Marlon Dumas marlon.dumas ät ut . ee

Marlon Dumas marlon.dumas ät ut . ee
MTAT Business Process Management (BPM) (for Masters of ETM) Lecture 3: Process Implementation, Monitoring and Controlling Marlon Dumas marlon.dumas ät ut . ee

Agenda for Today Time Contents 10.00-11.30 Review of homework
Process Implementation Lunch break Process Monitoring and Mining Process Measurement and Controlling

Another View on Process Improvement

Business Process Lifecycle Management
Process identification Process modelling (as-is) Process analysis Process improvement (to-be) Process implementation Process execution Process monitoring/controlling In the following we will specify the process modelling task. Especially, we will understand the characteristics of a model, the difference between a meta and a reference model, and how the event-driven process chains (EPC) can be used to design process models. 4

Process Improvement - Object-oriented Approaches (1/2) -
Elimination of object types secondary objects (copies, reports) e.g. prebilling Elimination of objects statistical checks in goods receipt or invoice verification Substitution of objects credit vouchers instead of invoices (Hammer: Ford) (Evaluated Receipt Settlement) Digitalisation of objects document management, EDM-systems Microsoft‘s invoicing process Within the task “Process Improvement” alternative suggestions for the improvement of the analysed processed have to be generated and compared. The next five slides list different approaches to improve processes. The structure of these slides follows our process definition (do you remember?). Elimination of objects: - Prebilling means e.g. in the mail-order business that the invoice is at the same time a delivery note. By this, only one process is necessary. Substitution of objects: - see the FORD example invoice verification (LN 3) Digitalization of objects: - EDM: Engineering data management (used in the product development process) © Michael Rosemann

Process Improvement - Object-oriented Approaches (2/2) -
Harmonisation of objects Unitisation Logistical units (e.g. pallets) Separation of objects Differentiation of standard-cases and exceptions Increased time-/cost-homogenity Process oriented optimisation of objects Design for process Design of products meets needs of production, assembly, logistics and recycling Harmonization of Objects: - unitization means that object is used in most of the activities of a process (e.g. in the production and for the distribution) Separation of objects: - with an deep analysis of the characteristics of the objects of a process with lots of instances, often different object cluster can be identified. It is recommended to separate simple cases from complex, new cases and to relate appropriate staff members (don’t make too simple processes too expensive). Process-oriented optimization of objects: - The car producer Porsche reduced the order processing 50%. They did not change the activities, but the car itself. This is called “Design for Manufacturing”, “Design for Logistics” or “Design for Assembly” © Michael Rosemann

Process Improvement - Function-oriented Approaches (1/2) -
Elimination of functions Lean Management-approach Outsourcing Integration of functions (unification) Job Enlargement (horizontal compression) Process Owner Case manager / case worker Job Enrichment (empowerment) delegation of decisions Elimination of functions - ...is the typical approach for lean management (for more about Lean Management see e.g.: Integration of functions: - Case worker and empowerment are terms from Michael Hammer. © Michael Rosemann

Process Improvement - Function-oriented Approaches (2/2) -
Change process direction pull instead of push Kanban, Just-in-time Automation of functions Basic idea of IT-use Especially: Automation of control flow (workflow mgmt) Parallel routing of functions create ‚natural order‘ delinearize processes e.g. simultaneous/concurrent engineering Automation of functions: - EEP aim to automate the core functions of an enterprise and more and more also between enterprises (see “Supply Chain Management”). Besides the automation of the function, the automation of the connection between two functions improves the process performance significantly. The latter one is the focus of workflow management systems. Parallel routing of functions: - It is obvious, that two functions that take place at the same time are not so time-consuming like a sequence of the same two functions. Simultanoeus / Concurrent Engineering is an organisational approach in the product development process. Instead of analysing and improving a new product from different perspectives in a sequence of functions, the representatives from departments like marketing, production, sales, cost accounting, and quality management work together in a team. As a consequence, the entire process is faster and different opinions appear immediately. © Michael Rosemann

Process Improvement - Resource-oriented Approaches -
In general: extend the control sphere of a (human, technical) resource to its limits organisational: - case worker/process owner - reduced interfaces - delegation of responsibility IT: - integration of different media - reduced media changes (e.g. Enterprise System) - standardisation (e.g. Web services) Optimal synchronisation of demand and offer In addition to a pure process-oriented perspective, you find in this slide some recommendations from a resource-oriented perspective. The demand for and the capacity of resources should be balanced. Otherwise, bottlenecks (demand > available resources) or high costs per process object (available resources > demand) are the consequence. © Michael Rosemann

Process Improvement - Another Classification -
Resource Function/ Process Process Object Abandon / eliminate Downsizing Lean Management e.g. copies, reports Outsource/ off-shore/ self-service External service provider Business process outsourcing Modular sourcing Pull principle Management by exception Kanban reports Streamline Training Re-design of function Re-design of document Automate Increased use of IT Workflow management Digitalization Natural order Simultaneous engineering Multi-user access © Michael Rosemann

Process Improvement - Another Classification -
Resource Function/ Process Process Object Horizontal integration Job enlargement Workflow management Unitization Standardise Standardised roles (Global) Integration XML, ontologies Eliminate bottleneck OPT Smoothen demand Multi-user access Specialisation/ decentralisation Specialised roles Design alternative cases Design of variants Empowerment Job enrichment Integrated quality assurance Integration of delivery note and invoice Centralisation Shared service Process consolidation Elimination of variants © Michael Rosemann

Process Implementation

Harmon’s Process-centric Enterprise Architecture

Process Implementation
Organisational Change and Enablement User Participation User Training Change Planning and Management IT Implementation Custom Software Application In-house development Outsourced Packaged Enterprise System Workflow Management System (WfMS / BPMS)

User Participation/Involvement
Buy-in, not only commitment Select first processes carefully Involve users and sponsors Highlight business impact Provide short-term benefits and long-term objectives BPM must be in their self-interest Proof of concept Communicate (internal) success stories Identify and coach BPM champions Communication is different to consensus

Management of User Participation in Processes
Harmon 2004

IT Implementation – Packaged Enterprise Systems
Typically classified into: ERP: Enterprise Resource Planning, including Manufacturing, inventory control, procurement, financials, human resources SCM: Supply Chain Management, including Material acquisition (forecasting, planning), logistics/transportation Supplier relationship management CRM: Customer Relationship Management Marketing, lead management, sales These functions can come together, or acquired separately, e.g. E.g. Peoplesoft for HR (now Oracle), SAP for manufacturing and SCM, Oracle Apps for financials, Salesforce for CRM

What is an ERP System? Multi-module application that helps a company manage key parts of its business in an integrated fashion. Key features include: standardized environment with shared database independent of applications and integrated applications enables information flow across organizational boundaries to support common transactions and business processes intended to be customized for specific companies database configuration bolt-on software

On-Line Analytical Processing (Industry Specific Functions)
ERP System Data Warehouse Legacy Systems ERP System On-Line Analytical Processing (OLAP) Bolt-On Applications (Industry Specific Functions) Suppliers Customers Core Functions [On-Line Transaction Processing (OLTP)] Sales & Distribution Business Planning Shop Floor Control Logistics Operational Database Customers, Production, Vendor, Inventory, etc. © Sumit Lodhia

Risks Associated with ERP Implementation
Pace of implementation ‘Big Bang’--switch operations from legacy systems to ERP in a single event ‘Phased-In’--independent ERP units installed over time, assimilated, and integrated Opposition to change user reluctance and inertia need of upper management support Choosing the wrong ERP goodness of fit: no one ERP product is best for all industries scalability: system’s ability to grow

Risks Associated with ERP Implementation …
High cost and cost overruns training testing and integration database conversion Business rules conversion (cf. failed Queensland Health Payroll and Roster Implementation.) Disruptions to operations ERP implementations usually involve major process changes Need to align ERP-imposed processes with existing processes

Business Process Execution Engines
Big Vendors Oracle SOA Suite IBM Websphere Process Server MS BizTalk MS Windows Workflow Foundation SAP NetWeaver BPM Other closed-source Savvion BizAgi Metastorm BPM TIBCO ActiveMatrix BPM Commercial Open-Source Intalio ActiveBPEL jBPM Community Open-Source YAWL Enhydra Shark A lot of choice. In large commercial projects, the engines on the left column are an option, since upfront licensing costs can be absorbed either by a project, or more frequently, by multiple projects (BPM program). It is worth noting that Microsoft offers two options: BizTalk which has a large number of integration features (all sort of adapters and integration tools), and Windows Workflow Foundation, which is more geared towards smaller projects. In smaller projects/companies, the other closed-source engines are an option. These compete with open-source solutions, among which we can clearly distinguish between commercial open-source (companies making revenue out of consultancy, training and branding), and community open-source. In this course we well use YAWL for 3 reasons: Very easy and relatively lightweight installation (both on Windows and Mac), and small footprint – Cf. YAWL4Study Quite advanced resource management features, good for illustrating various ways of assigning tasks to actors Freely available, no restriction

Danske Bank: Customer Package Process
Juni 2003 August 2003 October 2003 December 2003 Marts 2007 Introduction of Customer packages. Word template to collect info © Steen Brahe, Danske Bank

Juni 2003 August 2003 October 2003 December 2003 Marts 2007 Backoffice group created Handles the creation process © Steen Brahe, 2007

Juni 2003 August 2003 October 2003 December 2003 Marts 2007 Case Transfer System Automatic validation and transfering © Steen Brahe, 2007

Juni 2003 August 2003 October 2003 December 2003 Marts 2007 Workflow enabled creation process v. 1 Automatic process control, 0% automated activities © Steen Brahe, 2007

Juni 2003 August 2003 October 2003 December 2003 Marts 2007 Workflow v. 6 80% automated activities © Steen Brahe, 2007

Danske Bank – System Architecture
Executable Business Process A1 A3 A2 A4 WSDL A1 WSDL A2 WSDL A3 WSDL A4 Service Bus / Container App1: COBOL App2: PL1 App3: Java App4: C# © Steen Brahe, 2007

Workflow Technology in a Nutshell
Animation by Wil van der Aalst, Vincent Almering and Herman Wijbenga

Worklist Work Item

The YAWL Workflow System
Persisted Data Event Log YAWL Engine Interfaces Process Designer Other Custom Services Org Data Event Logs Process Repository Resource Service Admin Users Applications © YAWL foundation

YAWL Notation YAWL BPMN

Demo: Designing a YAWL net

Resource Allocation in YAWL
Org DB resource 1 4 5 resource manager resource 2 3 YAWL engine completed work items 1 resource n allocated work items 2 YAWL nets

Path of a Work Item in YAWL

Default YAWL Worklist Handler

Process Monitoring & Controlling

Process Monitoring and Controlling
design Process execution (Re-) implemen- tiation Monitoring & Controlling Analysis Strengths/ weaknesses Process design Imple- mentation Process execution © Michael zur Muehlen

Types of Process Monitoring
Runtime Monitoring (Business Activity Monitoring) Viewing the load of the process Identifying problematic cases Identifying late cases (risk of missing deadlines), etc. Post-mortem Monitoring (aka Business Process Analytics) Performance KPIs: cycle times, resource utilization, error rates, … Identification of bottlenecks See for example: BizAgi BAM: Analytics: For a long time “monitoring” was only known has measuring the performance of hardware (e.g. response time). Organisational monitoring means the analysis of processes from an IT but also and especially from an organisational viewpoint. With an efficient process monitoring it should be possible to answer immediately to a customer request like “What is the current status of my order?” What is my beginning to end cycle-time, system response-time, or system queue-time for each business process? I want to improve my supply chain’s responsiveness to customer demands by reducing my “Order to Cash” cycle time by 10%. What specific business process areas and users do I need to improve and train to achieve this goal? What are the slowest business process areas? How do today’s averages compare to the last months average? Who are my slowest users for the transaction, “Create sales order”? How do their individual averages compare to our departments benchmark? Is my system secure? Which users executed the payroll process today? Based on these trends, Forrester and Gartner Group are both calling for a new kind of technology management at the process level: e-business process monitoring. The justification for this call is that in e-business environments, automatic interpretation and routing of online information about the status of business process execution will become routine, and messages automatically deriving from inside the company will seamlessly integrate with those from business partners. Established online brands are already starting to integrate external services. Take the example of Sony Corp., which recently announced a new credit card, mileage program, and online bank. For the online Sony customer, the lines separating the different business divisions of Sony and its partnering bank are no longer visible. Thus, IT service management for such complex services has to guarantee the continuity of business processes regardless of the business unit or service partner performing the action. Only better communication and information integration can achieve this goal.

Process Monitoring: Dashboards
Process Cycle Time of Order Processing Process Frequency of Order Processing Process Cycle Time of Order Processing split up to different Plants IDS (2003)

Beyond Monitoring – Process Mining
2) process model 3) organizational model 4) social network 1) basic performance metrics 5) performance characteristics 6) auditing/security If …then …

Process Mining Tools ARIS Process Performance Manager
Pallas Athena ReflectOne ProM (open-source)

Process Mining – The ProM Framework

Example: Event log (audit trail)
Case 21 Description Event User yyyy/mm/dd hh:mm Start 2006/02/05 15:00 Register order Processed To 2006/02/05 15:00 Register order Released By 2006/02/05 15:00 Prepare shipment Processed To 2006/02/05 15:00 (Re)send bill Processed To 2006/02/05 15:00 (Re)send bill Released By 2006/02/05 15:01 Receive payment Processed To 2006/02/05 15:01 Prepare shipment Released By 2006/02/05 15:01 Ship goods Processed To 2006/02/05 15:01 Ship goods Released By 2006/02/05 15:02 Receive payment Released By 2006/02/05 15:02 Archive order Processed To 2006/02/05 15:02 Archive order Released By 2006/02/05 15:02 Terminated /02/05 15:02 W.v.d.Aalst (2003)

Process discovery process discovery 1

Conformance testing 2

3 Log based auditing Is the “four-eyes” principle
between activity create PO and approve PO being respected? Are there cases where an invoice is paid for an unapproved PO? 3

ProM Demo

Process Controlling Collation and analysis of runtime data
Comparison of actual- and target data Active impact on current process execution as well as future process modeling (target) Goal: Improvement of an enterprise‘s adaptability to changes in the environment and in the enterprise itself In addition to process monitoring data are aggregated within the process controlling task. This is the prerequisite for elaborated data analysis and the first step towards a process-oriented executive information system (EIS).

Process Controlling Establish Control Points Objective:
Establish a system for controlling the process and providing feedback to the people involved Establish Control Points Control points are activities such as Inspection, verification, auditing, measuring, counting… Usually considered business value adding Without control points and a control system the only way of assessing process performance is customer feedback The process ends up in a reactive mode Poor quality is discovered too late Location of control points is determined by Criticality – impact on customer satisfaction Feasibility – physically and economically possible Laguna & Marklund

Process Controlling (cont.)
Develop and Implement Measurements Involves answering the questions What is to be measured and controlled (Ex. FedEx)? What is currently measured (available data)? Can a business case be made for a new measurement system? What is an adequate sampling method, sampling size & frequency? Measurements should be meaningful, accurate and timely Statistical and graphical tools needed to turn data into information. Five measurement categories: Measures of… Conformance (to given specifications) Response time (lead-time, cycle time) Service levels (degree of availability, service reliability) Repetition (frequency of recurring events such as rework) Cost (Quality, PAF, internal and external failure costs) Laguna & Marklund

Performance Measures in SCM
Overall Inventory Turns Annual cost of goods sold (company info)  average total inventory Raw Materials Inventory Turns (manufacturing companies only) Annual cost of raw materials purchased (3)  average raw material inventory Work-in-Process Inventory Turns (manufacturing companies only) (Annual cost of raw materials purchased (3) + Annual cost of conversion (4))  average work in process inventory Finished Goods Inventory Turns Annual cost of goods sold (company info)  average finished goods inventory Percentage of safety stock Average safety stock  total inventory Purchase order cycle time (in days for purchasing department and excludes supplier lead time) Average amount of time (in days) elapsed from point of intention to place order to receipt of order by vendor Supplier lead time Average amount of time (in days) elapsed from point of order to delivery Supplier on-time delivery Percentage of orders supplier delivers on scheduled due date Find more at:

What to Measure? The Balance Scorecard Framework
After Kaplan & Norton (1992)

Strategy Map: Capture a Cause Effect Relationship from the Bottom Up
More rapid and accessible services Improved Returns on Investments Stakeholder Economic Model Process Reduce Re-Activities thru ABC Establish Web-Based Self Services Internal Process Expand Global Facility Reach Leadership Development Knowledge Management Learning & Growth Facilities and Fixed Assets Human Capital IT Infrastructure (Investments) Financial

Examples of Measurements by Perspective
Stakeholder / Customer Internal Processes Current customer satisfaction level Improvement in customer satisfaction Customer retention rate Frequency of customer contact by customer service Average time to resolve a customer inquiry Number of customer complaints Number of unscheduled maintenance calls Production time lost because of maintenance problems Percentage of equipment maintained on schedule Average number of monthly unscheduled outages Mean time between failures Learning and Growth Financial / Investments Percentage employee absenteeism Hours of absenteeism Job posting response rate Personnel turnover rate Ratio of acceptances to offers Time to fill vacancy % of facility assets fully funded for upgrading % of IT infrastructure investments approved # of new hire positions authorized for filling % of required contracts awarded and in place Here are some examples of performance measurements by balanced scorecard perspective.

Extend the Strategy Map with Measures, Targets and Initiatives
Stakeholder Detailed statement of what is critical to successfully achieving the strategy How success in achieving the strategy will be measured and tracked The level of performance or rate of improvement needed Key action programs required to achieve objectives Faster Service Access Self Service Applications Lean Processes Objective Description Measure Target Initiative Internal Process Eliminate waste, reworks, and other errors in our processes Number of Reworks 2 per setup per month each Outlet Office Lean / Six Sigma Process and Value Map Analysis Web Enable Technologies L&G Invest in IT Investments

Alignment of Scorecard Components
Make sure the components of your scorecard fit together. We want to create a tight model for driving execution of your strategy. Goal Objective Measurement Target Initiative Achieve Agency operational efficiencies with best practices in the private sector Reduce Operational Service Costs by 50% over the next 5 years Cost per Outlet Office, Cost per Region, Cost per FTE 5% - Year 1 10% - Year 2 15% - Year 3 Activity Based Costing / Management Reduce identified re-activities within primary processes by 80% over the next 3 years Waste Volume Charts, Rework Tracking, Cycle Time End to End in S-LX (5 of 7 Regions) Waste stream reductions of 5% each year, Reworks cut in half for next 3 years, cycle time cut by 75% Lean / Six Sigma Here is a basic example of how everything should connect and link up from goal to objective, objective to measurement, measurement to target, and finally, close the loop with an initiative to drive strategic execution upstream. We want a good solid, tight model where everything is aligned together.

Exercise June 2009 exam, question 2 (Masters of ETM version)

Guidelines for Performance Measures
At least one measurement per objective. Measurements define or explain objectives in quantifiable terms: Vague => We will improve customer service Precise => We will improve customer service by reducing response times by 30% by year end. Measurements should drive change and encourage the right behavior. Should be able to influence the outcome.

Benchmarking: SCORcards
T. Gulledge & T. Chavusholu: “Automating the construction of supply chain key performance indicators”, Industrial Management & Data Systems, 2008.

Process Controlling (cont.)
Performing Feedback and Control Important for stabilizing and improving the process Objectives of control/corrective action are Regulation to maintain a certain performance level Improvement aiming at reducing variability or raising the average performance level (see for example Six Sigma) Feedback is an important enabler for corrective action People in the process need to understand how their actions affect the overall process and its performance Feedback should be constructive and non-punitive Constructive feedback of course! Makes people feel that they matter Encourages involvement and commitment Laguna & Marklund

Six Sigma Quality Programs
Six Sigma is originally a company wide initiative at Motorola for breakthrough improvement in quality and productivity Launched in 1987 The ongoing success of Six Sigma programs has attracted a number of prestigious firms to adopt the approach Ex. Ford, GE, AMEX, Honeywell, Nokia, Phillips, Samsung, J.P. Morgan, Maytag, Dupont… Broad definition of Six Sigma programs “A company wide strategic initiative for process improvement in both manufacturing and service organizations with the clear objective of reducing costs and increasing revenues” Fierce focus on bottom-line results Laguna & Marklund

Technical Definition of Six Sigma
Reduce the variation of every individual process to render no more than 3.4 defects per million opportunities Assuming the process output is normally distributed with mean  and standard deviation  the distance between the target value and the closest specification limit is at least 6  and the process mean is allowed to drift at most 1.5  from the target Target Value (T) Upper Specification Limit (USL) Lower Specification Limit (LSL) Laguna & Marklund

The Six Sigma Cost or Efficiency Rationale
Reducing costs by increasing process efficiency has an immediate effect on the bottom line To assure worker involvement Six Sigma strives to avoid layoffs Commitment Reduced Costs Increased Profits Improvement projects Cycle Time Yield Variation The Six Sigma Efficiency loop Laguna & Marklund

Based on the dimensions of variation, cycle time & yield Variation Can be divided into two main types Common cause or random variation Special cause or non-random variation Non-random variation Relatively few identifiable root causes First step in reducing the overall variation is to eliminate non-random variation by removing its root causes Random variation The result of many different causes Inherent in the process and can only be affected by changing the process design Laguna & Marklund

Variation (cont.) Important concepts to understand the impact of variation Dispersion Predictability Centering Magnitude of variation in the measured process characteristics. Do the measured process characteristics belong to the same probability distribution over time? For a predictable process, dispersion refers to the width of the pdf. How well the process mean is aligned with the process target value Laguna & Marklund

Variation (cont.) Ideally the process should be predictable, with low dispersion, and well centered Standard approach for reducing variability in Six Sigma programs Eliminate special cause variation to reduce overall dispersion and improve predictability Reduce dispersion of the predictable process Center the process to the specified target Six Sigma use traditional tools for quality and process control/analysis Basic statistical tools for data analysis The 7 QC tools Laguna & Marklund

Cycle time and Yield Cycle time (lead-time, response time) The time a job spends in the process Yield (productivity) Amount of output per unit of input or per unit time Improvement in cycle time and yield follow the same tactic as for variation Gain predictability, reduce dispersion and center to target The target is usually broadly defined as Minimize cycle time and Maximize yield Six Sigma principle Improvement in average cycle time and yield should not be made at the expense of increased variation Laguna & Marklund

The Six Sigma Revenue or Effectiveness Rationale
Determinants of the company’s revenues Sales volume closely related to market share Sales prices Revenues contingent on how well the firm can satisfy the external customers’ desires An important Six Sigma Success factor is the focus on internal and external customer requirements in every single improvement project Laguna & Marklund

The Six Sigma Cost & Revenue Rationale
Commitment Reduced Costs Increased Profits Improvement projects Cycle Time Yield Variation Customer satisfaction Increased Market Share & potentially higher prices Increased Revenues

The Six Sigma Framework
Centered around a disciplined and quantitatively oriented improvement methodology (DMAIC) Define, Measure, Analyze, Improve, Control Define Measure Analyze Improve Control Top Management Commitment Training Improvement Methodology Measurement System Stakeholder Involvement Laguna & Marklund

Six Sigma Success Factors
The bottom line focus and big dollar impact Encourages and maintains top management commitment The emphasis on - and consistent use of - a unified and quantitative approach to process improvement The DMAIC methodology provides a common language to share experiences and successes across the organization Creates awareness that decisions should be based on factual data Emphasis on understanding & satisfying customer needs Creates focus on doing the right things right Anecdotal information is replaced by factual data Combination of right projects, right people and right tools Careful selection of projects and people combined with hands on training in using statistical tools in real projects Laguna & Marklund

Recap: The Layers of BPM Activities
BPM Setup Strategic Alignment BPM Governance BPM Methodology Process-aware Infom. Systems Culture & People Lean/ Six Sigma Process Analysis Process Identification Process Modelling Process Measurement Process Improvement Process Implementation Process Configuration Process Development Process Training Process Testing Change Management Process Execution and Controlling Process Execution Process Monitoring Process Mining Process Perform. Mgt. Process Controlling

(see project description on the course web page)

Readings P. Harmon. Business Process Architecture and the Process-Centric Company, BPTrends Newsletter, March P. Harmon. Business Processes at a New Company: What Do You Do First?. BPTrends Newsleter, October

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