Introduction to Business Process

Management

MD
 What is a (Business) Process?

Collection of related events, activities and

decisions, that involve a number of actors and
resources, and that collectively lead to an outcome
that is of value to an organization or its customers.

Examples:
• Order-to-Cash
• Procure-to-Pay
• Application-to-Approval
• Claim-to-Settlement
• Fault-to-Resolution (Issue-to-Resolution)

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 “My washing machine won’t work!”

Warranty?
Call Center
Technician

Customer Customer
Parts
Service Store
Dispatch

VALUE
fault-report-to-resolution process

© Michael Rosemann 3
 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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What is a Business Process: Recap

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 BPM: What is it?
Body of principles, methods and tools to design,
analyze, execute and monitor business processes

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 Why BPM?

“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?

Information Yields
Technology Business
Value

Enables
Yields
Process
Change

Index Group (1982)

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 How to engage in BPM?

Continuous Process Improvement (CPI)

• Does not put into question the current process
structure
• Seeks to identify issues and resolve them
incrementally, one step at a time and one fix at a time
Business Process Re-Engineering (BPR)
• Puts into question the fundamental assumptions and
principles of the existing process structure
• Aims to achieve breakthrough, for example by
removing costly tasks that do not directly add value

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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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How the process worked? (“as is”)

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How the process worked? (“as is”)

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How the process worked? (“as is”)

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How the process worked? (“as is”)

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How the process worked? (“as is”)

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How the process worked? (“as is”)

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Reengineering Process (“to be”)

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Reengineering Process (“to be”)

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Reengineering Process (“to be”)

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Reengineering Process (“to be”)

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Reengineering Process (“to be”)

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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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 How to engage in BPM?

1. Process identification Process

Modeling
and opportunity assessment Tools
2. Process discovery (as-is)
3. Process analysis
4. Process re-design (to-be)
Process
5. Process implementation Management
Systems
6. Process monitoring/controlling

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 Process Identification

Core processes
Support processes
Management processes

Quote handling
Product delivery
Invoice handling

Detailed quote
handling process

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 Phase 1: Performance Measure
Identification and Selection

Cost Time Quality

Cost per
Cycle time Error rates
execution

Resource Waiting SLA

utilization time violations

Non-value-
Customer
Waste adding
feedback
time

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 Por ejemplo para el Proceso de admisión
• Tiempo promedio entre el momento de que una aplicación –
solicitud es recibida y el momento en que esta es aceptada o
rechazada. (Cycle time)
• Porcentaje de solicitudes rechazadas debido a documentos
incompletos. (# solicitudes rechazadas por no estar
completas y # solicitudes rechazadas por imcompletas y
además no se reenvió para completer la aplicación).
• Porcentaje de solicitudes rechazadas debido a la prueba de
idioma.
• Porcentaje de solicitudes rechazadas debido al nivel
académico.
• Porcentaje de aplicaciones aceptadas.

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 Procure-to-pay process at BuildIT
• BuildIT is a construction company specialized in public works (roads,
bridges, pipelines, tunnels, railroads, etc.). Within BuildIT, it often
happens that engineers working at a construction site (called site
engineers) need a piece of equipment, such as a truck, an excavator, a
bulldozer, a water pump, etc. BuildIT owns very little equipment and
instead it rents most of its equipment from specialized suppliers.

• The existing business process for renting equipment goes as follows:

• When site engineers need to rent a piece of equipment, they fill in a
form called “Equipment Rental Request” and send this request by e-mail
to one of the clerks at the company’s depot. The clerk at the depot
receives the request and, after consulting the catalogs of the equipment
suppliers, selects the most cost-effective equipment that complies with
the request. Next, the clerk checks the availability of the selected
equipment with the supplier via phone or e-mail.

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• Sometimes the selected option is not available and the clerk has to select an
alternative piece of equipment and check its availability with the corresponding
supplier.
• Once the clerk has found a suitable piece of equipment available for rental, the
clerk adds the details of the selected equipment to the rental request. Every rental
request has to be approved by a works engineer, who also works at the depot. In
some cases, the works engineer rejects the equipment rental request. Some
rejections lead to the cancellation of the request (no equipment is rented at all).
Other rejections are resolved by replacing the selected equipment with another
equipment—such as a cheaper piece of equipment or a more appropriate piece of
equipment for the job. In the latter case, the clerk needs to perform another
availability enquiry.
• When a works engineer approves a rental request, the clerk sends a confirmation
to the supplier. This confirmation includes a Purchase Order (PO) for renting the
equipment. The PO is produced by BuildIT’s financial information system using
information entered by the clerk. The clerk also records the engagement of the
equipment in a spreadsheet that is maintained for the purpose of tracking all
equipment rentals.
• In the meantime, the site engineer may decide that the equipment is no longer
needed. In this case, the engineer asks the clerk to cancel the request for renting
the equipment.
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• In due time, the supplier delivers the rented equipment to the
construction site. The site engineer then inspects the equipment. If
everything is in order, the engineer accepts the engagement and the
equipment is put into use. In some cases, the equipment is sent
back because it does not comply with the requirements of the site
engineer. In this case, the site engineer has to start the rental
process all over again.
• When the rental period expires, the supplier comes to pick up the
equipment. Sometimes, the site engineer asks for an extension of
the rental period by contacting the supplier via e-mail or phone 1–2
days before pick-up. The supplier may accept or reject this request.
• A few days after the equipment is picked up, the equipment’s
supplier sends an invoice to the clerk by e-mail. At this point, the
clerk asks the site engineer to confirm that the equipment was
indeed rented for the period indicated in the invoice. The clerk also
checks if the rental prices indicated in the invoice are in accordance
with those in the PO. After these checks, the clerk forwards the
invoice to the financial department and the finance department
eventually pays the invoice.
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Phase 2: Process Discovery
Durante esta fase, identificamos a
los interesados, observamos,
entrevistamos, desarrollamos una
visión, mapeamos el proceso y sus
problemas

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 Phase 3: Analysis

Qualitative analysis
• Root-cause analysis
• PICK charts
• Issue register

Quantitative Analysis
• Flow analysis
• Queuing analysis
• Process simulation

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 Issue Register
Issue Short Issue Explanation Broad Consequence Assumptions Impact
No. Description

2 Information Units in Relocation Wrongly calculated 5% of cases go to the wrong 28,000x0.05x1

regarding system do not match entitlements cause queue, 5 minutes to sort 5 = 21,000
units does information provided by manual calculation... queue and redirect. minutes
not match ... 5% recalculating on average 350 hours/7.5
10 minutes per calculation. 47 hrs
9.5 working
days
5 Protected/ Not all fields in data Resource intensive, 5% of cases taking 2 28,000x0.05x3
Mandatory entry forms are relevant incorrect data. Cases in minutes to locate and close. 2=
data entry but mandatory. So Clarify need to 5% of relocations requiring 44,800
fields "fuzzy" information is physically be closed. entry that is not needed minutes
entered taking 30 minutes each. 477 hours/7.5
99.5 hrs
20 working
days
11 Information Time consuming to sort MBR does not get Info Only 1/3 rd of postings and 84,000x3.5 =
on through posting orders pack therefore cannot CIPC’s are entitled to 294,000
posting to identify relocations.... process move. More relocation. 28000 relocations min/60/7.5 =
orders information could be then sorting through 84000 653 days /250
provided which could postings. 3 to 4 minutes on working days
be used later in process average to sort through in year.
... each. 2.61 FTE

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© Michael Rosemann
 Simulation / What-If Analysis
10 applications per hour
Poisson arrival process (negative exponential)

0.3
Receive info Request info
No
0.5
accept Deliver card
Notify acceptance
Check for Yes Perform checks Make decision
completeness
Start 0.7
complete? Decide
0.8 End
reject
0.5 Notify rejection Time out
review request

Receive review
reviiew
0.2
request

Task Role Execution Time (mean, dev.)

Receive application system 0 0
Check completeness Clerk 30 mins 10 mins
Perform checks Clerk 2 hours 1 hour
Request info system 1 min 0
… … … …

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 Simulation output: KPIs

Resource Utilization
Resource Cost

100.00%
4,500.00 $ 4,260.95
90.00%
4,000.00
80.00%
3,500.00
70.00%
3,000.00
60.00% Cycle Time - Histogram
2,500.00 50.34%
50.00%
12
2,000.00
40.00%
10
1,500.00
30.00%
$ 898.458
18.82%
1,000.00
20.00%
# PI's

500.00
10.00%
6 $5.04%
285.00

0.00
0.00% 4
Clerk
Clerk Manager
Manager System
System
2

0
0 10 20 30 40 50 60

Days

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 Phase 4: Process Re-Design

Costs

Time
Flexibility

Quality

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Phases 5-6. When technology Kicks in..

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 Process Execution Engines

• BPMN-based • IBM BPM

– BizAgi • Microsoft
– Activiti – BizTalk
– Progress Savvion – Windows Workflow
• BPEL-based Foundation
– Oracle SOA Suite
– ActiveVOS BPM

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 The end

Introduction to Process Modeling

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