QUANTITATIVE PROCESS ANALYSIS

PROCESS REDESIGN
Week 6
 • Process Performance
• Quality
• Balanced Scorecard
Topics for • Flow analysis
the Week • Process Redesign
• Process redesign approaches
• Exploitative Redesign (transactional)
• Explorative Redesign (transformational)
• Business Process Reengineering
• Example
• Some Principles of BPR
• Recap
2
Process Analysis

Process
identification

Process
Process architecture
architecture

Conformance
Conformance and
and Process As-is
As-is process
process
performance
performance insights
insights discovery model
model

Process
monitoring and Process
controlling analysis

Executable
Executable Insights
Insights on
on
process
process weaknesses
weaknesses and
and
model
model their
their impact
impact

Process Process
implementation To-be
To-be process
process redesign
model
model

3
Process Analysis Techniques

Qualitative analysis
• Value-Added & Waste Analysis
• Root-Cause Analysis
• Pareto Analysis
• Issue Register

Quantitative Analysis
• Flow analysis
• Queuing analysis
• Simulation

4
Process performance
If you had to choose between two services, you would typically choose the one that
is:

• Faster
• Cheaper
• Better

5
Process performance

Time

Process
performance

Quality Cost

6
Time measures Time between start and
Time taken by completion of a process
value-adding instance
activities

Processing
time

Cycle
time
Waiting
time
Time taken by non-
value-adding activities
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Cycle time efficiency

Processing Cycle Time

Cycle Time
Time Efficiency

8
Cost measures
Cost of value-
adding activities Cost of a process
instance

Processing
cost

Per-
Instance
Cost
Cost of
waste
Cost of non-value-
adding activities
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Typical components of cost

Material cost
•Cost of tangible or intangible
resources used per process instance

Resource cost
•Cost of person-hours employed per
process instance
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Resource utilization

Time spent Time

per resource available per Resource
on process resource for utilization
work process work

Resource utilization = 60%

è on average resources are idle 40% of their allocated time

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Resource utilization vs. waiting time

Resource
utilization Waiting time

Typically, when resource utilization > 90%

è Waiting time increases steeply
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Quality

Product quality
• Defect rate

Delivery quality
• On-time delivery rate
• Cycle time variance
Customer satisfaction
• Customer feedback score
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Identifying performance measures

For each process, formulate process performance objectives

Customer should be served always in a timely manner

For each objective, identify variable(s) and aggregation

method è performance measure
Variable: customer served in Aggregation method: Measure: ST30 = % of
< 30 min. percentage customers served in < 30 min.

For each performance measure, define targets

ST30 > 99%

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Balanced scorecard
Cost measures Quality & time
measures

Financial Customer

Internal
Innovation
business
& learning Technology
Quality & time process leadership,
measures Staff satisfaction

15
Process performance reference models

Supply Chain Operations Reference Model (SCOR)

• Performance measures for supply chain management
processes

American Productivity and Quality Council (APQC)

• Performance measures and benchmarks for processes in the
Process Classification Framework (PCF)

IT Infrastructure Library (ITIL)

• Performance measures for IT service management processes

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FLOW ANALYSIS
Flow analysis

Process
model

Process
performance

Performance
of each
activity

18
Flow analysis of cycle time

1 day 1 day

1 day 3 days

3 days 2 days

Cycle time = X days

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Sequence – Example

• What is the average cycle time?

Cycle time = 10 + 20 = 30
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Example: Alternative Paths

• What is the average cycle time?

50%
90%

50%
10%

Cycle
Cycle time
time = 10
= 10 + (20+10)/2 = 25
+ 0.9*20+0.1*10 = 29
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Example: Rework loop

• What is the average cycle time?

80%
1%
100%

0% 99%

20%

Cycle time = 10 + 20 = 30
Cycle time = 10 + 20/0.8 = 35
Cycle time = 10 + 20/0.01 = 2010 22
Flow analysis equations for cycle time

T1 T2 ... TN
CT = T1+T2+…+ TN

T1
p1

T2
p2
CT = p1*T1+p2*T2+…+ pn*TN
pn ...

TN

T1

T2 CT = max(T1, T2,…, TN)

...

TN

1-r
CT = T / (1-r)
T

r 23
Flow analysis of cycle time

1 day 1 day
20% 60%

80%
1 day 3 days 40
%
3 days 2 days

1/0.8 max(1,3) 3 0.6*1+0.4*2

Cycle time = 1.25 + 3 + 3 + 1.4 = 8.65 days

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Flow analysis of processing time

0.5 hour 2 hours

20% 60%

80%
2 hours 2 hours 40
%
3 hours 0.5 mins.

2/0.8 max(0.5,3) 2 0.6*2+0.4*0.5

Processing time = 2.5 + 3 + 2 + 1.4 = 8.9 hours

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Cycle time efficiency = 8.9 hours / 8.65 days = 12.9%
Exercise: Calculate CTE of the following
process

26
Flow analysis: scope and limitations
• Flow analysis for cycle time calculation
• Other applications:
̶ Calculating cost-per-process-instance
̶ Calculating error rates at the process level
̶ Estimating capacity requirements
• But it has its limitations…

27
Limitation 1: Not all Models are Structured

28
Limitation 2: Fixed arrival rate capacity

• Cycle time analysis does not consider:

̶ The rate at which new process instances are created (arrival
rate)
̶ The number of available resources
• Higher arrival rate at fixed resource capacity
è high resource contention
è higher activity waiting times (longer queues)
è higher activity cycle time
è higher overall cycle time
• The slower you are, the more people have to queue up…
̶ and vice-versa

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Cycle Time & Work-In-Progress

• WIP = (average) Work-In-Process

̶ Number of cases that are running (started but not yet
completed)
̶ E.g. # of active and unfilled orders in an order-to-cash
process
• WIP is a form of waste
• Little’s Formula: WIP = l.CT
̶ l (Lambda) = arrival rate (number of new cases per time
unit)
̶ CT = cycle time

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PROCESS REDESIGN
 Process Redesign

Process
Management Processes

Define Vision Develop Strategy Implement Manage Risk

Strategy

Examples for BPM lifecycle and process mining identification Core Processes

Procure Procure Market Deliver

Manage
Customer
Materials Products Products Products
Service

35h B 30h Support Processes

15h Process architecture Manage Personnel

Manage
Information Manage Assets

A E
D
5m 3m 5m 10m 30m 2h 10m

15m
C
1.5h 10min
Conformance and Process As-is process
performance
discovery model
insights

A B C D E

Process Process
monitoring analysis

Executable Insights on
process weaknesses and
model their impact

Process Process
implementation To-be process redesign
model

32
Process Redesign

Identify possibilities for improving the design of a process

AS-IS: Descriprive modelling TO-BE: Prescriptive modelling

of the real world of the real world

• No silver-bullet: requires creativity

• Redesign heuristics can be used to generate ideas
33
Process redesign approaches

Exploitative Redesign (transactional)

• Doesn’t put into question the current process structure
• Seeks to identify problems and resolve them incrementally,
one step at a time
• Example: Heuristic redesign (next week)

Explorative Redesign (transformational)

• Puts into question the fundamental assumptions and
principles of the existing process structure
• Aims to achieve breakthrough innovation
• Example: Business Process Reengineering (BPR)

34
Business Process Reengineering (BPR)
• Transformative: Puts into question the fundamental assumptions of the “as is” process
• Analytical: Based on a set of principles that foster:
̶ Outcome-driven processes
̶ Integration of information gathering, work and decisions

35
The Ford Case Study

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

36
(Hammer, 1990)
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

37
The correct answer is …
Mazda’s Accounts Payable Department

38
How the process worked?
(“as is”)

39
How the process worked?
(“as is”)

40
How the process worked?
(“as is”)

41
How the process worked?
(“as is”)

42
How the process worked?
(“as is”)

43
How the process worked?
(“as is”)

44
Reengineered Process (“to be”)

45
Reengineered Process (“to be”)

46
Reengineered Process (“to be”)

47
Reengineered Process (“to be”)

48
Reengineered Process (“to be”)

49
Reengineered Process (“to be”)

50
Evaluated Receipts Settlement
Outcome…
• 75% reduction in head count
• Simpler material control
• More accurate financial information
• Faster purchase requisition
• Less overdue payments

Lessons:
• Why automate something we don’t need to do at all?
• Automate things that need to be done.

“Don’t Automate, Obliterate!” (Hammer, 1990)

51
Some 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. Put the decision point where the work is performed, and build control into
the process
5. Treat geographically dispersed resources as though they were centralized.

52
 Principle 1

Capture information once and at the

source
• Shared data store
̶ All process workers access the
same data
̶ Don’t send around data, share
it!
• Self-service
̶ Customers capture data
themselves
̶ Customers perform tasks
themselves (e.g. collect
documents)
53
Principle 2

Subsume information-processing work into the real work

• Evaluated receipt settlement: when receiving the products,
record the fulfillment of the PO, which triggers payment

54
Principle 3
Have those who use the output of the process drive the process
• Vendor-managed inventory
• Scan-based trading
• Push work to the actor that has the incentive to do it

55
Example: problematic claims process

Authorize

Pay

Claim
Client Insurer

Request quote
Approved
Pay glass
vendor
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Redesigned claims process

Client Insurer

Claim Pay

Drop Approved
glass
vendor

57
Principle 4
Put the decision point where the work is performed, and build control into the
process
• Empower the process workers
• Provide process workers with information needed to make decisions
themselves
• Replace back-and-forth handovers between workers and managers
(transportation waste) with well-designed controls

58
Equipment rental process

59
Self-service-based redesign

Principles 1 & 2

• When equipment is needed, site engineer queries the

suppliers’ catalogue, selects equipment and triggers PO

Principle 3

• Supplier stocks frequently used equipment at construction

site, site engineers scan to put them into use

Principle 4

• Site engineer is empowered with the authority to rent the

equipment; works engineer performs statistical controls
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Principle 5
Treat geographically dispersed resources as though they were centralized.
• If same people perform the same function in different locations, integrate and share their
work wherever possible
• Larger resource pools à less waiting times even with relatively high resource utilization

61
Assessment 2 (Part B): 2000-word Report 30%
• This is an individual assessment.

• Due this week (Friday at 5:00 pm)

• Choose and study a small/medium organisation and create an AS-IS model with a Business Process
Modelling tool (LucidChart or Signavio).

• Must use AND, XOR gateways, lanes and pools, and correct connections with relevant icons to build
AS-IS model (organization’s current business model).

• Weight of the assessment is 30 percent.

• Students must submit their own work.

• Any materials taken from other sources must be cited accordingly.

62
Recap

Process Balanced
Quality Flow analysis
Performance Scorecard

Exploitative Explorative
Process redesign
Process Redesign Redesign Redesign
approaches
(transactional) (transformational)

Business Process Some Principles

Example Recap
Reengineering of BPR

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END OF CHAPTER