Graduate Program in Business Information Systems

BIS 581 Business Process Management Lecture-3 Graduate Program in Business Information Systems Aslı Sencer Department of Management Information Systems

Business Process Management – 3 Process Improvement / Reengineering Process Analysis

Process Improvement (BPI) Process improvement is to reorganize the business processes so as to improve their effectiveness, efficiency and flexibility. The objectives of BPI are to improve: Effectiveness: Does the process produce the desired results and meet the customer’s needs? Does the process produce what the customers want? Efficiency: Does the process minimize the use of resources and eliminate bureaucracy? Can the responsible employees use the process easily? Adaptability: Is the process flexible in the face of changing needs? Can the process be easily modified on the basis of changing business requirements?

An Improved Process Provides... The new process design is supposed to provide a process • with less number of errors • with less waiting times • that is easier to implement • with more focus on changing needs of the customer • with more competitive power.

Choosing the Process to be Improved The processes to be improved initially are identified by considering the followings: • Changes in the competitive environment • Complaints of the external/internal customer • Advances in new technologies • Existence of relatively long and costly processes • Low performance processes as compared to benchmarks • Existence of processes with a high gap.

Process Improvement Techniques • Process improvement starts by identifying a KPI to be improved and/or optimized. • From a systemic and analytical approach, these KPI’s are improved either by • changing the process model, or by • changing the level of a set of decision (or control) variables. • Most common KPI’s are related to • Duration • Cost • Quantity

BPI Techniques (cont’d.) • The purpose of process modeling is to assess the behavior of a business process before it is actually developed and deployed. • First the model is executed. If the model behaves as expected, the project can proceed with development and deployment. • Otherwise, there are three choices: • Change the process model to eliminate the bottlenecks or other factors that do not measure up to expectations. • Add more resources (change of decision variable) to improve the performance and eliminate the bottlenecks. • Reset the expectations of the customers served by the process so that the expectations are consistent with what the model predicts.

Inputs, Outputs, Decision Variables From the modelling perspective • Inputs are the predefined parameters of the system. These parameters may be introduced by the customers, or obtained from the internal system. • Decision variables are the inputs that are controlled by the decision maker. Their levels may or may not be set optimally depending on the decision maker’s management concerns. • Outputs are in the form of goods, services that leads to a value creation. Quality of the outputs are directly related to the quality of the process that is measured by KPI’s. If the value of the inputs are determined optimally, the performance of the modelled work flow is optimized in terms of the chosen KPI’s. But this does not ensure that the workflow itself is optimal!

Pro’s: • Savings in time and cost • Decreased complexity • Attention! • Output quality should not be lower • Output should be the same Process Improvement Techniques: Elimination Activity 3 Activity 2 Activity 1 Activity 5 Activity 6 Activity 4

Pro’s: • Focus on core competencies • Lower fixed costs • Higher quality • Attention! • Difficulties in control and management • Risk of lower quality • Outsource might quit the aggreement • Risk of information sharing Process Improvement Techniques: Outsourcing Activity 2 Activity 2 Activity 3 Activity 1 Activity 5 Activity 6 Activity 4

Attention! • Difficulties in control and management Pro’s: • Savings in time and cost • Inceased motivation Process Improvement Techniques: Merging Activity 2 Activity 3 Activity 2+3 Activity 1 Activity 5 Activity 6 Activity 4

Pro’s • Shorter process durations • Shorter waiting times • Attention! • Need for extra personnel • Need for extra location Process Improvement Techniques: Parallel activities Activity 2 Activity 2 Activity 3 Activity 1 Activity 5 Activity 6 Activity 3 Activity 4

Process Improvement Techniques: Change of Decision Variables

Business Process Analysis • After the current system and the improved system are modeled, their performances are evaluated and analyzed. • Simulation and statistical analysis are the basic methodologies used in BPA.

BPMA Software • A Business Process Management and Analysis (BPMA) software can perform workload and throughput analysis on a process prior to development of a deployable solution. • BPMA can run or execute a large number of process incidents in a simulation environment and produce statistical data on resource utilizations, process durations, waiting times, etc. • These are used by the process owner or analyst to change the process or the resources with the goal of optimizing its performance.

Statistical Analysis • Statistical analysis needs data that comes from instances, so it is applicable processes that have high volumes and resource constraints such as requirements processing, order processing, and call centers. • Processes that are not resource constrained or involve creativity by knowledge workers, can not be optimized by statistical modeling. Creativity should not be constrained by strict time limitations. Creative processes have their own dynamics that may not follow predefined paths and assumptions. Similarly, a managerial processes that is carried out only a few times in a year will not benefit from statistical analysis.

Assumptions for Modeling Scenarios A scenario is a set of assumptions about the resources used in a business process and the probabilities of various events that might occur during the course of a process. • The business rules of the company • Assumptions about the resources • Time used at various steps in the process • Probabilities of various events that might happen at specific points in the process.

Inputs of the Generated Models • Rate of arrivals: Number of times the trigger condition occurs per unit time. Ex: # order receivals per day, # customer arrivals per hour • The incident count setting: Length of the simulation run defined by number of incidents required to reach a steady state. Ex: Simulate for 100 customer requests. Yet some processes might never reach a steady state. • Preload incidents : Warm up period that is specified by the number of incidents that might occur through the model in order to reach a stabilized system. Ex: If the incident count set is 100 and the preload set is 10, the simulation is run for 110 insidents and the 11th-110th incidents are used for analysis.

Inputs of the Generated Models • Day calendar: Specification of the working schedules including the breaktimes of the resources. • Task priority: Queueing rules of incidents waiting for a process that should be completed by a resource. Ex: existence of high priority customers. • Generating random time durations: Activity durations may be random. In BPMA softwares random durations are either uniform or normal.

Uniform Distribution • Every value is equally likely to occur between the parameters for maximum and minimum.

Normal Distribution • Normal distribution has two paramaters: mean, µ and standard deviation, σ.

Step Level Assumptions • Lag time: Time between the completion of a task and beginning of the next task. Ex: After call work in a call center. • Number of resources: Number staff available to perform a task • Task rate: Rate of the users assigned to complete a task. By multiplying the overhead rate with the task time, the software can calculate the cost of performing a task. • % returned: % tasks returned due to lack of information and other factors. Ex: Abondonment rates in a call center • % Resubmitted and Resubmit duration: After the task has been completed, it may be necessary to open and resubmit the same task again. Ex: Change of mind of the customer during the ordering process

Executing the Model • After the assumptions/inputs are set, the BPMA software uses the information about the model and the scenarios to run a large number of imaginary incidents and collect statistical data. The BPM system has 3 roles: • Role of individuals or applications performing tasks at each step of the process:Determine how fast each step is completed. • Role of the engine or BPM server: Uses the process map to decide in which order the steps are executed. • Role of time manager: It maintains the internal modeling clock (IMC), so that the model can be completed much faster than it would be in real life.

Approaches for Implementing Statistical Modeling:Time Driven Modeling IMC: Internal Modeling clock or the simulation clock

Approaches for Implementing Statistical Modeling:Event Driven Modeling

Results of Modeling The performance of the model is measured in terms of the KPI’s that include some standard statistical measures such as: Incident Elapsed Time: Time spent in the system by an incidence. Ex: Average/max/min/deviation of time it takes to complete an order request. Incident cost: Cost of processing an incident. Ex: If most of the costs are found to be associated by the tasks performed by a senior executive, the process might be redesigned to lower the costs. Step task time: Time it takes to perform a process. Used to check if the actual values in the model, fits well with the theoretical inputs. Ex: Check, min/max/average/deviation. Step lag time: The lag time is a combination of lag time specified in the scenario plus the unproductive time a user spents waiting for new tasks. In an unbalanced process some steps have high, others have low workloads. Step elapsed time: Combination of task time and lag time. It measures the throughput of the system. Ex: Task time =4min, Lag time=1min, then throughput=1/5min*60 min=12 items/hr.

Results of Modeling (cont’d.) • Step cost: Cost of a step in business process=Task time*rate cost. How much eax-ch step contributes to the total cost. • Step utilization: Distribution of the time for a step that was consumed in performing the task (task time), waiting for tasks (wait time), or spent in other activities (lag time). • Process utilization: How time is utilized across all steps in the process, by all the resources in every step. • Under utilization report: A pie chart display of the wait time for all steps in a process. • Balance report: Plot of the incident number versus the total elapsed time for the incident. Provides a graphical view of the change in the total elapsed time to complete each successive incident.

Group Exercise 3: Process Improvement Consider the registration process that you have modelled. • Give examples for the existence of a need for process improvement. • Explain how you choose the right process to be improved in each case. • Propose an improvement by identifying the improvement technique that you use.

Graduate Program in Business Information Systems