Graduate Program in Business Information Systems BIS 581 Business Process Management Lecture - 6 Aslı Sencer Department of Management Information Systems

Business Process Management– 6 Framework for BPI

10 Steps for BPI (based on Page, 2010) Develop the process inventory Establish the foundation Draw the process map Estimate time and cost Validate the process map Apply improvement techniques Create internal controls, tools and metrics Test and rework Implement the change Drive continuous improvement

Step 1: Develop the process inventory The process inventory lists the entire compliment of business processes to identify the most critical process to start the BPI. Identify the business processes Create prioritization criteria, i.e., KPI’s Evaluate each process with respect to theses criteria Create the process prioritization table to identify the most critical process.

Step 2: Establish the Foundation Process identification form guides you through the exercise of establishing the foundation for a business process. The foundation helps to avoid scope creep, veering away from the original purpose of the work without an increase in time, resources or money. Ex: Continual addition of new functionalities during the design and development of a new software increases the time and resources required to develop the product, thereby increases the costs and time to market the product.

Step 3: Draw the Process Map Draw a detailed level process map if the process If the process is often used by many people Experience high turnover among process workers Is a subprocess of another business process Draw a high level process map if the process Is undefined and little shared understanding exists in the organization of the end-to-end business process Is a complex process Is a highly variable process Has many subprocesses

Step 4: Estimate Time and Cost Time components: Process time: is the time to complete a single activity. Cycle time: is the time required to complete an entire process, from its first to its last step, i.e., elapsed time. It includes all interruptions that are not directly related with the process itself, like an incoming phone call, an unexpected visitor, a boss request, etc. Cost components: The cost of people who do work The cost of technology tools used in the process The cost of overhead such as physical office space, utilities, supplies, taxes, insurenca and computer equipment.

Step 4: (cont’d.) Process and Cycle Times Activity Number Description Process Time (min./award) Cycle Time (hrs./award) 1 Complete recognition bonus award form and mail to next level manager 20 2 Approve and reject request 7.5 40 3 Review eligibility, justification and award amount 25 32 4 OK to Proceed? - N/A 5 Send authorization to payroll 6 Notify requesting manager 7 Communicate award to employee 8 Update employee system of record and retain hardcopy 11 Total minutes/award 78.5 92

Step 4: (cont’d.) People Costs List the process activities and times Calculate the required annual workload Annual workload (manhour/year) =Annual volume (completed tasks/year) x Process time (manhr/completed task) =1,500 awards/year x 46 min/award=69,000 min/year=1,150 hrs/year Calculate the available Annual workinghours per employee Annual hours 2,080 (= 40 hrs/wk x 52 wk/year) Less 2 weeks vacation 80 Less 1 week sick 40 Less 10 days paid holidays 80 Total 1,880 hrs/year Calculate Full time equivalent, FTE (# workers) FTE =Annual workload / Annual workinghours per worker =1,150/1,880=0,611

Step 4: (cont’d.) People Costs Determine Labor-Only Employee cost ($/year) Annual labor-only employee cost=Annual salary per employee x FTE =50,000 x 0,611 = $30,550 Determine Additional Employee Benefits Additional employee benefits = benefit percentage x annual labor-only employee cost = 30% x 30,550 = $9,165 Determine Total Annual employee cost dedicated to the business process Annual Employee Cost = annual labor-only employee cost + Additional employee benefits =30,550 + 9,165 = $39,715

Step 4: (cont’d.) Tools Costs: Tools cost of the process= Total tools cost x FTE = $425 x 0.611 = $260 tool cost dedicated to business process Activity Number Description Tools Used Annual Tool License Cost Dedicated to the Process ($) 1 Complete recognition bonus award form and mail to next level manager   2 Approve and reject request 3 Review eligibility, justification and award amount 4 OK to Proceed? 5 Send authorization to payroll 6 Notify requesting manager Outlook 75x0.611=46 7 Communicate award to employee 8 Update employee system of record and retain hardcopy System of Record 350x0.611=214 Totals 425x0.611=260

Step 4: (cont’d.) Overhead costs Companies generally use standard overhead rate such as 110% of the annual employee labor cost. Then Overhead Cost = Annual employee cost + Overhead rate x Annual employee labor cost = 39,715 + 1,10 x 39,715 = $83,402 Putting it all together Labor Cost: $39,715 Tools Cost: $260 Overhead Cost: $83,402 TOTAL: $123,377

Step 4: (cont’d.) Alternative Cuts of the Data Cost for a single bonus award in compensation department, Consider only the activities that take place in compensation department Divide all costs by annual award size=1,500 Description Time Estimate Cost Estimate Process Time (min.) Cycle Time (min.) Labor ($) Tools ($) Overhead ($) Total ($) 1 Complete recognition bonus award form and mail to next level manager - 2 Approve and reject request 3 Review eligibility, justification and award amount 25 4 14.4   30.25 44.65 OK to Proceed? 5 Send authorization to payroll 0.3 2.88 6.05 8.93 6 Notify requesting manager 0.125 0.03 8.94 7 Communicate award to employee 8 Update employee system of record and retain hardcopy 11 6.34 0.14 13.31 19.69 Totals/award 46 10.3 26.49 0.17 55.56 82.22

Step 5: Validate the Process Map Validation is to check whether the generated model of the current system is a correct representation of the real system. If a simulation environment exists, the generated model is run with the real system inputs. The model for the current system is validated if the model outputs and the real system outputs are not significantly different. Moreover, after the process map is completed, it should be reviewed with interested parties to confirm that it accurately reflects the existing process. Process workers Stakeholders Sponsor

Step 6: Apply Improvement Techniques Bureaucracy Automation Value added Business Process Internal customer External customer Cycle time Dublication Simplification

Step 7: Create Internal Controls, Tools and Metrics Internal controls help prevent errors Tools help employees perform their job more easily Metrics show whether the process works as planned

Step 8: Test and Rework Before introducing the improved process to the organization, test it and work out any bugs before communicating the change on a wide scale. Testing the business process helps to determine how well the business process will perform in the organization so that you meet your goals, minimize errors, increase productivity, etc. Testing helps to identify the bottlenecks and provides the chance to fix or rework the problems, ensuring the implementation works as smoothly as possible.

Step 8: Test and Rework (cont’d.) Consider the following: Whom do you involve in the testing? What do you have to test? Where should the testing occur? When should the testing occur? How will the testing happen? 5 Steps in Testing the Business Processes: Create Test Plan Develop Test Scenarios Implement Test Plan Summarize Feedback/ Rework Retest

Step 9: Implement the Change The 10 step BPI framework can be grouped under three headings: Design: Identifies the work involved in defining and improving the business processes Development: Creating the tools required to make the improved business process work until the testing step. Implementation: Change management Testing Communication Training

Step 10: Derive Continuous Improvement Evaluate Execute Test Assess Evaluate: Determine the opportunities Test: Make the Change and try it out on a limited basis Assess: Determine whether the change has worked well Execute: Deploy the change on a wide scale

Group Exercise 3: Process Improvement Consider the registration process that you have modelled. Think about the reasons that give way to process improvement. Give an example problem for each of these reasons. Propose an improvement for each of these problems by identifying the improvement technique that you use. Apply step 1 of Page’s framework to decide upon the improvement proposal to start from.