MTAT.05.074Introduction to Informatics

Business Process Management

Marlon Dumas

marlon.dumas ät ut . ee

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BPM: What is it?

Body of methods to design, analyze, execute and monitor business operations involving humans, software, information and physical artifacts using process models.

3

So What is a (Business) Process

A collection of inter-dependent activities whose collective performance is intended to achieve a goal such as delivering a product or a service.

Examples:

• Order-to-Cash

• Procure-to-Pay

• Claim-to-Resolution

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fault-report-to-resolution process

“My washing machine won’t work!”

VA

LU

E

Customer

Warranty?

PartsStoreService

Dispatch

Technician

Customer

Call Centre

Customer

© Michael Rosemann

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Background to BPM Organisational Management

- Adam Smith (1776)

Observation: “a number of specialized workers, each performing a single step in the manufacture of a pin, could make far more pins in a day than the same number of generalists.”

Quoted from Hammer & Champy 1993

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Limitations of Functional Org.

• Focus on skills and resource utilization rather than work output

• Reward systems tailored for the functional unit not the overall firm

• Group behavior and cultures fostering an “us versus them” mentality

• Creates silos ⇒ “firms within the firm” with their own agenda

© Laguna & Marklund

7

Complementarity of Functional and Process Views

Financial

HumanResources

Materials

Technology

Economy CultureRegulatory

Organisation System

Performance Managed

Business Processes

Performance Planned

FunctionA

FunctionB

FunctionC

Resources

Business Environment

OtherStakeholders

Customers

[after Rummler 1984]

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Why BPM?

“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.”

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Why BPM?

Top 10 Business Priorities 2009Please select the top five business priorities for your enterprise/business unit in 2009?

Improving business processes 1

Cutting enterprise costs 2

Improving enterprise w orkforce effectiveness 3

Attracting and retaining new customers 4

Increasing the use of information/analytics in decision making 5

Creating new products or services (innovation) 6

Managing enterprise change initiatives 7

Targeting customers and markets more effectively (more effective service delivery) 8

Expanding current customer relationships (expanding “w allet share”) 9

Consolidating business operations 10

© Gartner Group, 2009 CIO Survey

Improving Business Processes = #1 business priority for CIOs internationally, 4 years in a row…

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Why BPM?

InformationTechnology

ProcessChange

Yields

Yields

BusinessValue

Index Group (1982)

Enables

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How to do BPM?

Two complementary BPM approaches:1. Continuous Process Improvement (CPI)

– Change that brings a process closer to its normal operating standards

– Does not question the fundamental assumptions and rules that define the current process design

2. Business Process Re-Engineering (BPR)– Questions existing assumptions and rules– Requires new perspectives to generate innovative solutions with

potential for breakthrough improvements

© Laguna & Marklund

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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

The solution:

• Rationalization

• Automation

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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

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The correct answer is … Mazda’s Accounts Payable Department

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How the process worked? (“as is”)

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How the process worked? (“as is”)

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How the process worked? (“as is”)

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How the process worked? (“as is”)

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How the process worked? (“as is”)

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How the process worked? (“as is”)

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Reengineering Process (“to be”)

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Reengineering Process (“to be”)

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Reengineering Process (“to be”)

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Reengineering Process (“to be”)

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Reengineering Process (“to be”)

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Reengineering Process (“to be”)

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The result…

• 75% reduction in head count• Material control is simpler and financial

information is more accurate• Purchase requisition is faster

• Less overdue payments

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Principles of BPR

• Have those who use the output of the process perform the process

• Subsume information-processing work into the real work that produces the information

• Treat geographically dispersed resources as though they were centralized

• Link parallel activities instead of integrating their results

• Capture information once and at the source

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Exercise – Claims Handling in a Large Insurance Company

• Claims handling for replacement of automobile glass• Set up procedure

1. The CEO appoints an executive sponsor to lead the project

2. Team members are handpicked by the CEO and the sponsor

3. The team creates a flowchart of the existing process• 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 improvement of the process to

shorten the client waiting time

© Laguna & Marklund

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Overview of the existing claims process

ClientLocal

independentagent

Approvedglass

vendor

Claimsprocessing

center

Request additional information

Pay

Notify agent

File claim

Give instructionsForwardclaim

Request quote

Provide quote

Pay

© Laguna & Marklund

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Existing claims process1. Client notifies a local agent that she wishes to file a claim. She is given a

claims form and is told to obtain a cost estimate from a local glass vendor.

1. When the claims form is completed the local agent verifies the information and forwards the claim to a regional processing center.

1. 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.

1. 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.

5. When the client receives the check she can go to the local glass vendor and replace the glass.

© Laguna & Marklund

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New Recommended Design

ClientClaims

processingcenter

Approvedglass

vendor

Call in claim

Schedule repair

PayNotify

© Laguna & Marklund

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Procedural changes to the new process

• The Claims representative is given final authority to approve the claim.

• Long term relationships with a limited number of glass vendors enables the insurance company to leverage its purchase power to pre-negotiate low prices.⇒ Clients no longer have to collect estimates.⇒ Vendors are certified for quality, price, reliability,

etc.• The Client now contacts the claims representative

directly instead of going via a local agent.

© Laguna & Marklund

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Structural changes to the new process

• A new 24 hour hotline enables the client to speak directly to a claims representative at the regional processing center.

• The claims representative gathers data over the phone, enters the data into the computer and resolves any issues on the spot. He tells the client to expect a phone call from a certain glass vendor to arrange the replacement.

• The claims information is immediately available for accounting via a LAN system and they can start processing the check and send it to the vendor.

© Laguna & Marklund

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Benefits of redesigned process

• The client can have the glass replaced within 24 hours– As opposed to 10 days

• The client has less work to do– Only one phone call, no need for a cost estimate

• Problems handled immediately when the claim is filed• Lost or mishandled claims virtually disappear• Less people involved in the process ⇒ lower op. costs• Long term relationships with glass vendors

⇒ Savings of 30-40% on paid claims due to special discounts⇒ Consolidated monthly payments ⇒ lower handling costs⇒ More consistent and reliable service

• Claims representative feels ownership of the process

© Laguna & Marklund

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How to do BPM?

• Process identification

• Process modelling (as-is)• Process analysis• Process re-design (to-be)• Process implementation• Process execution• Process monitoring/controlling

Process Modeling Tools

Process Management Systems

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Simple Process Model in BPMN

Start End

Check for completeness Perform checks Make decision

Deliver card

Receive review request

Request infoReceive info

Notify acceptance

Notify rejection Time out

complete? Decide

review request

Yes

No

reject

reviiew

accept

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Business Process Analysis Techniques

• Qualitative analysis– Scenario analysis– Cause-Effect-Analysis– Issue Register

• Quantitative Analysis– Cycle Time Analysis– Capacity Analysis– Queuing Theory

– Process Simulation

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Business Process Simulation

Start End

Check for completeness Perform checks Make decision

Deliver card

Receive review request

Request infoReceive info

Notify acceptance

Notify rejection Time out

complete? Decide

review request

Yes

No

reject

reviiew

accept

10 applications per hour (one at a time)Poisson arrival process (negative exponential)

0.5

0.7

0.3

0.5

Alternative: instead of branching probabilities one can assign “conditional expressions” to the branches based on input data

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Simulation output: KPIsResource Utilization

18.82%

50.34%

5.04%

0.00%

10.00%

20.00%

30.00%

40.00%

50.00%

60.00%

70.00%

80.00%

90.00%

100.00%

Clerk Manager System

Resource Cost

$ 898.45

$ 4,260.95

$ 285.00

0.00

500.00

1,000.00

1,500.00

2,000.00

2,500.00

3,000.00

3,500.00

4,000.00

4,500.00

Clerk Manager System

Cycle Time - Histogram

0

2

4

6

8

10

12

0 10 20 30 40 50 60

Days

# P

I's

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Costs

Quality

Time

Flexibility

Trade-off

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• Sometimes tasks may be skipped: trade-off between the cost of the task and the cost of not doing it.

(T+,Q-,C+/-)

Example of Re-Design Technique – Check the necessity of each task

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And then technology Kicks in..

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Process Execution Engines

• BPMN-based: Savvion, Lombardi, BizAgi, …

• BPEL-based– Oracle SOA Suite

– ActiveBPEL

– IBM Websphere Process Engine

• Microsoft: BizTalk, Windows Workflow Foundation

• YAWL (http://www.yawlfoundation.org)

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Summary: The Value of BPM

• BPM combines organisational methods with technology in order to improve the way businesses work

• BPM is a valuable approach when considering cross-functional chains of activities

– Challenging coordination issues– Process inefficiencies often related to handing off work from

one station or person to another – delays and errors

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References and acknowledgments

• Some slides are companion slides of Laguna & Marklund’s book “Business Process Modeling Simulation and Design”

• Reading:– M Hammer: Reengineering Work: Don't Automate,

Obliterate. Harvard Business Review, 1990.

• Other resources listed at: http://courses.cs.ut.ee/2009/bpm