BA 553 Course Review Assistance for student revision efforts: Class sessions 1 through 7

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


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

http://www.wikipedia.com/

http://www.bptrends.com/


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


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?


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.



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.


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


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


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


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


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

http://www.balancedscorecard.org/

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.


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


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

http://en.wikipedia.org/wiki/Value_chain

http://www.netmba.com/strategy/value-chain/


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


A Process Network View of the Organization

SuppliersCustomers

Internal to the organization

From session 5


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


PMI’s Project Management Process NetworkInitiating

Planning

Executing

Controlling

Closing

From session 5


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?


Project Management Institute’s classification of the 5 organizational types

From session 6

Coordinating the Management of Processes


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)


From session 6


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


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


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


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


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


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


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


Cost of expedited parts



From session 7


Process Measures KPIsInput In-process Output BSC measures

Number of parts of various types in warehouse

Wait time for parts



Overtime expense


Correct min/max for parts in material management system

Number of times parts are not available when needed



Cost of expedited parts



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

Documents

BA 553 Course Review Assistance for student revision efforts: Class sessions 1 through 7