Marlon Dumas marlon.dumas ät ut . ee MTAT.03.231 Business Process Management (BPM) (MBA version) Lecture 1: Introduction Marlon Dumas marlon.dumas ät ut . ee

Structure of the Course Contact sessions 07.02 – Introduction to BPM and BPMN 10.03 – Process Analysis & Improvement 11.04 – Process Monitoring & Mining 17.05 – Project Presentations 17.06 – Exam Assessment Two homeworks worth 10 points each Project – 30 points Exam – 50 points

Readings and Resources Textbook Dumas & La Rosa. Fundamentals of Business Process Management, Springer 2013 Other readings & resources listed in the course pages: http://courses.cs.ut.ee/2013/bpm For communication, we will use this message board: http://www.quicktopic.com/50/H/RACpfMwnxRR

Agenda for Today Time Contents 9.00-10.30 Introduction to BPM 10.30-10.45 Break 10.45-12.15 The BPM Lifecycle 12.15-13.15 Lunch Break 13.15-14.45 Introduction to BPMN

Introduction to Business Process Management Part I Introduction to Business Process Management

What is a Business Process? Collection of logically-related events, activities and decisions, that involve a number of actors and resources, and that collectively lead to an outcome that is of value to an organization or its customers. Examples: Order-to-Cash Procure-to-Pay Fault-to-Resolution (Issue-to-Resolution) Claim-to-Settlement Application-to-Approval Events correspond to things that happen ``atomically'', meaning that they have no duration. For example, the arrival of a plant to the depot is an event. This event may trigger the execution of series of activities. For example, when a plant arrives, the site engineer inspects the plant. This inspection is an activity, in the sense that it takes time. When an activity is rather simple and takes relatively little time, we call it a task. For example, if the inspection that the site engineer performs is quite simple -- e.g. just checking that the plant received corresponds to what was ordered -- we can say that the ``plant inspection'' is a task. If on the other hand the inspection of the plant requires many steps -- such as checking that the plant fulfills the specification included in the purchase order, checking that the plant is in working order, and checking the plant comes with all the required accessories and safety devices -- we will treat it as an ``activity''. The distinction between task and activity is not always clear-cut. This is why, very often people will use the term task and activity interchangeably. Order-to-cash: This is a process that starts when a customer places an order to purchase a product or a service, and ends when the product or service in question has been delivered and the corresponding payment has been received. An order-to-cash process encompasses activities such as purchase order verification, shipment (in the case of physical products), delivery, invoicing, payment receipt and acknowledgment. Quote-to-order: This process typically precedes the order-to-cash process. It starts from the point when a ``request for quote'' is received from a customer, to the point when the customer places a purchase order. The order-to-cash process takes the relay from that point on. The combination of a quote-to-order and the corresponding order-to-cash process is called a quote-to-cash process. Procure-to-pay: This is a process that starts when a stakeholder within an organization -- typically an employee -- determines that a given product or service needs to be purchased. It ends when the product or service has been delivered and paid for. A procure-to-pay process includes activities such as approving the purchase, obtaining quotes, selecting a supplier, issuing a purchase order, receiving the goods (or consuming the service), checking and paying the invoice. Procure-to-pay can be seen as the dual of quote-to-cash in the context of business-to-business interactions. For every procure-to-pay process there is a corresponding quote-to-cash process on the supplier's side. Issue-to-resolution. This is a process that starts when a customer raises a problem, such as a complaint related to a defect in a product or an issue encountered when consuming a service. The process continues until the customer, the supplier, or preferably both of them, agree that the issue has been resolved. A variant of this process can be found in insurance companies that have to deal with ``insurance claims''. This variant is often called claim-to-resolution.

“My washing machine won’t work!” fault-report-to-resolution process Warranty? Service Dispatch Technician Call Centre Customer Parts Store Customer Customer VALUE The execution of a process leads to one or several \emph{outcomes}. For example, the above process leads to a plant being used by BuildIT, as well as a payment being made to the plant's supplier. These outcomes deliver \emph{value} to the key actors involved in the process, which in this example are BuildIT and the supplier. In some cases, this value is not achieved or is only partially achieved. For example, when a plant is returned, no value is gained, neither by BuildIT nor by the supplier. This corresponds to a \emph{negative outcome}, as opposed to a \emph{positive outcome} that delivers value to the actors involved. fault-report-to-resolution process © Michael Rosemann

Processes and Outcomes Every process leads to one or several outcomes, positive or negative Fault-to-resolution process Fault repaired without technician intervention Fault repaired with minor technician intervention Fault repaired and fully covered by warranty Fault repaired and partly covered by warranty Fault repaired but not covered by warranty …

What is BPM? Body of methods to design, analyze, execute and monitor business operations involving humans, software, information and physical artifacts using process models. Business Process Management (BPM) is the art and science of overseeing how work is performed in an organization in view of ensuring consistent outcomes and identifying and taking advantage of improvement opportunities. In this context, the term ``improvement'' may take different meanings depending on the objectives of the organization. Typical examples of improvements include reducing costs, reducing execution times and reducing error rates. Importantly, BPM is not about improving the way individual activities are performed, but rather, it is about managing entire chains of events, activities and decisions that ultimately add value to the organization. Within the broad context of the above definition, BPM regroups a body of methods for managing business operations on the basis of process models. Process models represent the understanding that people in the organization have about how work is done or should be done. They act as the bridge between business operations and IT systems. They allow us to understand how IT systems contribute to adding value to the organization by streamlining its work practices.

Exercise Textbook, Chapter 1, exercise 1.1

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.”

Why BPM? Process Change Yields Information Technology Business Value Enables Yields Process Change Index Group (1982)

How to Engage in BPM? Two complementary BPM approaches: Continuous Process Improvement (CPI) Does not put into question the current process design, but rather seeks to identify issues and resolve them incrementally, one step at a time and one fix at a time Business Process Re-Engineering (BPR) Puts into question fundamental assumptions and principles of the existing process design Aims at achieving highly noticeable improvement, for example by removing costly tasks that do not directly add value

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 Hammer, M., (1990). "Reengineering Work: Don't Automate, Obliterate", Harvard Business Review, July/August, pp. 104–112.

Ford Case Study Automation would bring some improvement (20% improvement) But Ford decided not to do it… Why? Because at the time, the technology needed to automate the process was not yet available. Because nobody at Ford knew how to develop the technology needed to automate the process. Because there were not enough computers and computer-literate employees at Ford. None of the above

The correct answer is … Mazda’s Accounts Payable Department

How the process worked? (“as is”)

How the process worked? (“as is”)

How the process worked? (“as is”)

How the process worked? (“as is”)

How the process worked? (“as is”)

How the process worked? (“as is”)

Reengineering Process (“to be”)

Reengineering Process (“to be”)

Reengineering Process (“to be”)

Reengineering Process (“to be”)

Reengineering Process (“to be”)

Reengineering Process (“to be”)

The result… 75% reduction in head count Material control is simpler and financial information is more accurate Purchase requisition is faster Less overdue payments  Why automate something we don’t need to do?

Principles of BPR Have those who use the output of the process drive the process Capture information once and at the source Subsume information-processing work into the real work that produces the information Treat geographically dispersed resources as if they were centralized Regarding the first principle, it is worth citing examples of process improvement patterns such as Self-Service and Vendor-Managed Inventory Control. Regarding, the second principle, self-service is again a typical example, particularly the ability for customers or workers to enter data themselves that goes directly into the organization’s databases Regarding the third principle, we can refer back to the idea of performing PO matching at delivery, rather than postponing this till the invoice is received

Exercise – Claims Handling in a Large Insurance Company Claims handling for replacement of automobile glass 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

Overview of the existing claims process Client Local independent agent Approved glass vendor Claims processing center Request additional information Pay Notify agent File claim Give instructions Forward claim Request quote Provide quote © Laguna & Marklund

Existing claims process Client notifies local agent that she wishes to file a claim. She is given a claims form and told to obtain a cost estimate from a local glass vendor. When the claims form is completed the local agent verifies the information and forwards the claim to a regional processing center. 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. 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

Part II The BPM Lifecycle

How to engage in BPM? Process Identification & opportunity assessment Process modelling (as-is) Process analysis Process re-design (to-be) Process implementation Process monitoring/controlling Process Modeling Tools Process Management Systems

Process Identification, Prioritization and Opportunity Assessment Phase 1 Process Identification, Prioritization and Opportunity Assessment

Question Think about the company you are currently working for or a company you have worked for. What processes does this company have?

Process Architecture at a Harbor Authority

Process Architecture

Question Think about the company you are currently working for or a company you have worked for. What processes would be a good starting point for a Process Improvement project? What criteria would you apply to select the ``starting process’’?

Process Prioritization: Three Criteria (Hammer & Champy 1994) Dysfunction Which processes are in the deepest trouble? Importance Which processes have the greatest impact on the company's customer? Feasibility Which process is the most susceptible to successful redesign  In any case, we have to measure…

Process Measures Link the identified processes to measurable objectives Quantify the benefits of improvement Profit maximizing firms Non-profit organizations Overarching goal is usually to maximize long term shareholder value A common goal is survival and growth while satisfying customer needs Maximize revenues and minimize costs Must use resources efficiently while understanding customer needs Satisfying customer needs in an efficient way © Laguna & Marklund

Classification of process metrics Cost Cost per execution Resource utilization Waste Time Cycle time Waiting time / time spent in non-value-added tasks Quality Error rates (negative outcomes, wrong info) Missed promise

Case Study at Anonymous Utilities Provider Manage Unplanned Outages Manage Emergencies & Disasters Manage Work Programming & Resourcing Manage Procurement Customer Satisfaction 0.5 0.55 - 0.2 Customer Complaint 0.6 Customer Feedback 0.4 0.8 Connection Less Than Agreed Time 0.3 0.7 Process Key Performance This is just part of a broader “scorecard” that included other dimensions included in the following slide

Overall Process Performance Process: Manage Procurement 0.67 Process: Manage Emergencies & Disasters 0.58 Process: Manage Unplanned Outages Overall Process Performance 0.54 1st Layer Key Result Area Financial People Customer Excellence Operational Excellence Risk Management Health & Safety 0.5 0.4 0.65 0.5 0.8 0.4 2nd Layer Key Performance Customer Complaint Customer Satisfaction 0.6 0.7 3rd & 4th Layer Process Performance Measures Customer Rating (%) Customer Loyalty Index Average Time Spent on Plan 0.7 0.6 0.8 Satisfied Customer Index Market Share (%) 0.4 0.8

Exercise Textbook, chapter 1, exercise 1.3

Phase 2: Process Identification and “As Is” Modeling

Phase 3: Analysis Qualitative analysis Added-Value Analysis Root-cause analysis Issue Register Quantitative Analysis Cycle Time Analysis Capacity Analysis Queuing analysis Process Simulation

Phase 4: Re-design Strategy / Goals Capabilities As Is To-Be Issues Barriers Guidelines Capabilities IT Knowledge People Ability to change Culture To-Be Best Practice Reference Models Bench marking Ideal models Study tours

The Devil’s Rectangle Costs Time Flexibility Quality

Phases 5-6. Automation & Monitoring – When Technology Kicks in..

Introduction to Business Process Modeling Part II Introduction to Business Process Modeling

Purposes of Process Modeling Communication Documentation Analysis Automation Monitoring Compliance Checking

Business Process Modeling Notation (BPMN) OMG Standard, supported by many tools: Signavio (http://academic.signavio.com/) Bizagi Process Modeller (free download for Windows) ARIS IBM BPM Oracle BPA Business Process Visual Architect (Visual Paradigm) Savvion Business Modeller (Progress Software). For simple drawing, you can use: Visio + BPMN stencils

BPMN from 10 000 miles… A process model in BPMN is called a Business Process Diagram (BPD) A BPD is essentially a graph consisting of four types of elements (among others):

Example An Order Management process is triggered by the reception of a purchase order from a customer. The purchase order has to be checked against the stock re the availability of the product(s) requested. Depending on stock availability the purchase order may be confirmed or rejected. If the purchase order is confirmed, the goods requested are shipped and an invoice is sent to the customer.

Order Management Process in BPMN

A little bit more on gateways … Exclusive Decision / Merge Indicates locations within a business process where the sequence flow can take two or more alternative paths. Only one of the paths can be taken. Depicted by a diamond shape that may contain a marker that is shaped like an “X”. Parallel Fork / Join Provide a mechanism to synchronize parallel flow and to create parallel flow. Depicted by a diamond shape that must contain a marker that is shaped like a plus sign.

Revised Order Management Process It is worth emphasizing here that activities located in two parallel paths do not need to be performed simultaneously. For example, “Send invoice” and “Ship goods” need not occur both at the same time, although due to a cosmic coincidence, they could happen at the same time. Instead, it might happen that first the invoice is sent and later the goods are shipped. Or things may happen in the reverse order.

BPMN Exercise 1: Claims Notification process at a car insurer When a claim is received, it is first checked whether the claimant is insured by the organization. If not, the claimant is informed that the claim must be rejected. Otherwise, the severity of the claim is evaluated. Based on the outcome (simple or complex claims), relevant forms are sent to the claimant. Once the forms are returned, they are checked for completeness. If the forms provide all relevant details, the claim is registered in the Claims Management system, which ends the Claims Notification process. Otherwise, the claimant is informed to update the forms. Upon reception of the updated forms, they are checked again.

Naming conventions for processes and tasks Names should be 1-3 words long Begin with a verb followed by business object name and possibly an adjective (e.g. Issue Driver Licence, Renew Driver Licence via Offline Agencies) Avoid generic verbs such as Handle, Record… Avoid prepositions (to, from, for) Avoid naming business areas which are already named in a lane/pool

Verbs to avoid Update, Create, Read, Delete, Record, Download, Transmit: Too technical. Try Amend, change, generate, retrieve, remove, capture, register, forward Send: Could merely be a message flow from one business process to another. Process, Handle, Manage: Too generic, would not reflect the specific objective of the process. Try disseminate, distribute, etc. Input: Why do we have to input data? Maybe there is an opportunity for process optimisation here…

Process Modelling Viewpoints Who? Organization What? Function When? Process Which? Data / Service / Product

Organisational Elements in Process Models Two basic abstractions: Resource: Human actor or equipment (e.g. printer) that is required to perform an activity Resource class: Set of resources with similar characteristics, e.g. Clerk, Manager, Insurance Officer or belonging to the same team (e.g. accounts payable)

Resource Modelling in BPMN In BPMN, resource classes are captured using: Pools – independent organizational entities, e.g. Customer, Supplier East-Tallinn Hospital, Tartu Clinic Lanes – resource classes that operate in the same organizational space and share common systems Sales Department, Marketing Department Clerk, Manager, Engineer

Pools Pools represent business process participants. They are used to partition a set of activities. Can be a business entity or a business role. Sequence flows cannot cross the boundaries of a Pool. Interaction between Pools are captured through Message Flow (dashed lines with an arrow) A Pool will extend the entire length of the Diagram. Message flows are used to capture interactions between processes in different pools. Message Flow Depicted by a dashed line with an open arrowhead. Represent the flow of messages between two separate process participants that are prepared to send and receive them. A Message Flow can connect directly to the boundary of a Pool. Represents an informative message to that participant. A Message Flow can cross the boundaries and connect directly to a Flow Object within that Pool. Represents a message that triggers certain action.

Order Management Process with Pools The Order Management process now includes the customer as a process participant… The Order Management process is started when a customer places a purchase order. The purchase order has to be checked against the stock re the availability of the product(s). Depending on stock availability the purchase order may be confirmed or rejected. If the purchase order is confirmed, the goods requested are shipped and an invoice is sent to the customer. The customer makes then makes the payment. Note that pools can be left partially unspecified.

Lanes Lanes represent sub-partitions within a pool. They are used to organize and categorize activities. Horizontal vs. vertical Lanes are typically used for internal roles (e.g., Manager, Associate) or an internal department (e.g., shipping, finance). Lanes can also be used to represent automated information systems (e.g. an Enterprise System), although sometimes Pools are used for this purpose or sometimes such systems are only implicitly captured in the model.

Order Management Process with Lanes The process now includes two departments within the supplier organization…The purchase order received by the Sales & Distribution department has to be checked against the stock. The order details are sent to the Warehouse department that returns an availability notification. If the purchase order is confirmed, the Warehouse department collects the shipping details from the customer and ships the goods. The Sales & Distribution department sends an invoice to the customer who then makes the payment.

BPMN Exercise: Lanes, Pools Claims Handling process at a car insurer A customer submits a claim by sending in relevant documentation. The Customer Service department checks the documents for completeness and registers the claim. The Claims Handling department picks up the claim and first checks the insurance policy. Then, an assessment is performed. If the assessment is positive, a garage is phoned to authorise the repairs and the payment is scheduled (in this order). In any case (whether the outcome is positive or negative), an e-mail is sent to the customer to notify the outcome.

Adding Data – BPMN Artifacts Data Objects are a mechanism to show how data is required or produced by activities. Are depicted by a rectangle that has its upper-right corner folded over. Represent input and output of a process activity. Data stores are containers of data objects that need be persisted beyond the duration of a process instance Associations are used to link artifacts such as data objects and data stores with flow objects (e.g. activities). Data Store

Interlude: Annotations A picture is worth a thousand words But some words in a picture can be worth a thousand pictures Annotations are a mechanism for the modeller to provide additional text information to the diagram reader.

Order Processing Model with Artifacts The Purchase Order document serves as an input to the stock availability check. Based on the outcome of this check, the status of document is updated, either to “approved” or “rejected”. We include here the relevant documents in the process model.

BPMN Exercise 3: Artifacts When a claim related to a major car accident is evaluated, a clerk first retrieves the corresponding car accident report in the Police Reports database. If the report is retrieved, it is attached to the claim file. The claim file and the police report serve as input to a claims handler who calculates an initial claim estimate. Then, an “action plan” is created based on a “checklist”. Based on the action plan and the initial claims estimate, a claims manager negotiates a settlement with the customer. After this negotiation, the claims manager makes a final decision, updates the claim file to record this decision, and sends a letter to the claimant to inform him/her of the decision. Please depict all relevant documents in the model.

Sub-processes A task in a process can be decomposed into a “sub-process”. Use this feature to break down large models into smaller ones, making them easier to understand

Sub-processes: example

Value chain Good practice is that the top-level process should be simple (no gateways) and should show the main phases of the process Each phase then becomes a sub-process This is sometimes called a “value chain”

Showing the value chain with sub-processes

Recap: BPMN Main Elements Swimlanes Connections Flow Objects Artifacts Check the BPMN Poster: http://www.bpmb.de/index.php/BPMNPoster

Homework 1 (10 points) Chapter 1, exercise 1.6 Answer the questions in this exercise Plus write a BPMN model for this process (e.g. Signavio or Bizagi) To be completed individually or in groups of 2 Submit using the following form: https://courses.cs.ut.ee/2013/bpm/Main/MBAHomework1 Deadline: 4 March 2013