencies oten related to handing o 0or rom one

station or person to the ne&t – introduces dela!s and errors

• The unctional organi/ation and di%ision o labor paradigmdates bac to 'dam Smith and the late 16AAHs

• Di%ision o labor rationaleC b! ocusing on e0er tass ⇒

– WorersH sill le%el goes up⇒ 0or aster

– Io time lost 0hen 0orers s0itch bet0een tass – Worers 0ell positioned to help de%elop better techni3ues and tools

• Dra0bacC more comple& coordination issues 0hen

– More comple& products and ser%ices

– "ustomers demand more %ariet!

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Incremental Improvement vs0 Process /esign

• Subtle dierence – both approaches concerned 0ith ho0 to

do things better

– "omplement each other

• -ncremental process impro%ementC #continuous

impro%ement$

– "hange that brings a process closer to its normal operating standards

– Does not 3uestion the undamental assumptions and rules that deine

the current process design

– Deducti%e approach

• Business Process Design – "reati%e in its nature

– Juestions e&isting assumptions and rules

– 5e3uires ne0 perspecti%es to generate inno%ati%e solutions 0ith

potential or breathrough impro%ements

– -nducti%e approach

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1:

)ample 1 2 Claims 'andling in a

-arge Insurance Compan%

• Pilot proect – claims handling or replacement o

automobile glass

• Springboard or later, more ambitious redesign eorts

• Set up procedure1) The "

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2A

)ample 1

+lowchart o the eisting claims process

ClientLocal

independentagent

Approvedglass

vendor

Claimsprocessingcenter

Request additional information

Pay

Notify agent

File claim

Give instructions

Forward

claim

Request quote

Provide quote

Pay

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)ample 1

3ew /esign ,ecommended b% the !eam

ClientClaimsprocessingcenter

Approvedglass

vendor

Call in claim

Schedule repair

PayNotify

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2(

)ample 1

Procedural changes to the new process

• The "laims representati%e is gi%en inal authorit! to appro%e

the claim)

• ong term relationships 0ith a limited number o glass

%endors enables the insurance compan! to le%erage its purchase po0er to pre;negotiate lo0 prices)

⇒ "lients no longer ha%e to collect estimates)

⇒ 7endors are certiied or 3ualit!, price, reliabilit!, etc)

• The "lient no0 contacts the claims representati%e directl!instead o going %ia a local agent)

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2*

)ample 1

.tructural changes to the new process

• ' ne0 2* hour hotline enables the client to spea directl! to

a claims representati%e at the regional processing center)

• The claims representati%e gathers data o%er the phone,

enters the data into the computer and resol%es an! issues onthe spot) e tells the client to e&pect a phone call rom a

certain glass %endor to arrange the replacement)

• The claims inormation is immediatel! a%ailable or

accounting %ia a 'I s!stem and the! can start processingthe chec and send it to the %endor)

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2.

)ample 1

Beneits with the new redesigned process

• The client can ha%e the glass replaced 0ithin 2* hours – 's opposed to 1A da!s

• The client has less 0or to do

– +nl! one phone call, no need or a cost estimate

• Problems are handled immediatel! 0hen the claim is iled• Problems 0ith lost or mishandled claims %irtuall! disappear

• 8e0er people are in%ol%ed in the process⇒ lo0er op) costs

• ong term relationships 0ith glass %endors

⇒

Sa%ings o (A;*A> on paid claims due to special discounts⇒ "onsolidated monthl! pa!ments⇒ lo0er handling costs

⇒ More consistent and reliable ser%ice

• "laims representati%e eels o0nership o the process

⇒ Does a better ob

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-in#ing BP/ to overall Business Perormance

• +%erall business perormance?

– Detailed deinition is compan! speciic

– Kenerall!, perormance must be measured against the stated obecti%es

Ma&imi/e re%enues and

minimi/e costsMust use resources eicientl! 0hile

understanding customer needs

Satis!ing customer needs in an eicient 0a!

Proit maimizing irms 3on4proit organizations

+%erarching obecti%e is usuall! toma&imi/e long term shareholder %alue

' common obecti%e is sur%i%al andgro0th 0hile satis!ing customer needs

Well designed business processes

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-in#ing BP/ to .trateg%

Strateg!

' uni!ing theme that helps align decisions made in an organi/ation

Kuides a business to0ards its stated goals

• T0o strateg! le%els

10 Corporate strateg% 2 Which industr! should the business be in?

50 Business strateg% – o0 should 0e compete in a gi%en industr!?

• -ntensiied competition in all industries⇒ a prere3uisite or

success is to be highl! competiti%e, i)e) to ha%e an eecti%e

business strateg! – True also or man! non;proit organi/ations that compete or unds

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• 'n eecti%e business strateg! is based on understanding theorgani/ationHs

-nternal en%ironment – its strengths and wea#nesses

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• Strategic it Match bet0een the strategic position the irm 0ants to occup! in

the e&ternal maret and the internal capabilities to get there

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• The! are usuall! not designed ; The! ust emerge – "ircumstances and the process en%ironment change and

processes are incrementall! adapted, but oten 0ithout

careul anal!sis o the o%erall eects

–

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Activit% Classiication and BP/

' e! issue in process design and anal!sis is classiication o

the process acti%ities

– "rucial in identi!ing 0aste and ineiciencies in e&isting processes

!wo basic classiication approaches*

Activity

Value-Adding

Non-Value Adding

HandoffDelayReworkControlPolicy compliance

Activity

Value-Adding

Non-Value Adding

HandoffDelay

Rework

Business Value Adding

ControlPolicy compliance

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• 7alue adding acti%ities –

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BPM chap 1

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