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MTAT.03.231B i P M t (BPM)Business Process Management (BPM)
(for Masters of IT)
Lecture 11: Process Performance Measurement
Marlon Dumas
Business Process Lifecycle ManagementBusiness Process Lifecycle Management
• Process identificationP d lli ( i )• Process modelling (as-is)
• Process analysisP i ( b )• Process improvement (to-be)
• Process implementation• Process execution• Process monitoring/controlling
22
Process Performance Measurement
Develop and Implement MeasurementsI l i th ti• Involves answering the questions1.What is to be measured and controlled (Ex. FedEx)?2.What is currently measured (available data)?2.What is currently measured (available data)?3.Can a business case be made for a new measurement system?4.What is an adequate sampling method, sampling size & frequency?
f• Measurements should be meaningful, accurate and timely– Statistical and graphical tools needed to turn data into information.
• Measurement categories: Measures of• Measurement categories: Measures of… – Conformance (to given specifications, e.g. reliability)– Response time (lead-time, cycle time)– Quality (error rates)– Cost (resource utilization, internal and external failure costs, cost of
rework)
3
rework)
Adapted from Laguna & Marklund
Performance Measures ExamplesPerformance Measures - Examples
R ti• Response time– Average cycle time– Ratio of completed transactions to total transactions within a
timeframe (e.g. 80% of transactions completed within 2 days)– ….
• Quality (e.g. error rates)Q y ( g )– Number of corrections– Number of adjustments– Number of complaints– Number of complaints– ….
• …
4
Performance Measures in SCMPerformance 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 y g ( p y ) g ginventory
Percentage of safety stock Average safety stock ÷ total inventory
Purchase order cycle time (in days for h i d t t d l d
Average amount of time (in days) elapsed from point of intention to l d t i t f d b dpurchasing department and excludes
supplier lead time)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
5Find more at: http://www.exinfm.com/workshop.html
What to Measure? The Balance Scorecard FrameworkThe Balance Scorecard Framework
6After Kaplan & Norton (1992)
Strategy Map: Capture a Cause Effect Relationship from the Bottom Up
olde
rRelationship from the Bottom Up
sSt
akeh
o
Improved Returns on Investments
More rapid and accessible services
erna
l Pro
cess
Reduce Re-Activities thru ABC
Establish Web-Based Self Services
Economic Model Process
Inte
ing
wth Knowledge LeadershipExpand Global
Lear
n&
Gro
w gManagement
Leadership Development
)
Expand Global Facility Reach
Human Capital
Fina
ncia
l
nves
tmen
ts)
IT InfrastructureFacilities and Fixed Assets
7
(I
http://www.exinfm.com/
Examples of Measurements by PerspectiveExamples of Measurements by Perspective
Stakeholder / CustomerStakeholder / Customer Internal ProcessesInternal Processes• Number of unscheduled maintenance calls• Current customer satisfaction level• Production time lost because of maintenance
problems• Percentage of equipment maintained on
schedule
• Improvement in customer satisfaction• Customer retention rate• Frequency of customer contact by
customer service schedule• Average number of monthly unscheduled
outages• Mean time between failures
customer service• Average time to resolve a customer
inquiry• Number of customer complaints
Learning and GrowthLearning and Growth Financial / InvestmentsFinancial / Investments• % of facility assets fully funded for• Percentage employee absenteeism • % of facility assets fully funded for
upgrading• % of IT infrastructure investments
approved
• Percentage employee absenteeism• Hours of absenteeism• Job posting response rate• Personnel turnover rate
• # of new hire positions authorized for filling
• % of required contracts awarded and in place
• Ratio of acceptances to offers• Time to fill vacancy
8http://www.exinfm.com/
Extend the Map into Measurements, Extend the Map into Measurements, Targets and InitiativesTargets and Initiatives
Strategy Mapder
Targets and InitiativesTargets and Initiatives
Detailed statement of
what is critical to successfully
hi i th
How success in achieving the
strategy will be measured and
t k d
Key action programs
required to achieve bj ti
The level of performance
or rate of improvement
d d
Stak
ehol
Faster Service Access
achieving the strategy
tracked objectivesneeded
Objective Target InitiativeMeasureProc
ess
Self ServiceApplications
Description Target
2 per setup per month each Outlet Office
InitiativeMeasure
Number of ReworksIn
tern
al
Process and ValueM A l i
Lean ProcessesLean / Six Sigma
Eliminate waste, reworks, and other errors in our processes
L&G Web Enable
Technologies
Map Analysis our processes
ec o og es
estm
ents
Invest in IT
9
Inve
http://www.exinfm.com/
Alignment of Scorecard ComponentsAlignment 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
Alignment of Scorecard ComponentsAlignment of Scorecard Components
create a tight model for driving execution of your strategy.
Goal Objective Measurement Target Initiativej g
Achieve Agency operational
Reduce Operational Service Costs by
Cost per Outlet Office, Cost per Region, Cost
5% - Year 110% - Year 215% Y 3
Activity Based Costing /operational
efficiencies with best practices in th i t
Service Costs by 50% over the next 5 years
Region, Cost per FTE
15% - Year 3 Costing / Management
the private sector
Reduce identified re-activities within primary processes by
Waste Volume Charts, Rework Tracking, Cycle Time End to End
Waste stream reductions of 5% each year, Reworks cut in
Lean / Six Sigma
processes by 80% over the next 3 years
Time End to End in S-LX (5 of 7 Regions)
Reworks cut in half for next 3 years, cycle time cut by 75%
10http://www.exinfm.com/
Guidelines for Performance MeasuresGuidelines for Performance Measures
• At least one measurement per objective. • Measurements define or explain objectives in
ifi blquantifiable terms:Vague => We will improve customer serviceP i > W ill i t i bPrecise => We will improve customer service by
reducing response times by 30% by year end. y
• Measurements should drive change and encourage the right behavior.
• Should be able to influence the outcome.
11http://www.exinfm.com/
ExerciseExercise
• Consider a procure-to-pay business process. Which performance measures could we define on this process?
12
Benchmarking: SCORcardsg
13T. Gulledge & T. Chavusholu: “Automating the construction of supply chain key performance indicators”, Industrial Management & Data Systems, 2008.
Six Sigma Quality Programs• Six Sigma is originally a company wide initiative at Motorola
for breakthrough improvement in quality and productivityfor breakthrough improvement in quality and productivity– Launched in 1987
• The ongoing success of Six Sigma programs has attractedThe 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”j g g
– Fierce focus on bottom-line results
14Laguna & Marklund
Technical Definition of Six Sigma• Reduce the variation of every individual process to render no more
than 3.4 defects per million opportunitiesp pp• Assuming the process output is normally distributed with mean μ and
standard deviation σ the distance between the target value and the closest specification limit is at least 6 σ and the process mean is p pallowed to drift at most 1.5 σ from the target
σμ 1.5- σ+μ 1.5μ
Target Value (T)
4.5σ σ4.5σ1.5 σ1.5
Upper Specification Limit (USL)
Lower Specification Limit (LSL)
6 6
156σ 6σ
Laguna & Marklund
The Six Sigma Cost or Efficiency RationaleRationale
• Reducing costs by increasing process efficiency has an immediate effect on the bottom lineimmediate effect on the bottom line – To assure worker involvement Six Sigma strives to avoid layoffs
Improvement projects
VariationThe Six Sigma Efficiency loop
Improvement projects
Commitment Reduced Costs
Increased ProfitsCycle Time Yield
16
Increased Profits
Laguna & Marklund
The Six Sigma Cost or Efficiency Rationale
• Based on the dimensions of variation, cycle time & yieldRationale
Variation• Can be divided into two main types
1. Common cause or random variation2. Special cause or non-random variation
• 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– The result of many different causes– Inherent in the process and can only be affected by changing
the process design
17Laguna & Marklund
The Six Sigma Cost or Efficiency Rationale
Variation (cont.)Rationale
• Important concepts to understand the impact of variation– Dispersion
P di t bilit– Predictability– Centering
• Dispersion• Dispersion – Magnitude of variation in the measured process characteristics.
• PredictabilityPredictability– 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.
• CenteringH ll th i li d ith th t t l
18– How well the process mean is aligned with the process target value
Laguna & Marklund
The Six Sigma Cost or Efficiency Rationale
Variation (cont.)
Rationale( )
• Ideally the process should be predictable, with low dispersion, and well centeredS d d h f d i i bili i Si Si• Standard approach for reducing variability in Six Sigma programs
1 Eliminate special cause variation to reduce overall1. Eliminate special cause variation to reduce overall dispersion and improve predictability
2. Reduce dispersion of the predictable process3 Center the process to the specified target3. Center the process to the specified target
• Six Sigma use traditional tools for quality and process control/analysisy
– Basic statistical tools for data analysis– The 7 QC tools
19Laguna & Marklund
The Six Sigma Cost or Efficiency Rationale
Cycle time and Yield
Rationale
• Cycle time (lead-time, response time)– The time a job spends in the process
Yi ld ( d i i )• Yield (productivity)– Amount of output per unit of input or per unit time
I t i l ti d i ld f ll th• Improvement in cycle time and yield follow the same tactic as for variation
– Gain predictability reduce dispersion and center to targetGain predictability, reduce dispersion and center to target
• The target is usually broadly defined as– Minimize cycle time and Maximize yielde cyc e t e a d a e y e d
• Six Sigma principle– Improvement in average cycle time and yield should not be
20made at the expense of increased variation
Laguna & Marklund
The Six Sigma Framework
Centered around a disciplined and quantitatively i t d i t th d l (DMAIC)oriented improvement methodology (DMAIC)
– Define, Measure, Analyze, Improve, Control
Top Management Commitment
Training
Define Measure Analyze Improve C t l
Training
Improvement MethodologyDefine Measure Analyze Improve Control
Measurement SystemMeasurement System
Stakeholder Involvement
21Laguna & Marklund
Six Sigma Success Factors• The bottom line focus and big dollar impact
E d i t i t t it t– Encourages and maintains top management commitment
• The emphasis on - and consistent use of - a unified and quantitative approach to process improvementquantitative 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• 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
22
g g p j
Laguna & Marklund
Recap: The Layers of BPM Activitiesy
BPM SetupStrategic
AlignmentBPM
GovernanceBPM
MethodologyProcess-awareInfom. Systems
Culture &People
Process AnalysisProcess
IdentificationProcess
ModellingProcess
MeasurementProcessAnalysis
ProcessImprovement
Process ImplementationProcess Process Process Process ChangeLean/
Process Execution and Controlling
ProcessConfiguration
ProcessDevelopment
ProcessTraining
ProcessTesting
ChangeManagementSix
Sigma
ProcessExecution
Process Monitoring
Process Mining
ProcessPerform. Mgt.
ProcessControlling
Process Execution and Controlling
23