Tracking and measuring effectiveness of BPM

Greg HydeStrategic Change & TransformationGreg.A.Hyde@bigpond.com

23rd August 2012

Topics

A background to measurement

Defining measures

Managing suppliers

Identifying and measuring waste

Measuring customer requirements

Quantifying the value of BPM

Getting started

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Why measure?

“When you can measure what you are speaking about, and express it in numbers, you know something about it;

But when you cannot express it in numbers, your knowledge is of a meagre and unsatisfactory kind.

It may be the beginning of knowledge, but you have scarcely, in your thoughts, advanced to the state of science.”

- Lord Kelvin

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The measurement spiral

1. Measure what can easily be measured => OK

2. Disregard that which can't be easily measured, or to give it an arbitrary value

=> artificial and misleading

3. Presume that what can't be easily measured, isn't important => blindness

4. To say that what can't be easily measured, doesn't matter => Stupidity

- Charles Handy

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The concept of measurement

“If it matters at all, it is detectable or observable.

If it is detectable, it can be detected as an amount or range of possible amounts.

If it can be detected as a range of possible amounts, it can be measured!”

- Douglas Hubbard

Topics

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A background to measurement

Defining measures

Managing suppliers

Identifying and measuring waste

Measuring customer requirements

Quantifying the value of BPM

Getting started

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Defining measures

Operational measurement• specific and concrete;• measurable; and• useful to both you and your customer

Effective measurement • Requires clear operational definitions so that no matter who does the

measuring, the results are consistent

• Need to explicitly describe what to measure, and how to measure it

In-Process Measures

Process Steps

InputMeasures

Output Measures

Which measures to choose?

• Input or in-process measures can be lead indicators (if they are shown to have a relationship with output performance)

• Output measures are lag measures (it is generally too late)8

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Binary (yes/no)

Types of measurement data

Discrete ‘’Discrete’, but treated as ‘continuous’ Continuous

Ordered categories(limited options eg. 1-9)

Count data(Limited possibilities < 10)

Ordered categories(Many options eg. 1 - 100)

Infinite possible values (eg. Cycle time)

Count data (Many possibilities)

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Continuous data is about the process

Performance metric Discrete Continuous

Time to process Within SLA – Yes/no Actual times for each unit

Delivery time Number late Actual time deviated from target

Customer satisfaction Yes/no questions Rating 1 - 100

Policies lost due to price Number lost Price difference from competition

Continuous data supports trend analysis over time and enables progressive or individual comparisons against tolerance limits

Five deadly measurement sins

Lifecycle of performance measurement process

Tactical

Strategic

Selection Collection Reporting Usage

Minimal correlation to financial

performance/results

Overemphasis on internal point of view

Lack of prioritisation

Measurement level too broad

Evaluation against incorrect standard

Nature of mistake

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“Just measuring your job performance…”

Topics

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A background to measurement

Defining measures

Managing suppliers

Identifying and measuring waste

Measuring customer requirements

Quantifying the value of BPM

Getting started

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Elements of a supplier relationship

• Share demand forecasts and plans

• Measure and manage performance closely via Service Level Agreements

(SLAs) or ‘partnering agreements’ (for internal suppliers)

• Collaborate on improvements

• Constant and regular communication

• Plan and run joint BCP scenarios

• Service guarantees

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Service Level Agreement measures

Key features• Service specification (eg performance objectives, measurement, targets)

• Relationship (eg reporting mechanism, service reviews)• Development (eg improvement activities, collaboration)

Common mistakes• Too few or inappropriate measures

• No mutually agreed targets set

• No clear line of responsibility

• No reporting mechanism

• No problem handling/escalation procedures

• Mutual benefits not discussed

• No improvement agenda established

Topics

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A background to measurement

Defining measures

Managing suppliers

Identifying and measuring waste

Measuring customer requirements

Quantifying the value of BPM

Getting started

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Defining value-added

Value-Added (typically around 1% - 5% of the total process)• Customer willing to pay for • If left out, would the end customer complain? – Yes!• Required changes to the product or service• Must be done right the first time

Business Value Add, Value Maintaining, Value Enabling• Includes legal, risk, financial, reporting requirements (internal customer)• If left out, would internal customers complain? - Yes!• Necessary to support value-added steps• Must be done right the first time

Non-Value-Added (Waste)• Customer sees no value and is not required for internal customer• If left out, would internal or end customers complain? - No!• Anything not done right the first time!

Operation Verify? Product

Rework No

Yes

The hidden workforce

• How many process steps?

• How many handoffs?

• How many decision points?

• How many measurement/inspection points?

• Where are the bottlenecks?

• How many rework loops?

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Types of Waste

Excess InventoryAny more than the minimum needed to get the job done

Excessive TransportationAny non-essential transport or

movement of the product

Defects & ReworkAny repair or correction or

rework of an item in the process, (eg. input errors)

Over-ProcessingOver processing (too complex

specifications or excess handling)

Missing InformationCauses delays due to poorly

designed forms, processes or lost documents

Excessive MotionAny motion that does not add

value, (eg. excess movement of people around the business)

WaitingWaiting on people to conduct

the next step

Human PotentialNot using our full skills, intellect, ideas,

and capability of our people to solve issues and run our business

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Waste elimination = Lean

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

We are reducing that timeline by removing the non-value-added wastes.”

- Taiichi Ohno (Toyota)

Topics

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A background to measurement

Defining measures

Managing suppliers

Identifying and measuring waste

Measuring customer requirements

Quantifying the value of BPM

Getting started

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Determining quality

Quality is about consistently conforming to customers’ expectations

Previous experience Word of mouth communications

Image of product or service

Customer’s perceptions concerning the product

or service

Customer’s expectations concerning a product or

service

Customer’s own specification of

qualityThe actual product

or service

Organisation’s specification of

quality

Management’s concept of the

product or service

Gap 4

Gap 3

Gap 2

Gap 1

A perception-expectation gap model of quality

Process: Payment ProcessingPrimary output (product or service): Bills sent to customers

Example

Selecting customer specific metrics

1 2 3 4

Importance to

customer

(1 to 5)

Variation in

deliverydate

Number of errors per

bill

Total cycle time

Number of customer

complaints

CTQ 1 Consistent bill delivery 5 9 1 3 1

CTQ 2 Accurate bills 4 9 1

CTQ 3 Easy to read and understand 3 1

Score 45 41 15 12

Customer CTQs

Potential output measures

Measurement selection

matrix

The strength of the relationship between the potential key output measures and the customer CTQs are assessed on a scale of 0 (none), 1 (low), 3 (medium) or 9 (high)

0

0

0

00

Process : InvoicingOutput : Bill sent to customer = Product or service

1

1

2

2

= Critical to quality

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Topics

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A background to measurement

Defining measures

Managing suppliers

Identifying and measuring waste

Measuring customer requirements

Quantifying the value of BPM

Getting started

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Aligned performance measures

Overall strategic

objectives

Market strategic

objectives

Operations strategic

objectives

Financial strategic

objectives

ResilienceAgilityCustomer satisfaction

Quality Dependability Speed Flexibility Cost

Broad strategic measures

Functional strategic measures

Composite performance measures

Generic operations performance measures

High strategic relevance and aggregation

High diagnostic power and

frequency of measurement

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Supported by a balanced scorecard

A balanced range of measures enables managers to address the following questions:

• How do we look to our shareholders from a financial perspective?

• How do our external customers see us?

• Which internal processes must we excel at?

• How can we continue to improve and build on capabilities, from a learning and growth perspective?

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Measuring process performance

Performance objectives Typical measures

Quality• Customer satisfaction score• Number of defects per unit• Warranty claims

Dependability• Schedule adherence• % of orders delivered late• % of products in stock

Speed• Customer query time• Order lead time• Cycle time

Flexibility• Machine changeover time• Average batch size• Time to increase activity rate

Cost• Variance against budget• Utilisation of resources• Cost per operation hour

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The sand cone improvement model

Cost reduction relies on a cumulative foundation of improvement in the other performance objectives

Quality

Dependability

Speed

Flexibility

Cost

Topics

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A background to measurement

Defining measures

Managing suppliers

Identifying and measuring waste

Measuring customer requirements

Quantifying the value of BPM

Getting started

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Next steps…

1. Define a decision problem and the relevant uncertainties

2. Establish what you already know

3. Compute the value of additional information

4. Apply the relevant technique to the high-value measurements

5. Make a decision… and act on it!

“It’s better to be approximately right than to be precisely wrong.”

- Warren Buffett

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Further reading…

• How to measure anything – Douglas W Hubbard

• Operations and process management (2nd Edition) – Slack, Chambers, Johnson and Bretts

• Implementing strategic change: Managing processes and interfaces to develop a highly productive organization - Bevington and Samson

• The cumulative capability 'sand cone' model revisited: A new perspective for manufacturing strategy - Schroedera, Shaha and Pengb