Sixfoot4 bpi and performance management white paper

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How to improve / reengineer business processes

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  • 1. WhitePaper#2 HowtoimplementBusinessProcessImprovement andPerformanceManagement AspecialreportonBusinessProcessmapping,ShortIntervalControl(SIC)andtheHierarchyof DependantObjectives(HODO) July2012 By: GarthHolloway ManagingDirector Sixfootfour Tel:+61(0)294510707 garthh@sixfoot4.com www.sixfoot4.com.au

2. Synopsis Howtoplan,measure,trackandimprovebusinessprocessestodiscovertimeandcostsavings,and identifyareasforimprovement,throughactivitybasedcosting,ShortIntervalControlandHODO. Introduction Whenabusinessmapsthebusinessprocesses,itoftenendsupwithjustthat:asetofprocessmaps. Buthowdoyouusetheminapracticalwaytoimprovetheactualprocesses,andidentifyareasfor improvement? Bybreakingdowntheprocessintodifferentpathsandcostingeachofthosepathsrealinsightcan begatheredonthetruecostsofbusinessandoperationaldecisions.Fromthere,informeddecisions canbemadeaboutcosts,staffing,KPIsandSLAs,andultimatelyprofitability. KeyIssues Ifprocessesdontexist,howdoyoumakethembetter? Tochangethehabitsofworkersroutines,youmustchangethemeasures Aprocessisneverasingleentity:itisacollectionofpaths ShortIntervalControl(SIC)istheprimaryweaponinasupervisorskitbag TheHODO(Hierarchyofdependentobjectives)shouldbeusedtoreportproductiontargetsand actualsbacktomanagement. 3. TellmehowyouaremeasuredandIwillshowyouhowyoubehave Businessprocessimprovement?TheproblemasIseeitisthat,generally,thereisnosuchthingasa businessprocess.Whenyoumapaprocess,youhavejustthat,aprocessmap.Itisapieceofpaper orscreenviewofwhathappensinthebusiness.Itisagraphicalrepresentationofroutine,of behaviour,ofwhatpeopledoonadailybasistoturninputsintooutputs. Theissuehereisifprocessesdontexist,howdoyoumakethembetter? Aneasierquestioniswhatdoesexist?Theanswerisroutinesandhabits.Peoplecometowork andcompletetheirdailytasksusingthesameroutine,dayafterday.Theroutine(processing sequence)isalmostingrainedinthem.Theydonotneedtorefertooperatingmanualsorask colleaguesforhelp.Theyknowwhattodoandwhentodoit.Thisroutineistheirdailyhabit. (IdoacknowledgethatBusinessProcessManagement(BPM)solutionssubstantiallyautomate processesandremovetherelianceonhabitandroutine). Awiseman(eitherSteveRigbyorDavidLipschitz;theyarebothwise)oncegavemethephrase:Tell mehowyouaremeasuredandIwillshowyouhowyoubehave.Thisphraseisbrilliantasitunlocks thedifficultiesassociatedwithbusinessprocessreengineering.Ifyouredefineprocessfrombeinga sequenceoftaskscompletedinasequentialmannertoasequenceofhabitscompletedina routinemanner,thenyouhavetheanswer.Changethehabitstochangetheprocess. So,howdoyouchangehabit?Youchangethemeasures.TellmehowyouaremeasuredandIwill showyouhowyoubehave.Changethemeasures=changethebehaviours=changethehabits= changetheprocess. Iamnotsooneeyedastobelievethatmeasurementisthecuretoallthingsprocess,butIamafirm believerintheideathatifyoucantmeasureit,youcantmanageit.Someasurementisagood startforchangingtheprocess. Minimisedecisionmakingtoimprovetheprocess Manyofyouwillbethinkingthatyourprocessmeasures(KPIs)arereasonableandthereisnoneed tochangethem.Thisisprobablycorrect.Theansweristoextendthem,eitheronthesamescore sheetorinanothersheet.Includemeasuresofthespecificpointsintheprocesswheretheprocess needsredefining(i.e.wherebadhabitsoccur). Often,thesepointsarenotprocessrelatedatall.Rather,theyaredecisionpointswithintheprocess pointsintheprocesswheretheworkerhastomakeacallonthebestwayforward,wherethey havetobreakroutine.Thiscanbeforamultitudeofreasons:notreceivingalltheinformationthey 4. need,thecustomeraskingforsomethingoutoftheordinary,thecomputersaredown,thereis scheduledmaintenanceonaneedpieceofmachinery,etc. Decisionscostmoney,increaseheadcountrequirements,decreasethepredictabilityoftheprocess outcomeandimpactgrossmargins.Toreengineeraprocessistominimisedecisionmakinginthe process. Aprocessisneverasingleentityratheritisacollectionofpaths.Eachpathiscreatedbya decision. Consideradecisionwitha60/40split.Immediatelyyouhavetwopaths,eachcarryingadifferent volume.Onehas60%ofthevolume,theotherhas40%. Nowimaginethatthe40%pathhasadecisionwitha70/30split.Nowtherearethreepaths,with onecarrying30%of40%.Notmuchvolumeatall.Everydecisionintroducesanotherpath. Hereishowthosepathsmightlook: Paths1,2and3allcompletetheyallendwithacommonoutput. Path1 Path2 5. Path3 Path4doesnotcomplete.Often,thesepathswillbemodelledasreworkorsimilar.Inthisexample, wewillassumeitsimplyleadstoscrap. Oncetheprocessismappedwiththedecisionsplitsinplace,thenextpieceofdatatoconsideristhe workandcycletimeassociatedwitheachsteporcollectionofsteps.Forexample,step1takes30 minutestocomplete;thehandoffbetweensteps2and5hasabuiltin4hourdelay.Soyouplugin allthisdata.Thenyouneedtoattributerolecoststoeachstepintheprocess. 6. Nowyoumultiplyvolumexeffortxcost.Thiswillgiveyouaweightedaverageofeachpathinthe process. Path1hasanactivitybasedcostof$100versustheweightedaveragecostfortheprocessof$149. Path1alsocarries60%ofthevolume.Thechallengeisnowtomaximisetheopportunity representedbythisdecision.Theultimategoalistoremoveitfromtheprocess.Ifthatcanbe achieved,thentheprocessbecomespath1andtheweightedaveragecostbecomes$100.This representsasavingsof$49perprocessrun.Assumeavolumeof10000andthenthisisasavingsof $490,000. Thesavingsbyprocesscanbeaggregatedbydepartmentorfunction. 7. Thereisacorrespondingimpactonstaffing. Togetridofthedecisionistotakethedecisionbeforetheprocessstarts.Thiscanbeachievedwith processreengineering,policyorbehaviouralchanges,oritcanbeforcedwithtechnologiessuchas Imagingorworkflow. Thefollowingisanexampleofhowapolicycanbeassociatedwithaprocessand,byextension,the rolesimpactedbythatpolicy. 8. PerformanceManagement Performanceisbestdescribedasplanvactual.WhatdidIsetouttoachieveversuswhatdidI achieve.ThisisquiteasimpleconceptandIhaveneverquitemanagedtogetmyheadaroundwhy companiesdontdothiswell,especiallyasthereisahugeindustrysellingbusinessintelligence softwarethatpurportstodoexactlythis. Myexperiencehasshownthatsupervisorsarenottaughttosupervise.Letmeexplain. Theprocessofmanagementisthesameforallcompanies.Schematically,itlookslikethis. Whilethemanagementprocessiscommonforallcompanies,thebusinessprocessobviouslydiffers byprocessandbycompany.Performancemanagementlinksthetwoprocessestogether. First,asdescribedabove,youneedtocalculatetheweightedaverageeffortrequiredtocomplete1 iterationoftheprocess.Forexample,tocompleteaninvoicepaymenttakesme25minutes.Youcan calculatethisfigureoryoucanguessit.Oneismoreaccuratethantheother,butthemainthingisto haveconsensusonthenumber. Then(simplisticallyspeaking)youmultiplethisnumberbytheannualvolumei.e.10,000invoices. ThendividethetotalbyworkhoursandyouhaveyourFullTimeEquivalentheadcount.Inthiscase itwilltake1person555days,working7.5hrsadaytocompletethework.Ormorerationallyitwill take2.5fulltimestafftomanagethevolume. Nowyouhaveyourstaffinglevel.Thenextstepistoallocatethemtowork.Theyshouldbeworking atthestandardof1invoiceevery25minutes.Thisassumesaconstantflowofinvoices. Inthemanagementprocess,thestepforallocatingworkisschedule.Thisisavitalstepineffective managementandistheprimaryresponsibilityofthesupervisororteamleaderasitisdirectly responsibleformanagingcost. 9. Oncetheprocesshascompleted,itismeasured.Thisshouldsimplybeacomparisonofplanversus actualandthemanager/supervisorwilldealwiththevariance.Variancescanbecausedbypoor process,lowskills,laziness,pacingandarangeofotherissues.Itisquitefascinatinghowmany businessesmissthisstep.Theyhavescorecardsthatmeasureactuals,butseldomdotheycompare theseactual'stotheplan.Youneedtoaskyourself:whybothermeasuringactualifyouarenot comparingthemtowhatyousetouttoachieve? Whileitisimportanttomeasurespecifictransactionsitisequallyimportanttouseratiostocross referencetransactionalmeasuresagainsteachothertodrivefurtherinsights.Forexample,thesales measureisgoingupthatisgood.Costsaregoingupthatisnotsogood,buteasilyexplained.But ananalysisofthegrossmargin(GM)ratiomayshowthattheGMpercentageisdecliningsharply. Thatisterrible.Itisonlyonceyoucomparesalestocostsdoyougetthetrueimpactofthetrendsof theindividualmeasures. Whiletheaboveisreasonablyobvious,itisquicklyforgottenthatyoucantfixaratio.Youcanonly fixtheindividualmeasuresthatmakeuptheratiohencetheneedtomanagetheindividual transactionallines. ShortIntervalControl(SIC) Akeyquestionishowdoesthesupervisormanagetheindividualmeasuresinawaythatany surprisesareavoidedandvariancestoplanareminimised?TheanswerisShortIntervalControl. Shortintervalcontrol(SIC)istheprimaryweaponinthesupervisorskitbag.Itisbroadlydefinedas: measuringtheprocessatanintervalthatallowsthesupervisortotakeactiononanoperational variance,beforethevariancecausescustomerpromisestobebrokenand/orincreasedoperational costs Considerasupervisorworkingthefloorofabottlingplant.Bottlesarewhizzingaroundatarateof hundredsorthousandsaminute.Shortintervalcontrolrequiresthesupervisortobecheckinghis scheduleevery15minutes.Ifhewaitsanhour,themagnitudeofscrapfromaprocessingerror wouldbeenormous.Contrastthistoaclaimsprocessingdepartment.Eachclaimmaytake90 minutestocomplete.Shortintervalcontrolmayonlyrequirechecksat2hourlyintervals. Thisprincipleisillustratedinthefollowinggraphic: 10. ThedaystartsatpointA.Thisshouldmanifestasastartofshiftmeeting.Atthistime,thesupervisor orteamleaderreviewsthedaysproductiontargets(pointB)withtheteam.Theyconfirmsstaff attendance,setup/teardownrequirements,processingsequenceandintheeventwheredifferent linesareprocessingdifferentproduct,thenthisworkisallocatedout.Thestartofshiftmeeting shouldbenolongerthan10or15minutes. Dependingontheproductionenvironment,themosteffectivetoolIhaveseenformanagingSICisa largewhiteboardsecuredfirmlytothewall.Ithastimeintervalcolumnspredrawnonitwith permanentink.Thesupervisorthenupdatesitwiththedaysproductionasdiscussedatthestartof shift. Thewhiteboardwillhave3rowsforeachproductionline.1forplan,thesecondforactual,thethird forvariance. ThenontheappropriateSIC,thesupervisorwillreviewtheshopfloorandupdatethewhiteboard. Thisallowseveryonetoseehowtheyareprogressing.Therearetwoscenarios: 1.Staffareworkingtoofast.Thismaybegood,butitmayalsomeanthattheyaresacrificingquality forspeed.Consideranoperatoronalinepreparingchickenskewers.Iftheyworktofast,theywill notcleanallthemeatofftheboneandthewastewillbehigh. 2.Staffareworkingtooslow.Ontheotherside,thereistheoperatorworkingtooslowly.Thismay bebecauseofoperationalissues.Theoperatorsstationmaybebeingfedrawproducttooslowly,it maybeaskillsissueoritmaybeattitudinalorahostofotherproblems. 11. InbothsituationstheSupervisorisrequiredtotakecorrectiveactiontobringtheproductionoutput backontoplan.ThisispointCinthegraphic.Ignoringtheproblemwillresultinasubstantial varianceattheendoftheday;pointEversuspointD. Themostimportantpointinallofthisisthatifyouwanttosubstantiallyincreaseproductivity,then adoptingSICinsomeformorotherismandatory.ItisoftencritiquedasbeingTaylorismindisguise. Inthewronghands,thiscritiquemaybetrue,butwithcommonsense,itshouldneverbecomea toolfordrivingpunitivebehaviour. SICdoesnotonlyapplytosupervisorsandteamleaders.Itisapplicableforalloperationalmanagers inalldepartments.ThedifferencebetweentheCOOandthefloorsupervisoristhattheCOOhasa longerintervalbetweencontrolpoints. TheallimportantquestionishowtheCOOshouldbeadvisedofthedailyproduction.Theansweris HODOtheHierarchyofDependantObjectives(HODO). TheHierarchyofDependantObjectives(HODO) TheHODOwasatermgiventomebymylatefathertodescribeoperationalcommunications betweenlevelsofmanagement. Considerabusinessthathasanaggregateforecasteddemandof240,000unitsforthenext12 months.Inthesimplestofterms,thebusinesswillneedtoproduce20,000unitspermonthtomeet demand. Toincreasethecomplexityslightly,considerthatthebusinesshastwoproductionplants.Thismeans thateachplantshouldproduce10,000unitspermonth.Nowconsiderthatthebusinesssells4 differentproducttypes.Eachplantisresponsiblefortwolines.Thismeansthateachplantshould produce5000unitsofeachlinepermonth.Theplantsmustproduce1,250unitsperweekor250 unitsperdayor34unitsperhour(7.5hourshift).So,ifthebusinessproduces34unitsperhour across4products,across2plants,thenitwillmeettheoperationalrequirementsofthebusiness. Letsoverlaythiswithatypicaloperationsorganisationstructure:theChiefOperatingOfficer(COO), ProductionManagers,Supervisors,TeamLeadersandtheworkforce.Theworkforceisnottreatedas management.Thepictureontherightisthetraditionalhierarchy.Thepictureontheleftistheflow ofinformation.Theredlineisthedisaggregationofinformationdownthehierarchy. NotethatSchedulegoestoForecast.Thisisvitalasyoucannothavealowerlevelmanagement workingonanoperationaltimelinelongerthanthatofthenextlevelofseniormanagement. Thegreenlineistheaggregationofinformationupthehierarchy. 12. Thesetwolines(redandgreen)representthehierarchyofdependantobjectives(HODO). Operationallyitmayverysimplisticallylooklikethis: Thereareanumberofkeypointshere. 1. 2. 3. 4.Themanagementprocessiscommonforalllevelsofmanagement ShortIntervalcontrolisapplicabletoalllevelsofmanagement Ifyoudonothaveaformalschedule,thenyourmeasuresmaybeawasteoftime WithoutaformalreviewofPlan/Actual/Varianceitisalmostimpossibletosayifyouhave hadagoodday.

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