Introduction to Business Process Analysis and Redesign

Marlon Dumas

University of Tartu

firstname.lastname@ut.ee

Universidad de Granada – 23-24 Jan. 2014

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The BPM Lifecycle

Process identification

Conformance and performance insights

Conformance and performance insights

Processmonitoring and

controlling

Executable processmodel

Executable processmodel

Processimplementation To-be process

modelTo-be process

model

Processanalysis

As-is processmodel

As-is processmodel

Process discovery

Process architectureProcess architecture

Processredesign

Insights onweaknesses and

their impact

Insights onweaknesses and

their impact

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“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.”

Bill Gates

Why should we redesign first?

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In other words…

InformationTechnology

ProcessChange

Yields

Yields

BusinessValue

Index Group (1982)

Enables

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Agenda

• Preamble– BPMN Refresher– Basic process modeling guidelines

• Part 1 – Qualitative Process Analysis– Value-added and waste analysis– Root-cause analysis

• Part 2 – Quantitative Process Analysis– Quantitative flow analysis– Simulation

• Part 3 – Business Process Redesign– Radical vs incremental process redesign– Redesign heuristics

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Companion Material

• Fundamentals of Business Process Management (chapters 1, 6, 7, 8)– Introduction to BPM (freely available)– Qualitative Analysis– Quantitative Analysis– Redesign

http://fundamentals-of-bpm.org

http://slideshare.net/MarlonDumas

Youtube – Marlon Dumas

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Business Process Lifecycle

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Purposes of Process Modeling

Communication, simulation,

activity-based costing…

ProcessImplementation

ProcessAnalysis & Design

Process Enactment & Monitoring

Process Evaluation

“TO BE”Process Models

Exe

cuta

ble

P

roce

ss M

od

els

Mea

sure

s fo

r Im

pro

vem

ent

Process Metrics

OrganizationalAnalysis

Tar

get V

alue

s

“AS IS”Process Models

Detailed Models including

Data types, conditions, data mappings, fault

handling…

Integration, testing, deployment…

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Business Process Modeling Notation(BPMN)

• OMG Standard, supported by many tools:– Bizagi Process Modeller (free)– Signavio (http://www.signavio.com/) - subscription– Oracle BPA – “kind of free”– ARIS – very sophisticated but the opposite of free– IBM Websphere Business Modeler– Logizian – reasonable tradeoff– Visio – Your company might already have this– Paper and pen! - No excuse not to start

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BPMN from 10 000 miles…

• A BPMN process model is a graph consisting of four types of elements (among others):

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Revised Order Management Process

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When a claim is received, we first check if the claimant has a valid insurance policy. If not, the claim is rejected and the claimant is informed.

Otherwise, we assess the severity of the claim. Based on the outcome (simple or complex claim), we send the corresponding form to the claimant.

Once the form is returned, we check it for completeness.

If the form is complete, we register the claim in the Claims Management system and the evaluation of the claim may start.

Otherwise, we ask the claimant to update the form. When we receive the updated forms, we check them again and continue.

BPMN Exercise:Simplified Insurance Claim Registration

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Guidelines: Naming Conventions

1. Give a name to every event and task2. For tasks: verb followed by business object

name and possibly complement– Issue Driver Licence, Renew Licence via Agency

3. For message events: object + past participle– Invoice received, Claim settled

4. Avoid generic verbs such as Handle, Record…5. Label each XOR-split with a condition

– Policy is invalid, Claim is inadmissible

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When?

Process

Which?

Data / Service / Product

What?

Function

Who?Organization

Process Modelling Viewpoints

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Resource Modelling in BPMN

• In BPMN, the organizational perspective is modeled using:– Pools – independent organizational entities, e.g.

• Customer, Supplier, East-Tallinn Hospital, Tartu Clinic

– Lanes –classes of resources within the same organizational and collaboration space

• Sales Department, Marketing Department• Clerk, Manager, Engineer

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Example with Pools and Lanes

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BPMN Information 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 Object

Directed association

Undirected association

Data Store

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Example: Data Object

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Anything wrong with this model?

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Is this better?

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Value Chain

• Good practice is that the top-level process should be simple (no gateways, no lanes) and should show the main phases of the process– Each phase then becomes a sub-process– Top-level process is basically a value chain

• Introduce gateways and lanes at the next levels…

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Showing the value chain with sub-processes

Purchase Request

ApprovalPurchase

OrderGoods Receipt

Invoice Verification

Purchase Request process

Check purchase request for 1st

approval

Check purchase request for 2nd

approval

approved

Consider re-submission

rejected

rejected

approved

Send approved request to requestor

Purchase Request

Make copy of purchase request

Approved Purchase Request

Forward to purchase department

Purchase Order process

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Guideline: Modeling Levels

• First level: start with value chain• Next level add:

– Main decisions– Handoffs (lanes)

• And only then add procedural aspects:– Parallel gateways– Input and output data objects, data stores– Different types of events– And as much detail as you need

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Business Process Lifecycle

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Process Analysis Techniques

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Purposes of Qualitative Analysis

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Eliminating Waste

"All we are doing is looking at the time line, from the moment the customer gives us an order to the point when we collect the cash.

And we are reducing the time line by reducing the non-value-adding wastes ”

Taiichi Ohno

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7+1 Sources of Waste

1. Unnecessary Transportation (send, receive)

2. Inventory (large work-in-process)

3. Motion (drop-off, pick-up, go to)

4. Waiting (waiting time between tasks)

5. Over-Processing (performing what is not yet needed or might not be needed)

6. Over-Production (unnecessary cases)

7. Defects (rework to fix defects)

8. Resource underutilization (idle resources)

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Value-Added Analysis

1. Decorticate the process into steps

2. Classify each step into:– Value-adding (VA): Produces value or satisfaction to

the customer.• Is the customer willing to pay for this step?

– Business value-adding (BVA): Necessary or useful for the business to run smoothly, or required due to the regulatory environment, e.g. checks, controls

• Would the business potentially suffer in the long-term if this step was removed?

– Non-value-adding (NVA) – everything else including handovers, delays and rework

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Example (Equipment Rental Process)

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Example – Equipment Rental Process

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Issue Register

• A table with the following columns (possibly others):– issue number– name– Description/explanation– Impact: Qualitative vs. Quantitative– Possible resolution

• Purpose: to categorise identified issues as part of as-is process modelling

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Issue Register (Equipment Rental)

Name Explanation Assumptions Qualitative Impact

Quantitative Impact

Equipment kept longer than needed

Site engineers keep the equipment longer than needed by means of deadline extensions

BuildIT rents 3000 pieces of equipment p.a. In 10% of cases, site engineers keep the equipment two days longer than needed. On average, rented equipment costs 100 per day

0.1 × 3000 × 2 × 100 = 60,000 p.a.

Rejected equipment

Site engineers reject delivered equipment due to non-conformance to their specifications

BuildIT rents 3000 pieces of equipment p.a. Each time an equipment is rejected due to an internal mistake, BuildIT is billed the cost of one day of rental, that is 100.5% of them are rejected due to an internal mistake

Disruption to schedules.Employee stress and frustration

3000 × 0.05 × 100 = 15,000 p.a.

Late payment fees

BuildIT pays late payment fees because invoices are not paid by the due date

BuildIT rents 3000 pieces of equipment p.a. Each equipment is rented on average for 4 days at a rate of 100 per day. Each rental leads to one invoice. About 10% of invoices are paid late. Penalty for late payment is 2%.

0.1 × 3000 × 4 × 100 × 0.02 = 2400 p.a.

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Techniques for issue analysis

• Cause-effect diagrams• Why-why diagrams• Pareto charts

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Cause-effect diagram (rejected equipment)

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Why-why analysis (equipment rental)

Site engineers keep equipment longer, why?• Site engineer fears that equipment will not be available

later when needed, why?– time between request and delivery too long, why?

• excessive time spent in finding a suitable equipment and approving the request, why?

– time spent by clerk contacting possibly multiple suppliers sequentially;

– time spent waiting for works engineer to check the requests;

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Pareto chart

• Useful to prioritize a collection of issues or factors behind an issue

• Bar chart where the height of the bar denotes the impact of each issue

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Pareto chart (excessive rental expenses)

http://pareto-chart.qtcharts.com/index.php?g=prtt

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Process Analysis Techniques

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Fill in the blanks

If you had to choose between two services, you would typically choose the one that is:

• F…• B…• C…

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Process Performance Measures

Let’s start with time

Mark McGuinness: Time Management for Creative People

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Cycle Time Analysis

• Cycle time: Difference between a job’s start and end time• Cycle time analysis: the task of calculating the average

cycle time for an entire process or process fragment– Assumes that the average activity times for all involved activities

are available (activity time = waiting time + processing time)

• In the simplest case a process consists of a sequence of activities on a sequential path– The average cycle time is the sum of the average activity times

• … but in general we must be able to account for – Alternative paths (XOR splits)– Parallel paths (AND splits)– Rework (cycles)

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Alternative Paths

CT = p1T1+p2T2+…+pnTn =

Inspired by a slide by Manuel Laguna & John Marklund

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Alternative Paths – Example

• What is the average cycle time?

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• If two activities related to the same job are done in parallel the contribution to the cycle time for the job is the maximum of the two activity times.

Parallel Paths

CTparallel = Max{T1, T2,…, TM}

Inspired by a slide by Manuel Laguna & John Marklund

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Parallel Paths – Example

• What is the average cycle time?

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• Many processes include control or inspection points where if the job does not meet certain standard, it is sent back for rework

Rework

CT = T/(1-r)

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Rework – Example

• What is the average cycle time?

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Rework At Most Once – Example

• What is the average cycle time?

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Quick exercise

Calculate cycle time

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• Measured as the percentage of the total cycle time spent on value adding activities.

• CT = cycle time as defined before• Theoretical Cycle Time (TCT) is the cycle time if we

only counted value-adding activities and excluded any waiting time or handover time– Count only processing times

Cycle Time Efficiency

Cycle Time Efficiency = CT

TimeCyclelTheoretica

Inspired by a slide by Manuel Laguna & John Marklund

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Limitation 1: Not all Models are Structured

Start End

Check for completeness Perform checks Make decision

Deliver card

Receive review request

Request infoReceive info

Notify acceptance

Notify rejection Time out

complete? Decide

review request

Yes

No

reject

reviiew

accept

0.5

0.7

0.3

0.5

0.2

0.8

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Limitation 2: Fixed load + fixed resource capacity

• Cycle time analysis does not consider waiting times due to resource contention

• Queuing analysis and simulation address these limitations and have a broader applicability– Introduce notions of “arrival rate” and “resource pools”

with a fixed capacity (number of resources)

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Business Process Lifecycle

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Process Redesign

• Purpose: Identify possibilities for improving the design of a process: “as is” “to be”

• No silver-bullet: requires creativity• Redesign heuristics can be used to generate ideas

Descriprive modellingof the real world (as-is)

Prescriptive modellingof the real world (to-be)

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Process Redesign Approaches

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The 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

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The Ford Case Study

• Automation would bring some improvement (20% improvement)

• But Ford decided not to do it… Why?a) Because at the time, the technology needed to

automate the process was not yet available.

b) Because nobody at Ford knew how to develop the technology needed to automate the process.

c) Because there were not enough computers and computer-literate employees at Ford.

d) None of the above

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The correct answer is … Mazda’s Accounts Payable Department

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How the process worked? (“as is”)

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How the process worked? (“as is”)

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How the process worked? (“as is”)

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How the process worked? (“as is”)

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How the process worked? (“as is”)

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How the process worked? (“as is”)

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Reengineering Process (“to be”)

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Reengineering Process (“to be”)

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Reengineering Process (“to be”)

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Reengineering Process (“to be”)

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Reengineering Process (“to be”)

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Reengineering Process (“to be”)

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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? Automate things that need to be done.

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Principles of BPR

1. Capture information once and at the source

2. Subsume information-processing work into the real work that produces the information

3. Have those who use the output of the process drive the process

4. Treat geographically dispersed resources as if they were centralized

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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 of the process to shorten the client waiting time

© Laguna & Marklund

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Overview of the existing claims process

ClientLocal

independentagent

Approvedglass

vendor

Claimsprocessing

center

Request additional information

Pay

Notify agent

File claim

Give instructionsForwardclaim

Request quote

Provide quote

Pay

© Laguna & Marklund

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Existing claims process1. 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.

2. When the claims form is completed the local agent verifies the information and forwards the claim to a regional processing center.

3. 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.

4. 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

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Process Redesign Approaches

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Incremental Process Re-design

1. Select issues to address, improvement goals

2. Map goals to process performance measures and set objectives/targets

3. Apply re-design heuristics on the “as is” process model and analyze the tradeoffs

4. Select promising “change options”, justify and prioritize their implementation

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Costs

Quality

Time

Flexibility

Process Redesign Tradeoffs

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Redesign Heuristics

1. Task elimination

2. Task composition

3. Triage

4. Resequencing

5. Parallelism

6. Process specialization and standardization

7. Resource optimization

8. Communication optimization

9. Automation

Each heuristics improves one side of the devil’s quadrangle, generally to the detriment of others

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• Sometimes "checks" may be skipped: trade-off between the cost of the check and the cost of not doing the check.

(T+,Q-,C+/-)

(1) Task Elimination

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(1) Task Elimination (cont.)

• Other tasks to consider for elimination:– Print– Copy– Archive– Store– More generally: non-value adding activities

• Task elimination can be achieved by delegating authority, e.g.– No need for approval if amount less than Y– Employees have budget for small expenses

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Example

Purchase Request process

Check purchase

request for 1st approval

Check purchase

request for 2nd approval

approved

Consider re-submission

rejected

rejected

approved

Send approved request to requestor

Purchase Request

Make copy of purchase request

Approved Purchase Request

Forward to purchase

department

Purchase Order process

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(3) Triage

(T+,F-)

• Consider dividing a general task into two or more alternative tasks or the integration of two or more alternative tasks into one general task.

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(4) Resequencing

• Order tasks based on cost/effect• Put “knock-out checks” first – identify problems early• Postpone expensive tasks until the end.• In other words: order the tasks using the ratio “costs/effect”.

(T+,C-)

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Example

Purchase Request process

Check purchase

request for 1st approval

Check purchase

request for 2nd approval

approved

Consider re-submission

rejected

rejected

approved

Send approved request to requestor

Purchase Request

Make copy of purchase request

Approved Purchase Request

Forward to purchase

department

Purchase Order process

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Exercise

• Textbook, chapter 1, exercise 1.5 (Prescription fulfillment process)– What tasks could be re-ordered to address current

customer service problems?– Hint: consider the tradeoffs between front-loading and

backloading checks in the process.

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(8) Communication optimization

• Reduce the number of messages to be exchanged with customers and business partners– But avoid front-loading the process too much

– Not necessarily suitable if customer contact is desirable

• Monitor customer interactions, record exceptions, determine what to front-load/back-load

• Try to automate handling, recording and organization of messages (send/receive).

(T+,Q+,C+/-,F-)

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Interlude: the Complete Kit Concept

• Many processes follow the “complete kit” concept:– Work should not begin until all pieces necessary to

complete the job are available

• In such cases, consider three principles:– Provide complete and easy-to- follow instructions for

those who will initiate the process. – If a process cannot start, the client should be notified of

all defects that could be reasonably identified at the onset of the process.

– Consider the tradeoff between “incomplete-kit” process initiation and roundtrip to revise and resubmit a request.

Michael zur Muehlen: “Service Processes: The Customer at the Center?” http://tinyurl.com/5tunkxy

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Exercise

• Textbook, chapter 1, exercise 1.5 (Prescription fulfillment process)– What is the current communication structure?– What issues arise from the current communication

structure?– How can the communication structure be improved?

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• Use data sharing (Intranets, ERPs) to:– Increase availability of information to improve decisions or

visibility (subject to security/privacy)– Avoid duplicate data entry, paper copies

• Use network technology to:– Replace materials (e.g. paper document) flow with

information flow• E.g. querying government agency DBs replacing document flow

– Increase communication speed: e-mail, SMS• Note: e-mails are unavoidable, but not always desirable

– Enable self-service (e.g. online forms)(T+,Q+/-,C+/-,F-)

(9) Automation

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(9) Automation (cont.)

• Use tracking technology to identify/locate materials and resources where reasonable– Identification: Bar code, RFID– Location: indoor positioning, GPS

• Automate tasks and decisions– Capture and automate business rules where effective

• Automate end-to-end processes– See next lecture (BPMS)

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Exercise

• Textbook, chapter 1, exercise 1.5 (Prescription fulfillment process)– How can automation be applied in this process?

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Business Process Lifecycle

See videos on YouTube – Marlon Dumas