Fundamentals of Business Process Management: A Quick Introduction to Value-Driven Process Thinking

Fundamentals of Business Process Management

A Quick Introduction to Value-DrivenProcess Thinking

Marlon Dumas

University of Tartu

[email protected]

Estonian BPM Roundtable – 10 Oct. 2013

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Objectives

1. To inspire you to think about your processes as a way of improving your work and that of your colleagues

1. To show you how you can improve your business one process at a time

1. To reflect on which processes you should improve first, why and how?

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Structure of the course

• Part 1 – A quick tour of the BPM Lifecycle– Why BPM?– Overview of the BPM lifecycle– Introducing BPM in a company: What to do first?

• Part 2 – Identifying, Prioritizing and Modeling Processes– Building a process architecture– Prioritization of business processes– Bare-bones introduction to process modeling

• Part 3 – Analyzing and re-designing processes– Simple analysis techniques to look at first– Tips for process re-design

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Companion Material

• Fundamentals of Business Process Management (chapters 1, 2, 6, 8)– Introduction to BPM (freely available)– Identification– Analysis– Designhttp://fundamentals-of-bpm.org

http://slideshare.net/MarlonDumas

Youtube – Marlon Dumas

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Business Process Management (BPM)What is it?

Body of principles, methods and tools to design, analyze, execute and monitor and continuously manage business processes

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What is a Business Process?

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fault-report-to-resolution process

“My washing machine won’t work!”

VA

LU

E

Customer

Warranty?

PartsStoreService

Dispatch

Technician

Customer

Call Centre

Customer

© Michael Rosemann

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Processes and Outcomes

• Every process leads to one or several outcomes, positive or negative– Positive outcomes deliver value– Negative outcomes reduce value

• Fault-to-resolution process– Fault repaired without technician intervention– Fault repaired with minor technician intervention– Fault repaired and fully covered by warranty– Fault repaired and partly covered by warranty– Fault repaired but not covered by warranty– Fault not repaired (customer withdrew request)

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Rule of thumb

“If it does not make at least three people mad, it’s not a process.”

Hammer and Stanton (1995)

http://www.kimtracey.co.za/

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Your turn

• Think of a process in your organization:– Is it order-to-cash, procure-to-pay, fault-to-resolution…– Who is/are the customer(s)?– What value does this process deliver to its customer?– Who are the key actors of the process?– List at least 3 outcomes of the process.

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Why BPM?The Technology Perspective

InformationTechnology

ProcessChange

Yields

Yields

BusinessValue

Index Group (1982)

Enables

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Why BPM?The Technology Perspective

“The first rule of any technology used in a business is that automation applied to an efficient operation will magnify the efficiency.The second is that automation applied to an inefficient operation will magnify the inefficiency.”

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Why BPM? The Management Perspective

Roger Tregear: Practice Processes, BPTrends, July 2012

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Why BPM?

Roger Tregear: Practice Processes, BPTrends, July 2012

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Why BPM?

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BPM and Related Disciplines

BPM is about managing and improving processes. Whatever tools it takes to do so are most welcome.

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How to engage in BPM?

After Tregear (2012)

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Business Process Lifecycle

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Process Identification – Steps

• Enumerate major processes• Determine process boundaries (scoping)• Assess strategic relevance of each process• Assess of the “health” of each process• Qualify the culture and politics of each process• Back judgments with performance measures

See Davenport (1993)

Prioritized Processes & Performance Measures

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Process Enumeration

“Most businesses have just three core processes:

1. Sell stuff

2. Deliver stuff

3. Making sure you have stuff to sell and deliver”

Geary Rummler

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Core vs Support Processes (Porter)

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Process enumeration

• Typical number of processes is unclear• Trade-off:

– ensuring process scope is manageable– process scope determines potential impact

• Rule of thumb: 10-20 main processes

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Exercise

• Let us enumerate processes at your company

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Process scoping

• Processes are interdependent1. Hierarchical relations: Main processes – subprocesses

2. Upstream–downstream relations

• Key scoping questions:1. When starts a given process instance?

2. When do we consider a process completed/closed?

3. What key objects does the process manipulates?

4. Who participates in the process?

5. Who owns the process?

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Process ScopingRules of Thumb

• A well-scoped process:– Has a clear start, clear end (input, output)– Has a clear, coherent set of “main objects” and

“participants”– Has a clear owner

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Process Architecture

Core processesSupport processesManagement processes

Quote handlingProduct deliveryInvoice handling

Detailed quote handling process

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Exercise

• Let us scope 1-2 processes up to level 2

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Process selection

Three criteria:

1. Assess strategic relevance of each process Strategic importance

2. Render high-level judgments of the “health” of each process Potential dysfunction

3. Qualify the culture and politics of each process Feasibility

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Business Process PICK Chart

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Back Health Judgments with Performance Measures

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Purposes of Process Modeling

Communication, simulation,

activity-based costing…

ProcessImplementation

ProcessAnalysis & Design

Process Enactment & Monitoring

Process Evaluation

“TO BE”Process Models

Exe

cuta

ble

P

roce

ss M

od

els

Mea

sure

s fo

r Im

pro

vem

ent

Process Metrics

OrganizationalAnalysis

Tar

get V

alue

s

“AS IS”Process Models

Detailed Models including

Data types, conditions, data mappings, fault

handling…

Integration, testing, deployment…

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Business Process Modeling Notation(BPMN)

• OMG Standard, supported by many tools:– Bizagi Process Modeller (free)– Signavio (http://www.signavio.com/) - subscription– Oracle BPA – “kind of free”– ARIS – very sophisticated but the opposite of free– IBM Websphere Business Modeler– Logizian – reasonable tradeoff– Visio – Your company might already have this– Paper and pen! - No excuse not to start

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BPMN from 10 000 miles…

• A BPMN process model is a graph consisting of four types of elements (among others):

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Revised Order Management Process

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When a claim is received, we first check if the claimant has a valid insurance policy. If not, the claimant the claim is rejected and the claimant is informed.

Otherwise, the severity of the claim is evaluated. Based on the outcome (simple or complex claims), relevant forms are sent to the claimant. Once the forms are returned, we check them for completeness.

If the forms are complete, we register the claim in the Claims Management system and the evaluation of the claim may start. Otherwise, the claimant is asked to update the forms. Upon reception of the updated forms, we check them again and continue.

BPMN Exercise:Simplified Insurance Claim Registration

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Guideline: Naming Conventions

• Give a name to every event and task• For tasks: verb followed by business object

name and possibly complement– Issue Driver Licence, Renew Licence via Agency

• Avoid generic verbs such as Handle, Record…• Every XOR-split should be labelled with

conditions– Policy is invalid, Claim is inadmissible

• For events: object + past participle– Invoice received, Claim settled

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When?

Process

Which?

Data / Service / Product

What?

Function

Who?Organization

Process Modelling Viewpoints

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Resource Modelling in BPMN

• In BPMN, resource classes are captured using:– Pools – independent organizational entities, e.g.

• Customer, Supplier, East-Tallinn Hospital, Tartu Clinic

– Lanes – resource classes in the same organizational space and sharing common systems

• Sales Department, Marketing Department• Clerk, Manager, Engineer

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Example with Pools and Lanes

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BPMN Exercise: Lanes, Pools

• Claims Handling process at a car insurerA customer submits a claim by sending in relevant documentation. The Customer Service department checks the documents for completeness and registers the claim. The Claims Handling department picks up the claim and first checks the insurance policy. Then, an assessment is performed. If the assessment is positive, a garage is phoned to authorise the repairs and the payment is scheduled (in this order). In any case (whether the outcome is positive or negative), an e-mail is sent to the customer to notify the outcome.

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BPMN Information Artifacts

• Data Objects are a mechanism to show how data is required or produced by activities.– Are depicted by a rectangle that has its upper-right

corner folded over.– Represent input and output of a process activity.

• Data stores are containers of data objects that need be persisted beyond the duration of a process instance

• Associations are used to link artifacts such as data objects and data stores with flow objects (e.g. activities).

Data Object

Directed association

Undirected association

Data Store

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Example: Data Object

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When a claim related to a major car accident is evaluated, a clerk first retrieves the corresponding car accident report in the Police Reports database. If the report is retrieved, it is attached to the claim file. The claim file and the police report serve as input to a claims handler who calculates an initial claim estimate. Then, an “action plan” is created based on a “checklist”. Based on the action plan and the initial claims estimate, a claims manager negotiates a settlement with the customer. After this negotiation, the claims manager makes a final decision, updates the claim file to record this decision, and sends a letter to the claimant to inform him/her of the decision.

Depict all relevant documents in the model.

BPMN Exercise 3: Data Objects

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Anything wrong with this model?

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Is this better?

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Modeling GuidelineStart with a value chain

• Good practice is that the top-level process should be simple (no gateways, no lanes) and should show the main phases of the process– Each phase then becomes a sub-process– Top-level process is basically a value chain

• Introduce gateways and lanes at the next levels…

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Guidelines: Modeling Levels

• First level: start with value chain• Next level add:

– Main decisions– Handoffs (lanes, see later)

• Only at the more detailed level add procedural aspects:– Parallel gateways– Input and output data objects, data stores– Different types of events– And as much detail as you need

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Showing the value chain with sub-processes

Purchase Request

ApprovalPurchase

OrderGoods Receipt

Invoice Verification

Purchase Request process

Check purchase request for 1st

approval

Check purchase request for 2nd

approval

approved

Consider re-submission

rejected

rejected

approved

Send approved request to requestor

Purchase Request

Make copy of purchase request

Approved Purchase Request

Forward to purchase department

Purchase Order process

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Question?

• What is the biggest pitfall of process modeling?1. Using the wrong type of gateways, e.g. decision

gateway instead of parallel gateways

2. Writing process models from top-to-bottom instead of left-to-right

3. Not following strictly the rules of the BPMN notation

4. Spending lots of time to produce detailed models that nobody uses

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Process Analysis Techniques

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Purposes of Qualitative Analysis

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Eliminating Waste

"All we are doing is looking at the time line, from the moment the customer gives us an order to the point when we collect the cash.

And we are reducing the time line by reducing the non-value-adding wastes ”

Taiichi Ohno

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7+1 Sources of Waste

1. Unnecessary Transportation (send, receive)

2. Inventory (large work-in-process)

3. Motion (drop-off, pick-up, go to)

4. Waiting (waiting time between tasks)

5. Over-Processing (performing what is not yet needed or might not be needed)

6. Over-Production (unnecessary cases)

7. Defects (rework to fix defects)

8. Resource underutilization (idle resources)Source: Seven Wastes defined by Taiichi Ohno

8th waste coined by Ben Chavis, Jr.

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Value-Added Analysis

1. Decorticate the process into steps

2. Classify each step into:– Value-adding (VA): Produces value or satisfaction to

the customer.• Is the customer willing to pay for this step?

– Business value-adding (BVA): Necessary or useful for the business to run smoothly, or required due to the regulatory environment, e.g. checks, controls

• Would the business potentially suffer in the long-term if this step was removed?

– Non-value-adding (NVA) – everything else including handovers, delays and rework

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Example (Equipment Rental Process)

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Example – Equipment Rental Process

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Issue Register

• Purpose: to categorise identified issues as part of as-is process modelling

• A table with the following columns (possibly others):– issue number– name– Description/explanation– Impact: Qualitative vs. Quantitative– Possible resolution

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Issue Register (Equipment Rental)

Name Explanation Assumptions Qualitative Impact

Quantitative Impact

Equipment kept longer than needed

Site engineers keep the equipment longer than needed by means of deadline extensions

BuildIT rents 3000 pieces of equipment p.a. In 10% of cases, site engineers keep the equipment two days longer than needed. On average, rented equipment costs 100 per day

0.1 × 3000 × 2 × 100 = 60,000 p.a.

Rejected equipment

Site engineers reject delivered equipment due to non-conformance to their specifications

BuildIT rents 3000 pieces of equipment p.a. Each time an equipment is rejected due to an internal mistake, BuildIT is billed the cost of one day of rental, that is 100.5% of them are rejected due to an internal mistake

Disruption to schedules.Employee stress and frustration

3000 × 0.05 × 100 = 15,000 p.a.

Late payment fees

BuildIT pays late payment fees because invoices are not paid by the due date

BuildIT rents 3000 pieces of equipment p.a. Each equipment is rented on average for 4 days at a rate of 100 per day. Each rental leads to one invoice. About 10% of invoices are paid late. Penalty for late payment is 2%.

0.1 × 3000 × 4 × 100 × 0.02 = 2400 p.a.

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Techniques for issue analysis

• Cause-effect diagrams• Why-why diagrams• Pareto charts

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Cause-effect diagram (rejected equipment)

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Why-why analysis (equipment rental)

Site engineers keep equipment longer, why?• Site engineer fears that equipment will not be available

later when needed, why?– time between request and delivery too long, why?

• excessive time spent in finding a suitable equipment and approving the request, why?

– time spent by clerk contacting possibly multiple suppliers sequentially;

– time spent waiting for works engineer to check the requests;

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Pareto chart

• Useful to prioritize a collection of issues or factors behind an issue

• Bar chart where the height of the bar denotes the impact of each issue

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Pareto chart (excessive rental expenses)

http://pareto-chart.qtcharts.com/index.php?g=prtt

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Process Redesign

• Purpose: Identify possibilities for improving the design of a process: “as is” “to be”

• No silver-bullet: requires creativity• Redesign heuristics can be used to generate ideas

Descriprive modellingof the real world (as-is)

Prescriptive modellingof the real world (to-be)

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Process Redesign Approaches

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The Ford Case Study (Hammer 1990)

Ford needed to review its procurement process to:• Do it cheaper (cut costs)• Do it faster (reduce turnaround times)• Do it better (reduce error rates)

Accounts payable in North America alone employed > 500 people and turnaround times for processing POs and invoices was in the order of weeks

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The Ford Case Study

• Automation would bring some improvement (20% improvement)

• But Ford decided not to do it… Why?a) Because at the time, the technology needed to

automate the process was not yet available.

b) Because nobody at Ford knew how to develop the technology needed to automate the process.

c) Because there were not enough computers and computer-literate employees at Ford.

d) None of the above

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The correct answer is … Mazda’s Accounts Payable Department

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How the process worked? (“as is”)

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Reengineering Process (“to be”)

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The result…

• 75% reduction in head count• Material control is simpler and financial

information is more accurate• Purchase requisition is faster• Less overdue payments

Why automate something we don’t need to do? Automate things that need to be done.

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Principles of BPR

1. Capture information once and at the source

2. Subsume information-processing work into the real work that produces the information

3. Have those who use the output of the process drive the process

4. Treat geographically dispersed resources as if they were centralized

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Exercise – Claims Handling in a Large Insurance Company

• Claims handling for replacement of automobile glass

• Under the existing process the client may have to wait 1-2 weeks before being able to replace the damaged auto glass

Goal – A radical overhaul and of the process to shorten the client waiting time

© Laguna & Marklund

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Overview of the existing claims process

ClientLocal

independentagent

Approvedglass

vendor

Claimsprocessing

center

Request additional information

Pay

Notify agent

File claim

Give instructionsForwardclaim

Request quote

Provide quote

Pay


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Existing claims process1. Client notifies local agent that she wishes to file a claim. She is

given a claims form and told to obtain a cost estimate from a local glass vendor.

2. When the claims form is completed the local agent verifies the information and forwards the claim to a regional processing center.

3. The processing center logs the date and time of the claim’s arrival. The data is entered into a computer-based system (for record keeping only) by a clerk. The claim is then placed in a hard copy file and passed on to a claims representative.

4. a) If the claims representative is satisfied with the claim it is passed along to several others in the processing chain and eventually a check is issued and sent to the client.

b) If there are problems with the claim the representative mails it back to the client for necessary corrections.

5. When the client receives the check she can go to the local glass vendor and replace the glass.


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Process Redesign Approaches

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Incremental Process Re-design

1. Select issues to address, improvement goals

2. Map goals to process performance measures and set objectives/targets

3. Apply re-design heuristics on the “as is” process model and analyze the tradeoffs

4. Select promising “change options”, justify and prioritize their implementation

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Costs

Quality

Time

Flexibility

Process Redesign Tradeoffs

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Redesign Heuristics

1. Task elimination

2. Task composition

3. Triage

4. Resequencing

5. Parallelism

6. Process specialization and standardization

7. Resource optimization

8. Communication optimization

9. Automation

Each heuristics improves one side of the devil’s quadrangle, generally to the detriment of others

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Sample Heuristics(8) Communication optimization

• Reduce the number of messages to be exchanged with customers and business partners– But avoid front-loading the process too much

– Not necessarily suitable if customer contact is desirable

• Monitor customer interactions, record exceptions, determine what to front-load/back-load

• Try to automate handling, recording and organization of messages (send/receive).

(T+,Q+,C+/-,F-)

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Specific GuidelinesThe Complete Kit Concept

• Many processes follow the “complete kit” concept:– Work should not begin until all pieces necessary to

complete the job are available

• In such cases, consider three principles:– Provide complete and easy-to- follow instructions for

those who will initiate the process.

– If a process cannot start, the client should be notified of all defects that could be reasonably identified at the onset of the process.

– Consider the tradeoff between “incomplete-kit” process initiation and roundtrip to revise and resubmit a request.

Michael zur Muehlen: “Service Processes: The Customer at the Center?” http://tinyurl.com/5tunkxy

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Final Words

• Any process is better than no process• A good process is better than a bad process• Even a good process can be improved

Michael Hammer(1948 – 2008)

Fundamentals of Business Process Management: A Quick Introduction to Value-Driven Process Thinking

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