Modeling and Simulation of Business Dr. Rami Gharaibeh 1

Understanding Reality PREFACE 2

Understanding Reality Road map PREFACE 3

Your map is a model. It is a simple representation of the complex reality of the city. It omits the smaller roads, the sidewalks and bike paths, the streams and electrical lines, the houses and shopping malls, the gas stations and office towers. It has just the few things you need to find your destination: the highways and major streets. This model is built for a purpose: to find a destination while driving 4

Understanding Reality PREFACE 5

Understanding Reality PREFACE 6

Understanding Reality wrong understanding of reality leads to wrong expectations PREFACE 7

Understanding Reality PREFACE 8

What is a business model? A business model is a simple representation of the complex reality of a particular organization. Business models are useful for understanding how a business is organized, who interacts with whom, what goals and strategies are being pursued, what work the business performs, and how it performs that work. PREFACE 9

Business Modeling We need to learn how to create a business model that represents the reality of a business. PREFACE 10

Business Modeling Vs. Software Modeling A software model is a model of software applications and databases and other information technology artifacts. PREFACE 11

Business Modeling Vs. Software Modeling A business model is a model of a business, a model of what people do and how they interact. Dr. Rami Gharaibeh PREFACE 12

Business Modeling Vs. Software Modeling in both cases we are modeling the actions and interactions among several elements. Different elements Different techniques Different tools Dr. Rami Gharaibeh PREFACE 13

Business Modeling Creating a good business model is a complex skill, and like any complex skill, it requires time, knowledge, practice, and patience to learn. Dr. Rami Gharaibeh PREFACE 14

Modeling Disciplines Four distinct business modeling disciplines Business process models Business motivation models Business organization models Business rule models Dr. Rami Gharaibeh PREFACE 15

Modeling Disciplines Business process models capture how a business performs its work, the step-by-step activities that are performed. Dr. Rami Gharaibeh PREFACE 16

Modeling Disciplines Business motivation models Capture the goals and strategies of a business. what a business is attempting to do and how those attempts fit into its changing environment. Dr. Rami Gharaibeh PREFACE 17

Modeling Disciplines Business organization models capture who performs the work in an organization and who they interact with, both inside the organization and outside. Dr. Rami Gharaibeh PREFACE 18

Modeling Disciplines business rule models capture the constraints on a business the external constraints from regulations and laws, and the internal constraints from policies, rules, and other guidance. Dr. Rami Gharaibeh PREFACE 19

Integrating the four disciplines To be more effective, business modelers need to understand all four disciplines. They need to create models that include multiple disciplines. Dr. Rami Gharaibeh PREFACE 20

Integrating the four disciplines A business process is useful, but it is more useful when accompanied by details about the goals of the business, the organizations that participate in the process, and the rules and policies that guide the process. Dr. Rami Gharaibeh PREFACE 21

Integrating the four disciplines The four disciplines represent four dimensions that should be reflected in the model: What is the process, how does it serve my goals, who should do what, what rules govern the people while implementing the process Dr. Rami Gharaibeh PREFACE 22

Integrating the four disciplines example any hospital includes the business process of emergency admission. To completely model this business process the BPM will model all activities: taking patient information Patient examination Patient referral to labs and ray Ray imaging Ray image reporting Dr. Rami Gharaibeh PREFACE 23

Integrating the four disciplines example any hospital includes the business process of emergency admission. To completely model this business process the BMM will show the link with the hospital goals : taking patient information Patient examination Patient referral to labs and ray Ray imaging Ray image reporting Dr. Rami Gharaibeh PREFACE 24

Integrating the four disciplines example any hospital includes the business process of emergency admission. To completely model this business process the BOM will link each activity with the department that should perform it : taking patient information (emergency nurse) Patient examination (emergency physician) Patient referral to labs and ray (emergency physician) Ray imaging (ray imaging technician) Ray image reporting (ray image physician) Dr. Rami Gharaibeh PREFACE 25

Integrating the four disciplines example any hospital includes the business process of emergency admission. To completely model this business process the BRM will show the laws, policies, procedures and rules in performing each activity: taking patient information (privacy rules) Patient examination (clinical procedures) Patient referral to labs and ray tests (referral procedures) Ray imaging (safety policies) Ray image reporting (privacy + timing policies) Dr. Rami Gharaibeh PREFACE 26

Modeling standards Standards are important in business modeling. A model created by one group of people should be understandable by others. Others should be able to update the model when business circumstances change. Models created in one modeling tool should be readable and changeable by other tools. Dr. Rami Gharaibeh PREFACE 27

CHAPTER ONE WHY BUSINESS MODELING Dr. Rami Gharaibeh 28

Answer two questions what is a business model? why create one? CHAPTER ONE Dr. Rami Gharaibeh 29

what is a business model? A business model is a simple representation of the complex reality of a business. Dr. Rami Gharaibeh CHAPTER ONE 30

ALERT By business model we do not mean “ how the company makes money ”. we mean a model that describes the details of a business: its goals, organizations, business processes, or business rules. Dr. Rami Gharaibeh CHAPTER ONE 31

what is a business model? example Any city has a complex reality that includes locations of places, thousands of roads, thousands of pipe routes, thousands of cable routes, etc. Dr. Rami Gharaibeh CHAPTER ONE 32

what is a business model? example to be able to deal with the complexity of a city, we make maps. Maps of roads and locations. Maps for electrical cable. Maps for water pipes, etc. Each of these maps is considered a model. The model will help us make good decisions on how to go to places, or where to dig to find the electrical cable or water pipe. Dr. Rami Gharaibeh CHAPTER ONE 33

what is a business model? Businesses have complex reality. To be able to manage this reality and solve business problems, we need to create business models. Dr. Rami Gharaibeh CHAPTER ONE 34

The rise of business modeling Businesspeople are increasingly using models to communicate. Over the last fifteen years, increasing numbers of people have built business models: models of the business processes of their organization, the goals and strategies, or the policies and rules. Dr. Rami Gharaibeh CHAPTER ONE 35

The rise of business modeling What ’ s driving the growth of business modeling? 1 IT organizations are using business models to align IT initiatives with business needs. Dr. Rami Gharaibeh CHAPTER ONE 36

The rise of business modeling What ’ s driving the growth of business modeling? 2 Models help with the implementation of change. If nothing changes, you don ’ t need models, just as you don ’ t need a street map if you never travel anywhere. Dr. Rami Gharaibeh CHAPTER ONE 37

The rise of business modeling What ’ s driving the growth of business modeling? 3 the need to manage increasing complexity. Complexity is the key problem in business today. Decisions are harder now because there is more to consider. Dr. Rami Gharaibeh CHAPTER ONE 38

The rise of business modeling What ’ s driving the growth of business modeling? 3 Businesses have become more complex. Twenty years ago, businesses were easier to understand. There were fewer business processes, fewer products and services, less data stored in databases, fewer business partners, and fewer lines of business. Dr. Rami Gharaibeh CHAPTER ONE 39

Business value of business models Dr. Rami Gharaibeh CHAPTER ONE Communication between people Training and learning Persuasion and selling Analysis of a business situation Compliance management Development of software requirements Knowledge management and reuse 40

Business value of business models Dr. Rami Gharaibeh CHAPTER ONE Communication between people Business is a communication-intensive activity. Business people give presentations about company performance. Business people talk to their clients and their suppliers about new products and services. Business colleagues talk to each other about the changing competitive environment. Much of business is communication. Business models are better for conveying complex business information. 41

Business value of business models Dr. Rami Gharaibeh CHAPTER ONE Training and learning People learn in two ways. They learn from their own experience, via trial and error, and they learn from other people ’ s experiences, via conversations, books, or classroom material. Learning from other people ’ s experiences is of course cheaper, faster, and less risky. We allow others to make mistakes instead of making our own. Business models are one way of learning from other people ’ s experience. First, a model is built of the expert ’ s knowledge of the business rules or the business process. Then many novices can study the model to learn what the expert knows. 42

Business value of business models Dr. Rami Gharaibeh CHAPTER ONE Persuasion and selling In business, persuasion is ubiquitous. When we sell a customer on a product, we are persuading. When we pitch a new initiative to our management, we are persuading. When we convince employees to embrace a business process change, we are persuading. Persuasion is communication, of course, but it is communication in service of a goal: convincing someone to take action favorable to us, to our organization, or to themselves. Business models are useful for persuasion. 43

Business value of business models Dr. Rami Gharaibeh CHAPTER ONE Analysis insight is power. Analyzing a business model is particularly useful when you have a decision to make. The different alternative scenarios can be modeled and the models then analyzed and compared. For example, you may compare different business process scenarios to see which is the lowest cost. That low-cost scenario can be compared to today ’ s business process so that you can understand what activities need to change, what new activities need to be performed, what activities should be automated, and what skills you will need to learn. 44

Business value of business models Dr. Rami Gharaibeh CHAPTER ONE Compliance management Businesses must comply with law, government regulations, and other guidance. They must comply with terms of contractual agreements with their lenders, suppliers, and customers. Corporate employees must comply with corporate policies. Compliance often impacts financial results. Sometimes the impact is larger than money; noncompliance can lead to jail. A business needs to design processes to ensure compliance. And when regulations change, it needs to understand the impact of the new regulations on its business. 45

Business value of business models Dr. Rami Gharaibeh CHAPTER ONE Requirements for software development Requirements provide a description of what a proposed software application should do. Without detailed requirements, application development projects fail. Business models capture this detail in a way that is understandable to both the business users and the software developers. Business users do not need to understand how the system will be created; they need to understand how it will support their need. Business models are a better form of requirements for end users. 46

Business value of business models Dr. Rami Gharaibeh CHAPTER ONE Knowledge management Knowledge management is the practice of systematically capturing knowledge from some people in an organization so that the knowledge can be used by others elsewhere in the organization. But knowledge management practices today capture only half the relevant knowledge. Typical knowledge management practices capture the explicit knowledge found in existing documents but not the tacit knowledge found in people ’ s heads. Tacit knowledge includes what people do and how they do it. Tacit knowledge includes when each document is used and why. 47

CASE STUDY Dr. Rami Gharaibeh CHAPTER ONE an implementation of an ERP system 48