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Introduction to Business Process Analysis and Redesign

Special course on business process analysis and design delivered at University of Granada on 23-24 January 2014. The course covers qualitative and quantitative process analysis techniques and redesign heuristics. Based on the textbook Fundamentals of Business Process Management by Dumas et al.

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Introduction to Business Process
Analysis and Redesign

Marlon Dumas
University of Tartu
firstname.lastname@ut.ee
Universidad de Granada – 23-24 Jan. 2014
The BPM Lifecycle

2
Why should we redesign first?

“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.”
Bill Gates
3
In other words…

Information
Technology

Yields
Business
Value
Enables
Yields

Process
Change

Index Group (1982)

4
Agenda
• Preamble
– BPMN Refresher
– Basic process modeling guidelines

• Part 1 – Qualitative Process Analysis
– Value-added and waste analysis
– Root-cause analysis

• Part 2 – Quantitative Process Analysis
– Quantitative flow analysis
– Simulation

• Part 3 – Business Process Redesign
– Radical vs incremental process redesign
– Redesign heuristics
5
Companion Material
• Fundamentals of Business Process Management
(chapters 1, 6, 7, 8)
–
–
–
–

Introduction to BPM (freely available)
Qualitative Analysis
Quantitative Analysis
Redesign

http://fundamentals-of-bpm.org
http://slideshare.net/MarlonDumas
Youtube – Marlon Dumas
6

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Introduction to Business Process Analysis and Redesign

  • 1. Introduction to Business Process Analysis and Redesign Marlon Dumas University of Tartu firstname.lastname@ut.ee Universidad de Granada – 23-24 Jan. 2014
  • 3. Why should we redesign first? “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.” Bill Gates 3
  • 5. Agenda • Preamble – BPMN Refresher – Basic process modeling guidelines • Part 1 – Qualitative Process Analysis – Value-added and waste analysis – Root-cause analysis • Part 2 – Quantitative Process Analysis – Quantitative flow analysis – Simulation • Part 3 – Business Process Redesign – Radical vs incremental process redesign – Redesign heuristics 5
  • 6. Companion Material • Fundamentals of Business Process Management (chapters 1, 6, 7, 8) – – – – Introduction to BPM (freely available) Qualitative Analysis Quantitative Analysis Redesign http://fundamentals-of-bpm.org http://slideshare.net/MarlonDumas Youtube – Marlon Dumas 6
  • 8. Purposes of Process Modeling Communication, simulation, activitybased costing… Detailed Models including Data types, conditions, data mappings, fault handling… Integration, testing, deployment… 8
  • 9. 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 9
  • 10. BPMN from 10 000 miles… • A BPMN process model is a graph consisting of four types of elements (among others): 10
  • 12. BPMN Exercise: Simplified Insurance Claim Registration When a claim is received, we first check if the claimant has a valid insurance policy. If not, the claim is rejected and the claimant is informed. Otherwise, we assess the severity of the claim. Based on the outcome (simple or complex claim), we send the corresponding form to the claimant. Once the form is returned, we check it for completeness. If the form is complete, we register the claim in the Claims Management system and the evaluation of the claim may start. Otherwise, we ask the claimant to update the form. When we receive the updated forms, we check them again and continue. 12
  • 13. Guidelines: Naming Conventions 1. Give a name to every event and task 2. For tasks: verb followed by business object name and possibly complement – Issue Driver Licence, Renew Licence via Agency 1. For message events: object + past participle – Invoice received, Claim settled 1. Avoid generic verbs such as Handle, Record… 2. Label each XOR-split with a condition – Policy is invalid, Claim is inadmissible 13
  • 15. Resource Modelling in BPMN • In BPMN, the organizational perspective is modeled using: – Pools – independent organizational entities, e.g. • Customer, Supplier, East-Tallinn Hospital, Tartu Clinic – Lanes –classes of resources within the same organizational and collaboration space • Sales Department, Marketing Department • Clerk, Manager, Engineer 15
  • 16. Example with Pools and Lanes 16
  • 17. 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 Store • 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). 17
  • 19. Anything wrong with this model? 19
  • 21. 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… 21
  • 22. Showing the value chain with subprocesses 22
  • 23. Guideline: Modeling Levels • First level: start with value chain • Next level add: – Main decisions – Handoffs (lanes) • And only then add procedural aspects: – – – – Parallel gateways Input and output data objects, data stores Different types of events And as much detail as you need 23
  • 26. Purposes of Qualitative Analysis 26
  • 27. 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 27
  • 28. 7+1 Sources of Waste 1. 2. 3. 4. 5. Unnecessary Transportation (send, receive) Inventory (large work-in-process) Motion (drop-off, pick-up, go to) Waiting (waiting time between tasks) 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) 28
  • 29. Value-Added Analysis 1. Decorticate the process into steps 2. Classify each step into: – Value-adding (VA): Produces value or satisfaction to the customer. • – Business value-adding (BVA): Necessary or useful for the business to run smoothly, or required due to the regulatory environment, e.g. checks, controls • – Is the customer willing to pay for this step? 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 29
  • 31. Example – Equipment Rental Process 31
  • 32. Issue Register • A table with the following columns (possibly others): – – – – – issue number name Description/explanation Impact: Qualitative vs. Quantitative Possible resolution • Purpose: to categorise identified issues as part of as-is process modelling 32
  • 33. Issue Register (Equipment Rental) Name Explanation Assumptions 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 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 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%. Qualitative Impact Quantitative Impact 0.1 × 3000 × 2 × 100 = 60,000 p.a. Disruption to schedules. Employee stress and frustration 3000 × 0.05 × 100 = 15,000 p.a. 0.1 × 3000 × 4 × 100 × 0.02 = 2400 p.a. 33
  • 34. Techniques for issue analysis • Cause-effect diagrams • Why-why diagrams • Pareto charts 34
  • 36. 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; 36
  • 37. 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 37
  • 38. Pareto chart (excessive rental expenses) http://pareto-chart.qtcharts.com/index.php?g=prtt 38
  • 40. Fill in the blanks If you had to choose between two services, you would typically choose the one that is: • F… • B… • C… 40
  • 42. Let’s start with time Mark McGuinness: Time Management for Creative People
  • 43. Cycle Time Analysis • Cycle time: Difference between a job’s start and end time • Cycle time analysis: the task of calculating the average cycle time for an entire process or process fragment – Assumes that the average activity times for all involved activities are available (activity time = waiting time + processing time) • In the simplest case a process consists of a sequence of activities on a sequential path – The average cycle time is the sum of the average activity times • … but in general we must be able to account for – Alternative paths (XOR splits) – Parallel paths (AND splits) – Rework (cycles) 43
  • 44. Alternative Paths p1 p2 pn T1 T2 ... TN n CT = p1T1+p2T2+…+pnTn = ∑p T i i i=1 Inspired by a slide by Manuel Laguna & John Marklund 44
  • 45. Alternative Paths – Example • What is the average cycle time? 45
  • 46. Parallel Paths • If two activities related to the same job are done in parallel the contribution to the cycle time for the job is the maximum of the two activity times. T1 T2 ... TN CTparallel = Max{T1, T2,…, TM} Inspired by a slide by Manuel Laguna & John Marklund 46
  • 47. Parallel Paths – Example • What is the average cycle time? 47
  • 48. Rework • Many processes include control or inspection points where if the job does not meet certain standard, it is sent back for rework CT = T/(1-r) 48
  • 49. Rework – Example • What is the average cycle time? 49
  • 50. Rework At Most Once – Example • What is the average cycle time? 50
  • 52. Cycle Time Efficiency • Measured as the percentage of the total cycle time spent on value adding activities. Cycle Time Efficiency = Theoretical Cycle Time CT • CT = cycle time as defined before • Theoretical Cycle Time (TCT) is the cycle time if we only counted value-adding activities and excluded any waiting time or handover time – Count only processing times Inspired by a slide by Manuel Laguna & John Marklund 52
  • 53. Limitation 1: Not all Models are Structured 0.3 0.5 0.7 0.8 0.5 0.2 53
  • 54. Limitation 2: Fixed load + fixed resource capacity • Cycle time analysis does not consider waiting times due to resource contention • Queuing analysis and simulation address these limitations and have a broader applicability – Introduce notions of “arrival rate” and “resource pools” with a fixed capacity (number of resources) 54
  • 56. Process Redesign • Purpose: Identify possibilities for improving the design of a process: “as is”  “to be” Descriprive modelling of the real world (as-is) Prescriptive modelling of the real world (to-be) • No silver-bullet: requires creativity • Redesign heuristics can be used to generate ideas 56
  • 58. 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 58
  • 59. 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 59
  • 60. The correct answer is … Mazda’s Accounts Payable Department 60
  • 61. How the process worked? (“as is”) 61
  • 62. How the process worked? (“as is”) 62
  • 63. How the process worked? (“as is”) 63
  • 64. How the process worked? (“as is”) 64
  • 65. How the process worked? (“as is”) 65
  • 66. How the process worked? (“as is”) 66
  • 73. 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. 73
  • 74. 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 74
  • 75. 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 75
  • 76. Overview of the existing claims process Request additional information Pay Notify agent Client Give instructions File claim Local independent agent Forward claim Claims processing center Request quote Provide quote Pay © Laguna & Marklund Approved glass vendor 76
  • 77. Existing claims process 1. 2. 3. 4. 5. 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. When the claims form is completed the local agent verifies the information and forwards the claim to a regional processing center. 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. 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. When the client receives the check she can go to the local glass vendor and replace the glass. © Laguna & Marklund 77
  • 79. 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 79
  • 81. 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 81
  • 82. (1) Task Elimination • Sometimes "checks" may be skipped: trade-off between the cost of the check and the cost of not doing the check. (T+,Q-,C+/-) 82
  • 83. (1) Task Elimination (cont.) • Other tasks to consider for elimination: – – – – – Print Copy Archive Store More generally: non-value adding activities • Task elimination can be achieved by delegating authority, e.g. – No need for approval if amount less than Y – Employees have budget for small expenses 83
  • 85. (3) Triage • Consider dividing a general task into two or more alternative tasks or the integration of two or more alternative tasks into one general task. (T+,F-) 85
  • 86. (4) Resequencing • • • • Order tasks based on cost/effect Put “knock-out checks” first – identify problems early Postpone expensive tasks until the end. In other words: order the tasks using the ratio “costs/effect”. (T+,C-) 86
  • 88. Exercise • Textbook, chapter 1, exercise 1.5 (Prescription fulfillment process) – What tasks could be re-ordered to address current customer service problems? – Hint: consider the tradeoffs between front-loading and backloading checks in the process. 88
  • 89. (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-) 89
  • 90. Interlude: the 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 90
  • 91. Exercise • Textbook, chapter 1, exercise 1.5 (Prescription fulfillment process) – What is the current communication structure? – What issues arise from the current communication structure? – How can the communication structure be improved? 91
  • 92. (9) Automation • Use data sharing (Intranets, ERPs) to: – Increase availability of information to improve decisions or visibility (subject to security/privacy) – Avoid duplicate data entry, paper copies • Use network technology to: – Replace materials (e.g. paper document) flow with information flow • E.g. querying government agency DBs replacing document flow – Increase communication speed: e-mail, SMS • Note: e-mails are unavoidable, but not always desirable – Enable self-service (e.g. online forms) (T+,Q+/-,C+/-,F-) 92
  • 93. (9) Automation (cont.) • Use tracking technology to identify/locate materials and resources where reasonable – Identification: Bar code, RFID – Location: indoor positioning, GPS • Automate tasks and decisions – Capture and automate business rules where effective • Automate end-to-end processes – See next lecture (BPMS) 93
  • 94. Exercise • Textbook, chapter 1, exercise 1.5 (Prescription fulfillment process) – How can automation be applied in this process? 94
  • 95. Business Process Lifecycle See videos on YouTube – Marlon Dumas 95

Editor's Notes

  1. BPM provides a natural ground for bridging IT and business, because many (perhaps most) IT projects in enterprises are ultimately aimed at improving a business process
  2. It is worth emphasizing here that activities located in two parallel paths do not need to be performed simultaneously. For example, “Send invoice” and “Ship goods” need not occur both at the same time, although due to a cosmic coincidence, they could happen at the same time. Instead, it might happen that first the invoice is sent and later the goods are shipped. Or things may happen in the reverse order.
  3. The Functional perspective, indicates What tasks/function are happening in the process? The Control-flow perspective, indicates when should an activity be performed, that is, in what order should activities and events occur? The resource perspective (also called organisational perspective) indicates Who performs which activity? Finally, the data perspective indicate which data are necessary to perform each activity and which data are produced by each activity in the process?
  4. The process now includes two departments within the supplier organization…The purchase order received by the Sales & Distribution department has to be checked against the stock. The order details are sent to the Warehouse department that returns an availability notification. If the purchase order is confirmed, the Warehouse department collects the shipping details from the customer and ships the goods. The Sales & Distribution department sends an invoice to the customer who then makes the payment.
  5. The Purchase Order document serves as an input to the stock availability check. Based on the outcome of this check, the status of document is updated, either to “approved” or “rejected”. We include here the relevant documents in the process model.
  6. There are three dimensions where we typically look for process metrics: cost, time and quality. Do it faster, do it cheaper, do it better.
  7. After this slide it is suitable with a larger example of Cycle Time Analysis, for example, Problems 9 & 10, Chapter 4 in Laguna.
  8. Hammer, M., (1990). "Reengineering Work: Don't Automate, Obliterate", Harvard Business Review, July/August, pp. 104–112.
  9. Regarding the first principle, it is worth citing examples of process improvement patterns such as Self-Service and Vendor-Managed Inventory Control. Regarding, the second principle, self-service is again a typical example, particularly the ability for customers or workers to enter data themselves that goes directly into the organization’s databases Regarding the third principle, we can refer back to the idea of performing PO matching at delivery, rather than postponing this till the invoice is received
  10. Boaz Ronen, “The Complete Kit Concept,” International Journal of Production Research, Volume 30, Issue 10 October 1992, pages 2457 – 2466.