Business Process Management IS312 Lecture Notes PDF

BUSINESS PROCESS MANAGEMENT IS312 N.M. Lagahit  Introduction to Business Process Management What is a (business) process? A collection of inter-related events, activities, and decision points that involve a number of actors and objects, and that collectively lead to...

BUSINESS PROCESS MANAGEMENT IS312 N.M. Lagahit  Introduction to Business Process Management What is a (business) process? A collection of inter-related events, activities, and decision points that involve a number of actors and objects, and that collectively lead to an outcome that is of value to an organization or to its customers. Examples: Order-to-cash Quote-to-order Procure-to-pay Issue-to resolution Application-to-approval  Order-to-cash.This is a type of process performed by a vendor, Process ever ywhere which starts when a customer submits an order to purchase a product or a service and ends when the product or service in question has been delivered to the customer and the customer has made the corresponding payment. An order-to-cash process encompasses activities related to purchase order verification, shipment(for physical products), delivering, invoicing, payment receipt and acknowledgement. Quote-to-order. This type of process typically precedes an order- to-cash process. It starts from the point when a supplier receives a Request for Quote(RFQ) from a customer and ends when the customer in question places a purchase order based on the received quote. The order-to-cash process takes the relay from that point on. The combination of a quote-to-order and the corresponding order-to-cash process is called a quote-to-cash process.  Procure-to-pay. This type of process starts when someone in Process ever ywhere the organization determines that a given product or service needs to be purchased. It ends when the product or service has been delivered and paid for. A procure-to-pay process includes activities such as obtaining quotes, approving the purchase, selecting a supplier, issuing a purchase order, receiving the goods(or consuming the service), and paying the invoice. A procure-to-pay process can be seen as the counterpart of the quote-to-cash process in the context of business-to-business interactions. For every procure-to-pay process there is a corresponding quote-to-cash process on the supplier’s side. Process ever ywhere Issue-to-resolution. This type of process starts when a customer raises a problem or issue, such as a complaint related to a defect in a product or an issue encountered when consuming a service. The process continues until the customer, the supplier, or preferably both or them agree that the issue has been resolved. A variant of this process can be found in insurance companies that have to deal with insurance claims. This variant is called claim-to-resolution. Process ever ywhere Application-to-approval. This type of process starts when someone applies for a benefit or privilege and ends when the benefit or privilege in question is either granted or denied. This type is common in government agencies, for example when citizens apply for building permits or when entrepreneurs apply for business licenses. Another process that falls into this category is the admissions process in a university, which starts when a student applies for admission into a degree program. Yet another example is the process for approval of vacation or special leave requests in a company. Business processes are what companies do whenever they deliver a service or a product to customers. The way processes are designed and performed affects both the quality of service that customers perceive and efficiency with which services are delivered. An organization can outperform another organization offering similar kinds of service if it has better processes and executes them better. This is true not only for customer-facing processes, but also for internal processes such as the procure-to-pay process, which is performed for the purpose of fulfilling an internal need.  Processes are not functions. “Some people take the lazy way out. They use the term ‘process’ without really understanding it […].A common indication of this occurs when we ask someone to identify the organization’s processes and the response is: ‘Sales, marketing, manufacturing, logistics, and finance.’ Simply calling your functions processes doesn’t make them processes.” Hammer and Stanton (1995) Business Process “A set of logically related tasks performed to achieve a defined business outcome.” Davenport (1990) Two important characteristics: – it has customers, either internal or external to a firm – it crosses organizational boundaries, i.e. it occurs across or between organizational subunits A process also involves: Actors, including human actors, organizations, or software systems acting on behalf of human actors or organizations. Actors can be internal or external. The internal actors are those that operate inside the organization where the process is executed. These actors are called process participants. On the other hand, operate outside the organization where the process is executed. Among the actors involved in a process, the one who consumes the output is called the customer. Physical objects, such as equipment, materials, products, paper documents Informational objects, such as electronic documents and electronic records  The execution of a process leads to one or several outcomes: - Positive outcome – delivers value to the actors involved in the process - Negative outcome – when value is not achieved or is only partially achieved Process boundaries Processes are interdependent ->Insight into relations is required – main processes – subprocesses – upstream – downstream processes Processes change over time – identification should be exploratory and iterative – improvement opportunities are time-constrained Ingredients of a business process Event Activity Outcome Business Process Decision Point Positive Outcome Negative Outcome Customer Actor Object Ingredients of a business process  Business processes encompass a number of events and activities. o Events = Things that happen atomically (have no duration), may trigger other events or activities. (ex. arrival of equipment) o Activity = Thing that takes time. (ex. inspection of equipment) o Task = Simple activity that can be seen as a single unit of work. (ex. checking the equipment)  A typical process involves decision points o When a event or activity can have multiple outcomes. For example when an inspection has been done, it can be cleared for use or send back when faulty.  A typical process involves actors o For example: Human actors, organizations and software systems.  Ingredients of a business process  A typical process involves physical objects o For example: Equipment, materials, products and paper documents.  A typical process involves immaterial objects o For example: Electronic documents and records.  The result of a process leads to one of several outcomes: o A positive outcome = Delivers value to the actors involved (ex. Product is purchased > money for the supplier + happy customer) o A negative outcome = All actors gain no value. (ex. Product is returned > no money + no product)  Consumer = The actor who consumes the output of a process o Multiple consumers = For example selling a house. The buyer, seller, real estate agent, mortage providers and a notary all gain something when a house is sold. What is BPM? A body of methods, techniques, and tools to identify, discover, analyze, redesign, execute and monitor business processes in order to optimize their performance. Related Disciplines TQM (Total Quality Management) Historically preceded and inspired BPM. Focus on: continuous improving and sustaining quality of products. TQM is found more in the industry, because BPM is more oriented towards service organizations. Operations Management Focus on: managing the physical and technical functions of a firm or organization, particular relating to production and manufacturing. Math plays a big part. (probability and queuing theory, decision analysis, mathematical modeling and simulation) Operations management controls a process without necessarily changing it. BPM makes changes to improve. Related Disciplines Lean Focus on: Elimination of waste (activities that do not add value to the customer). Originates from manufacturing industry (Toyota) Lean is similar to BPM, but BPM encompasses more and uses IT as a tool to improve business processes to make them more consistent en repeatable. Six Sigma Focus on: Minimization of defects (errors) by measuring quality of the process output. Originates from manufacturing (Motorola) Often combined with Lean. Many techniques are commonly applied in BPM as well. Origins and History of BPM Entire Single part of a Entire process Worker’s process process for a for a single focus for all single product product products Worker’s Pure Intermediate Pure specialist capabilities generalist specialist Prehistoric Ancient Middle Industrial times times ages times How the process moved out of focus through the ages. Origins and History of BPM  Prehistoric times o Humans support themselves or he small groups they lived in by producing their own food, tools and items. o Consumers and producers were mostly the same person. o They were generalists. (Knowledge of producing many different things)  Ancient times o Humans were evolving towards an intermediate level of specialism. o People started specializing in one type of goods such as pottery, or providing a particular service such as lodging for travelers. Origins and History of BPM Middle Ages More specialism, often combined in a guild of the craftsmen. Guild = Group of merchants and artisans concerned with the same economic activity. Second Industrial Revolution Between 1850 and WW1 Scientific Management (Fredrick W. Taylor) Extreme form of labor division. Laborers would only be involved in one of the many steps in the production process. Most dominant form of organizing work. (also in the government) Origins and History of BPM Second Industrial Revolution Laborers/workers became super specialized in there step in the production process. Side effect > managers. Someone has to oversee the productivity of a section of the production process. Managers were responsible for pinning down the productivity goals for individual workers Main interest > optimize how a job is done with the resources under their supervision. How to differentiate between responsibilities of the managers? Create a functional units in which people with a similar focus on part of the production process were grouped together. These units were supervised by managers with different responsibilities. So were different departments created. Origins and History of BPM 1900 - 2000 o As a result of the Second Industrial Revolution: functional organization was created. o Major American companies came to realize that their emphasis on functional optimization was creating inefficiencies, and thus affecting heir competitiveness. So instead new IT projects went to Japanese competitors. Origins and History of BPM 1980s Ford acquisition of a big financial stake in Mazda o Mazda was accomplishing the same result with less people than Ford did in the Purchasing Department. o Ford had a complicated process which purpose was to keep all documents consistent. Consistency between 3 files (Purchase order copy, shipping notice, invoice), each file consisted o f 14 data items. o Various discrepancies were discovered every day, and occupied several 100 people within Ford. o Mazda had only 5 people working in this department, but was not 100x smaller. Origins and History of BPM 1980s Ford acquisition of a big financial stake in Mazda o As a result of the comparison, Ford carried out several changes in its own purchasing process. A central database was created (replaced one of the original paper streams). New terminals were installed in the warehouse department so personnel could check incoming goods immediately. Acceptance of the goods were registered in the purchasing database. Ford managed to reduce there workforce in accounts payable by 76% (from 500 to 120 people). Origins and History of BPM 1990s BPR (Business Process Redesign/Re-engineering) o Enthusiasm faded down around late 1990s. What went wrong? 1. Concept misuse: It was not clear if BPR was driving downsizing. Companies used the name BPR for other things than process redesign. 2. Over-radicalism: According to some specialists redesign had to be radical. "Don`t automate, Obliterate". While a radical approach may be justified in some situations, most situations require a more gradual approach. Origins and History of BPM 1990s BPR (Business Process Redesign/Re-engineering) 3. Support immaturity: Supported tools and technologies needed for improving a business process were not available or powerful enough at that time. Supporting IT applications were also to hard coded to change in order to achieve process improvement. Origins and History of BPM What made BPR evolve into BPM o Study shows process oriented manufacturing organizations showed better overall performance. The mood in departments were better and there were less inter-functional conflicts. o Different types of new IT systems emerged. (such as ERP and WfMSs) ERP stores company data in a consistent manner so all stakeholders who needed access to the data can gain access. WfMSs supported work-distribution to actors, based on predefined business processes. WfMSs made it easier to implement changes to business processes. WfMSs became known as BPMSs (Business Process Management Systems) The BPM Life Cycle The BPM Life Cycle  Step 1, PROCESS IDENTIFICATION: Which processes are we dealing with and how can we measure the outcome? o Defining the start and end of a process to eliminate confusion. (as- is process)  If the company has engaged in BPM initiatives in the past (parts) of the process will already be defined and documented.  If the company has not engaged in BPM initiatives, it needs to identify the processes that are relevant to the problem/issue and define which relationships they have.  Measuring value is a crucial step in BPM, because otherwise you cannot see the improvement the process has made. The BPM Life Cycle Step 1, PROCESS IDENTIFICATION: Which processes are we dealing with and how can we measure the outcome? A process can be measured via: Cost related, Decreasing costs while keeping the same/better quality. Time related, Improving the cycle time (time to do a process), while keeping the same/better quality. Quality related, Reducing error rates (times processes end up in a negative outcome) The BPM Life Cycle Step 2, PROCESS DISCOVERY: What is the process in detail? o A outcome of this phase is to create a as-is process model. Which reflects the understanding that people in the organization have about how the work is done. o Textual descriptions are difficult to read and easy to misinterpret. Diagrams make it much easier for everyone involved to understand. They also limit misunderstanding. The BPM Life Cycle Step 2, PROCESS DISCOVERY: What is the process in detail? o In a diagram you can find the following: Swim-lanes: A flowchart is divided into several horizontal lanes. These each represent a organizational unit/person. Activity nodes: Units of work that represent a human or software application doing a specific task. Control nodes (gateways): Capture the flow of execution between activities. (decision/choice/check) Event nodes: Requires a action from an actor in order to proceed with the process. The BPM Life Cycle Step 3, PROCESS ANALYSIS: What are the issues, and how can we resolve them? o Identify and analyze potential remedies. o Multiple remedies need to be looked at because a change in the process can cause other issues down the road. o Changing a process is not as easy as it sounds, because people are used to work in a certain way. o Sometimes to change a process in your own organization it requires a change in another organization. (for example with the providing more data to make a better choice) The BPM Life Cycle Step 4, PROCESS REDESIGN: What is the improved process? o A new process diagram is drawn to shown the organization. (to-be process) o In the new diagram the issues are resolved. o There could be multiple new process concepts. Each varies in the amount of work required to change, time it takes to implement the changes or what it costs to make the changes. The BPM Life Cycle Step 5, PROCESS IMPLEMENTATION: What needs to be changed? o For example, IT systems need to change and people need to be trained to use the new system at best. o Complementary facets of change:  Organizational change management  Explain the changes in the process to the participants.  Explain what changes are being made to the participants.  Explain why the changes are beneficial to the company, to the participants.  Put a change management plan in place in which you:  Describe when the changes wil be put into effect  Describe what transitional arrangements will be employed to address problems during the transition to the to-be process.  The BPM Life Cycle Step 5, PROCESS IMPLEMENTATION: What needs to be changed?  Process automation  Configuration of a existing IT system OR implementation of a new system.  System should support process participants in their performance of tasks in the process.  Which includes:  Assigning tasks to process participants.  Helping process participants prioritize their work.  Providing process participants with the information they need to perform a task.  Performing automated cross-checks and other automated tasks where possible. The BPM Life Cycle Step 6, PROCESS MONITORING AND CONTROLLING: Do some adjustments to the process need to happen? o Processes need to be monitored and analyzed to identify further adjustments/improvements to the process to better control the execution of the process. o BPM should be seen as a circle because the outputs of the process monitoring make demands for more changes. Also because the ever-changing landscapes of customer needs, technology and competition. Stakeholders in a BPM life cycle:  Management team: o CEO (Chief Executive Officer), responsible for overall business performance. o COO (Chief Operations Officer), responsible for the way operations are setup. o CPO (Chief Process Officer), responsible for process performance. (otherwise COO`s responsibility) o CIO (Chief Information Officer), responsible for efficient and effective operation of information system infrastructure. o CFO (Chief Financial Officer), responsible for the overall financial performance of the company. o HRD (Human Resources Director), responsible when big numbers of process participants are involved. Stakeholders in a BPM life cycle:  Process Owners: o Responsible for efficient and effective operations of a given process. o Planning, organizing, controlling, monitoring, securing resources, guidance (in resolving errors) o One person could be responsible for multiple processes. Stakeholders in a BPM life cycle:  Process Participants: o Human actors who perform the activities of a business process on a day-to-day basis. o Conducting of routine work according to standards and guidelines. o Support redesign activities and implementation efforts. Stakeholders in a BPM life cycle:  Process Analysts: o Conduct process identification, discovery, analysis and redesign activities. o Coordinate process implementation, process monitoring and process controlling. o Report to management. o Closely interact with process participants. o Have an business or IT background depending on which change facet they focus. Stakeholders in a BPM life cycle:  Process Methodologist: o Provides expert knowledge and advice to process analysts on the choice of suitable methods, techniques and software tools to use in each phase of the BPM lifecycle. o In charge of coordinating the technical training on BPM for the process analysts. o Typically available only in large-scale BPM initiatives Stakeholders in a BPM life cycle:  System Engineers: o Involved in process redesign and implementation o Interact with process analysts to capture system requirements. o Can be a external contractor. Stakeholders in a BPM life cycle:  BPM Group: o Not all organizations have a dedicated BPM group. o Preserving of process documentation. o Knowledge of how to plan and execute an BPM project. o Responsible for maintaining process architecture, prioritizing of redesign projects and giving support to other stakeholders of a BPM project.