1 BIS 3106: Business Process Management (BPM) Lecture Eight: Quantitative Process Analysis (1) Makerere University School of Computing and Informatics Technology Department of Computer Science SEM I 2015/2016

2 Business Process Analysis

3 Introduction Introduces a range of techniques for analyzing business processes quantitatively. Focus on three techniques: flow analysis, queuing analysis and simulation. Can use these techniques to calculate performance measures of a process given data about the performance of individual activities and resources in the process

4 Process Analysis Techniques Quantitative Analysis Quantitative Flow Analysis Queuing Theory Process Simulation

5 Introduction Any company would ideally like to make its processes faster, cheaper, and better. Identify three process performance dimensions: time, cost and quality. Have fourth dimension - the issue of change. A process might perform extremely well under normal circumstances, but then perform poorly in other circumstances which are perhaps equally or more important.

6 Process Performance Measures Cost per execution Resource utilization Waste Cost Cycle time Waiting time / time spent in non-value- added tasks Time Error rates (negative outcomes, wrong info) Missed promise Quality

7 Process Performance Measures: Cost Important measure for the analysis and redesign of business processes. Process redesign is more often associated with reducing cost. Different perspectives exist on cost. Fixed costs are overhead costs which are not affected by the intensity of processing. E.g., Costs associated with use of infrastructure and the maintenance of information systems. Variable cost is positively correlated with some variable quantity, e.g., level of sales, No. of purchased goods, etc. Operational costs can be directly related to the outputs of a business process.

8 Process Performance Measures: Cost Under operational cost have labor cost - cost related to human resources in producing a good or delivering a service. In process redesign efforts it is common to focus on reducing operation cost - labor cost. How would labor costs be reduced? Automation of tasks is often seen as an alternative for labor. Although automation may reduce labor cost, it may cause incidental cost involved with developing the respective application and fixed maintenance cost for the life time of the application.

9 Process Performance Measures: Quality Quality of a business process can be viewed from two different angles: client's side - external quality process participant's side - internal quality Measure external quality as the client's satisfaction with either the product or the process. Satisfaction with the product is expressed as the extent to which a client feels that the specifications or expectations are met by the delivered product. Satisfaction with the process concerns the way how process is executed.

10 Process Performance Measures: Quality Internal quality of a business process related to the process participants' viewpoint. Quality concerns are: the level that a process participants feels in control of the work performed, the level of variation experienced etc. There are direct relations between quality and other dimensions. E.g., External process quality is often measured in terms of time, e.g., the average cycle time or the percentage of cases where deadlines are missed.

11 Process Performance Measures: Time Common performance measure for processes is cycle time (also called throughput time). Cycle time is the time that it takes to handle one case from time it starts up to when it ends. Other aspects of the time dimension come into view when we consider the constituents of cycle time

12 Process Performance Measures: Time Processing time (also called service time): the time that resources (e.g. process participants or software applications invoked by the process) spend on actually handling the case. Waiting time: the time that a case spends in idle mode. Waiting time includes queuing time - waiting time due to the fact that no resources available to handle the case - and other waiting time E.g. because synchronization must take place with another process or because input is expected from a customer or from another external actor.

13 Let’s start with time

14 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)

15 Sequential Process Start with an example of a purely sequential process. Cycle time of each activity is indicated between brackets. The average cycle time is the sum of the average activity times. Two activities in this process are performed one after the cycle time of this process is: = 30.

16 Alternative Paths When a process model contains gateways the cycle time is no longer the sum of the activity cycle times. Consider the example of a process model with XOR- block.

17 Alternative Paths Cycle time of the process is not 40 (the sum of the activity cycle times). In a given instance of this process, either activity B or activity C is performed. If B is performed, the cycle time is 30, while if C is performed, the cycle time is 20.

18 Alternative Paths To calculate the cycle times, consider frequency of the paths taken in an XOR split. If the lower branch has a frequency of 10% and the upper branch has a frequency of 90%, the cycle time of the fragment between the XOR-split and the XOR-join is: (0.1 * *20) = 19 Total cycle time for the process model is: = 29

19 CT = p 1 T 1 +p 2 T 2 +…+p n T n = Alternative Paths

20 Alternative Paths Use the term branching probability to denote the frequency with which a given branch of a decision gateway is taken. p1, p2, etc. are the branching probabilities. Each “cloud” represents a fragment that has a single entry flow and a single exit flow. The cycle times of these nested fragments are T1, T2, etc. This type of fragment is called a XOR-block

21 Parallel Paths Consider the example of a process model with XOR- block. Can observe that the cycle time of this process cannot be 40 (the sum of the activity cycle times). Since tasks B and C are executed in parallel, their combined cycle time is determined by the slowest of the two activities, that is, by B.

22 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. Cycle time of the process is: = 30

23 Parallel Paths Generally, the cycle time of an AND-block is: CT parallel = Max{T 1, T 2,…, T M }

24 Rework Many processes include control or inspection points where if the job does not meet certain standard, it is sent back for rework

25 Rework Parameter r is called the rework probability: probability that the fragment inside the cycle will need to be reworked. Type of block will be called a rework block, or more generally a repetition block CT = T/(1-r)

26 Rework More generally, the cycle time of the fragment with the structure: CT for repetition block = 20/(1-0.2) = 25 CT for process fragment = = 35

27 Rework At Most Once – Example What is the average cycle time of this process fragment?

28 Exercise: Calculate Cycle Time Assume that in 20% of the cases, the application is incomplete and in 60% of cases the credit is granted.

29 Flow Analysis The previous technique for cycle time analysis is only one example of what can be done using flow analysis techniques. Other applications: Calculating cost-per-process-instance Calculating error rates at the process level Estimating capacity requirements

30 Cycle Time and Work-in-Progress Cycle time is directly related to two measures that play an important role when analyzing a process Arrival rate Work-In-Process (WIP) Arrival rate of a process is the average number of new instances of the process that are created per time unit.

31 Cycle Time and Work-in-Progress For example, in a credit application process, the arrival rate is the number of credit applications received per day (or per month). Similarly, in an order-to-cash process, the arrival rate is the average number of new orders that arrive per day. Arrival rate is shown with the symbol λ.

32 Cycle Time and Work-in-Progress WIP is the average number of instances of a process that are active at a given point in time. OR: Average number of instances that have not yet completed. For example, in a credit application process, the WIP is the average number of credit applications that have been submitted and not yet granted or rejected. Similarly, in an order-to-cash process, the WIP is the average number of orders that have been received but not yet delivered and paid.

33 Cycle Time and Work-in-Progress Cycle time (CT), arrival rate (λ) and WIP are related by a fundamental law known as Little’s law, which states that: WIP = λ * CT This means that WIP increases if the cycle time increases or if the arrival rate increases. If the process slows down - meaning that its cycle time increases - there will be more instances of the process active concurrently.

34 Cycle Time and Work-in-Progress The faster new instances are created, the higher will be the number of instances in an active state. If the arrival rate increases and we want to keep the WIP at current levels, the cycle time must decrease.

35 Cycle Time and Work-in-Progress How can we calculate arrival rate? Consider the credit application process, the arrival rate can be calculated if we know the total number of applications processed over a period of time. For example, if we assume there are 250 business days per year and we know the total number of credit applications over the last year is 2500, we can infer that the average number of applications per business day is 10.

36 Cycle Time and Work-in-Progress How can we calculate WIP? WIP can be calculated by means of sampling. Ask how many applications are active at a given point in time, then ask this question again one week later and again two weeks later. Let us assume that on average we observe that 200 applications are active concurrently. The cycle time is then WIP/λ = 200/10 = 20 business days.

37 Cycle Time and WIP: Exercise KFC receives on average 1200 customers per day (between 11:00am and 11:00pm). During peak times (12:00pm-15:00pm and 6:00pm-9:00pm), the restaurant receives around 900 customers in total, and 90 customers can be found in the restaurant (on average) at a given point in time. At non-peak times, the restaurant receives 300 customers in total, and 30 customers can be found in the restaurant (on average) at a given point in time.

38 Exercise (cont.) 1. What is the average time that a customer spends in the restaurant during peak times? 2. What is the average time that a customer spends in the restaurant during non-peak times? 3. The restaurant plans to launch a marketing campaign to attract more customers. However, the restaurant’s capacity is limited and becomes too full during peak times. What can the restaurant do to address this issue without investing in extending its building?

39 Exercise Based on Little’s law tells us that: CT = WIP/λ At peak time, there are 900 customers distributed across 6 hours: 1. Mean arrival rate λ=150 customers per hour. 2. WIP = 90 during peak time. 3. CT = 90/ 150 = 0.6 hours (i.e. 36 minutes). During non-peak time, 1. λ = 300/ 6 = 50 customer per hour 2. WIP = CT = 30/ 50 = 0. 6 hours (again 36 minutes).

40 Exercise If the number of customers per hour during peak times is expected to go up but the WIP has to remain constant, we need to reduce the cycle time per customer. This may be achieved by shortening the serving time, the interval between the moment a customer enters the restaurant and the moment they place an order, or the time it takes for the customer to pay. In other words, the process for order taking and payment may need to be redesigned.

41 Limitations of Flow Analysis The previous technique for cycle time analysis is only one example of what can be done using flow analysis techniques. Other applications: Calculating cost-per-process-instance Calculating error rates at the process level Estimating capacity requirements

42 Limitation 1: Not all Models are Structured

43 Limitation 2: Fixed load + fixed resource capacity Flow analysis does not take into account the fact that a process behaves differently depending on the load Or depending on the amount of instances of the process that are running concurrently. E.g., Cycle time of a process for handling insurance claims would be much slower if the insurance company is handling thousands of claims at once Verses the case where the load is low and the insurance company is only handling a hundred claims at once. When the load goes up and the number of resources (e.g. claim handlers) remains relatively constant, it is clear that the waiting times are going to be longer.

44 Limitation 2: Fixed load + fixed resource capacity Resource contention occurs when there is more work to be done than resources available to perform the work. In such scenarios, some tasks will be in waiting mode until one of the necessary resources are freed up. Flow analysis does not take into account the effects of increased resource contention. Instead, the estimates obtained from flow analysis are only applicable if the level of resource contention remains relatively stable over the long-run.