A Simulation Based Framework for Business Process Design Projects

1. A Simulation Based Framework for Business Process Design Projects Chapter 3 Business Process Modeling, Simulation and Design

2. Overview • The Overall Framework • Step 1: Case for Action and Vision Statement • Step 2: Process Identification and Selection • Step 3: Obtain Management Commitment • Step 4: Evaluate Design Enablers • Step 5: Acquire Process Understanding • Step 6: Creative Process Design • Benchmarking • Design Principles • Step 7: Process Modeling and Simulation • Step 8: Implementation of the New Process Design

3. 1. Case for action and vision 5. Acquiring Process understanding 2. Process Identification and selection 6. Creative Process Design 3. Obtaining Management commitment 7. Process Modeling and Simulation 4. Evaluation of Design Enablers 8. Implementation of the New Process Design A Simulation Based Framework for BPD Projects

4. Step 1: Case for Action and Vision Statements • A clear message about the need for change and where the change is going to take us is necessary for successfully selling the redesign concept to the company’s employees • Case for Action • Here is where we are as a company and • this is why we cannot stay here • Vision Statement • This is what we as a company need to become • Should include both quantitative and qualitative statements

5. Step 2:Process Identification and Selection • Process selection is critical for the success of a design project • Core processes have the highest impact on overall performance but are also more costly and risky to change • The implementation tactic cannot be ignored, even due to budget constraints • Useful criteria for prioritization of projects are: • Dysfunction • Importance • Feasibility • Other relevant screening issues/questions are: • What are the project’s scope and costs involved? • Can a strong and effective team be formed? • Is it likely to obtain strong management commitment? • Can other programs (e.g. continuous improvement) be used instead? • Is the process obsolete or the technology outdated?

6. Step 3:Obtaining Management Commitment • Top management must set the stage both for the design project and the subsequent implementation • Without top management support the improvement effort is bound to fail • The more profound and strategic the change is the more crucial the top management support becomes • Commitment assumes understanding and cannot be achieved without education • People are more likely to be fearful and resisting change if there is a lack of direction and they do not understand the implications of the change • Occurrence of “resisting change” issues is particularly prevalent in rapid revolutionary change scenarios

7. Step 4:Evaluation of Design Enablers • New (information) technology is an essential design enabler… • …but could also reinforce old ways of thinking • Automation  redesign • Do not look for problems first and then the technology to fix them • Evaluating new technology needs inductive thinking • New technology should not be evaluated within the structure of the existing process • New technology enables us to break old rules and compromises • To avoid the automation trap the question to ask is: • How can new technology enable us to do new things or to do things in new ways?

8. Old Rule New Technology New Rule Information can appear Shared databases Information can appear in only one place at a time. simultaneously in as many places as needed. Expert systems A generalist may be able to do Only experts can perform the work of an expert. complex work. Businesses can simultaneously Businesses must choose Telecommunication Between centralization networks reap thebenefits of centralization and decentralization. and decentralization. Decision support tools Decision making is part of Managers make all decisions. - everyone’s job. (databases, modeling tools) Field personnel need offices Wireless data Field personnel can send and communication and Where to receive, store, retrieve receive information wherever they are. and transmit information. portable computers. The best contact with a potential The best contact with a potential Interactive videodisk buyer is personal contact. and webpages. buyeris effective contact. People must find where Automatic identification Things tell you where they are. things are. tracking technology. Plans get revised instantaneously. Plans get revised periodically. High performance Plans get revised instantaneously. computers. Technology as a Mechanism to Break Rules and Compromises

9. Step 5:Acquiring Process Understanding • Subtle difference between redesigning an existing process and designing a new currently non-existing process • In both cases we need to understand the purpose of the process and what the customers desire from it • If the process exists, we need to understand what it is currently doing and why it is unsatisfactory • Business Process Benchmarking may be a useful tool • To gain process understanding • To inspire creative new designs

10. Understanding the Existing Process • Questions the design team needs to answer • What is the existing process doing? • How well does it perform? • What are the critical issues that impact the process performance? • The redesign team must understand the process but should not overanalyze it in order to avoid “analysis paralysis” • Becoming so familiar with the process it is impossible to think of new ways of doing it • Essential activities for building process understanding • Configure the redesign team • Build a high level process map • Test the initial scope and scale • Identify the process owner

11. Understanding the Customer • The customer end is the best place to start understanding a business process • What are the customers’ real requirements? • What do they say they need and what do they really need? • What problems do they have? • What do they do with the process output? • The ultimate goal with a business process is to satisfy the customers’ real needs in an efficient way!

12. Creative Process Design (I) • Designing new processes is more of an art than a science • Cannot be achieved through a formalized method • Most existing processes were not designed; they just emerged as new parts were added iteratively to satisfy immediate needs • The end result of any design is very much dependent on the order in which information becomes available • Inefficient processes are created when iterative design methods are applied

13. Benchmarking • Comparing the firm’s/process’s activities and performance with what others are doing • In the same company, in the same industry or across industries • Every benchmarking relationship involves two parties • The initiator firm – who initiates contact and observes (the pupil) • The target firm (or benchmark) – who is being observed (the master) • Fruitful benchmarking relationships are usually characterized by reciprocity • Two basic benchmarking purposes • To assess the firm’s/process’s performance relative to the competition  identify performance gaps and goals • To stimulate creativity and inspire innovative ideas for how to do things better, i.e. improve process designs & process performance • For BPD projects both purposes are relevant

14. Business Process Benchmarking (I) • Focus on how things are done • Typically the most involved type of benchmarking • The underlying idea is to learn and be inspired by the best • The best in a certain industry (best-in-class benchmark) • The best across industries (best-of-the-best benchmark) • Generally, the further away from the firm’s own industry that the design team goes • Higher potential for getting breakthrough design ideas • More difficult to identify and translate similarities between processes • After choosing a target firm a good starting point for a business process benchmarking effort is the 5w2h framework (Robinson 1991) • Can also be used to understand an existing process to be redesigned

15. Business Process Benchmarking (II) The 5w2h framework

16. 6. Treat geographically dispersed resources as though they were centralized 1. Organize work around outcomes, not tasks 2. Let those who use the process output perform the process 7. Link parallel activities instead of just integrating their output 3. Merge information processing and data gathering activities 8. Design the process for the dominant flow not the exceptions 4. Capture the information once – at the source 9. Look for ways to mistake-proof the process 5. Put the decision point where the work is performed and build control into the process 10. Examine process interactions to avoid sub-optimization Themes: Horizontal and vertical integration of work, hand-off elimination, improved quality and task coordination Design Principles General people-oriented and conceptual process design principles Coordination of activities, simplification of flows, elimination of waste and rework

17. Ten Conceptual Design Principles (I) • Organize work around outcomes not tasks • Focus on horizontal integration of activities • Eliminates unnecessary handoff and control steps • Process complexity is reduced while activity complexity grows • This integration approach often referred to as case management • Let those who use the output perform the process • Work should be carried out where it makes most sense to do it • Risk of coordination inefficiencies due to excessive delegation decreases • Merge information processing and data gathering activities • The people collecting the data should also process it into information • Reduces the risk of errors and incorrect information 4. Capture information once – at the source • Reduces costly reentry and frequency of erroneous data • Speeds up the process, increases the quality of information and reduces costs

18. Ten Conceptual Design Principles (II) • 5. Put the decision point where the work is performed and build control into the process • Case management compresses processes horizontally and employee empowerment compresses them vertically • Workers are taking over previous management responsibilities • Treat geographically dispersed resources as though they were centralized • IT breaks spatial compromises through virtual co-location • Geographically disbursed resources should not constrain the design team to only consider decentralized approaches • Link/coordinate parallel activities instead of just integrating their results • If parallel activities are operated independently  operational errors are not detected until the outcomes are integrated • Reduces the amount of rework

19. Ten Conceptual Design Principles (III) • 8. Design the process for the dominant flow not for the exceptions • Reduces the risk of fragmentation and overly complex processes with inherent coordination problems • 9. Look for ways to mistake-proof (or fail-safe) the process • Design so that certain critical errors cannot occur • Mistake-proofing = Poka Yoke • Examining interactions to avoid sub-optimization • By neglecting interactions, isolated improvements to sub-processes will lead to sub-optimal solutions • Known in systems theory as “disjointed incrementalism”

20. Step 6:Process Modeling and Simulation (I) • Conceptual process designs need to be tested before they are implemented in full scale • Pilot projects or process modeling techniques • Business processes are often too complex and dynamic to be analyzed only with simple tools like flowcharts and spreadsheets • Discrete event simulation is a powerful and realistic tool to complement the more simplistic methods • Allows exploration of the redesign effects without costly interruptions of current operations • Helps reduce the risks inherent in any design/change project • Compared to pilot projects simulation is faster and cheaper • Simulation not good for capturing soft people issues and attitudes  Simulation and pilots complement each other

21. Process Modeling and Simulation (II) • A discrete event simulation model mimics the real world but in compressed time • Focus only on events when the state of the system changes and skips the time between these events • Basic steps in evaluating a process design through discrete event simulation • Building the simulation model • Running the simulation • Analyzing performance measures • Evaluation of alternative scenarios

22. Process Modeling and Simulation (III) • Advantages with discrete event simulation • Promotes creativity by enabling easy testing of ideas • Captures system dynamics but avoids disturbances of current process • Can capture interactions between sub-processes • Mitigates the risk of sub-optimization • Graphical reporting features promotes better process understanding and facilitates communication • The quantitative nature brings a sense of objectivity into the picture

23. Step 7:Implementation of the Process Design (I) • Detailed implementation issues beyond the scope of the design project • High level implementation issues need to be considered when selecting a process to design • No point in designing a process which cannot be implemented • Crucial high level implementation issues • Time • Cost • Improvement potential • Likelihood of success

24. Implementation of the Process Design (II) • Conceptually an implementation strategy can be characterized as revolutionary, evolutionary or on a continuum in between • A rapid revolutionary approach tends to require more external resources • Regardless of the implementation tactic important factors for a successful implementation are • Strong leadership • Buy-in from line managers and employees • Training of the workforce

25. Final Notes • Important to reflect on what can be learned from a given design and/or implementation project • What worked, what didn’t and why? • What were the main challenges? • What design ideas didn’t work out in practice and why? • The process of designing and implementing new process designs also needs improvement • Sharing experiences and collecting feedback is key to any improvement effort