Modeling Business Processes

1. Modeling Business Processes Chapter 2

2. Objectives Describe a business processes and identify the business processes of an organization Identify the events that comprise a business process Model operating events using the REAL concepts Build and validate a REAL business processes model

3. Introduction • The first step toward enhancing a business professional’s value is enhancing the role he/she plays in helping an organization define and improve its business processes. • So what are business processes and how can they be designed to support an organization’s objectives? • How do we design information systems that collect, maintain, and process the data needed to generate the outputs required by management to effectively manage business processes in the information age? • Our analysis will use semantic models models of real world actions or phenomenon. We will use REAL Business Process Modeling as a method to help you understand and model business processes.

4. Business Processes Acquisition/payment Business Process Conversion Business Process Sales/CollectionBusiness Process Human Resources Financial Resources Supplies Inventories Property, Plant and Equipment New Ideas (R & D) Miscellaneous services Operations Varies widely depending upon the industry SAP industry solution maps Marketing and Sales Service Promotion Outbound logistics Collection and Credit E-Commerce Activities

5. Are All Processes And Business Activities Created Equally? • Companies often prioritize their business processes based on the value of the processin achieving the organization’s objectives. • Some business activities determine an organization’s competitiveness in the marketplace while other activities might be classified as support activities. • An organization may be internally cost-effective but it might be an unsuccessful organization. Why? • Perhaps the organization has competitors: • who better meet theneeds of customers, • do a good job of outsourcing some business functions, • or do a better job of creating effective strategic allianceswith trading partners.

6. Primary Value Activities • Inbound logistics - activities associated with receiving, storing, and disseminating inputs to the products or services • Operations- activities associated with transforming inputs into the final products or services • Outbound logistics - activities associated with collecting, storing, and physically distributing the products or services • Marketing and sales - activities associated with providing a means by which customers can buy produce and the means for inducing them to buy • Service - activities associated with providing service to enhance or maintain the value of the products or services

7. Support Activities • Procurement - the function of purchasing inputs to firms value chain • Technology Development - the know-how, procedures, or technology embedded in processes that are intended to improve the product, services, and/or process • Human Resource Management - activities involved in recruiting, hiring, training, developing, and compensating all types of personnel • Firm Infrastructure - activities that support the entire value chain (e.g. general management, planning, finance, accounting, legal, government affairs, quality management, etc.)

8. Porter’s Generic Value Chain Revenue Costs Firm Infrastructure Human resource management Support Activities Technology development Procurement Margin Inbound Logistics Operations Output Logistics Marketing & Sales Service Primary Activities

9. Business Process Events • A business process is “a series of activities intended to accomplish the strategic objectives of an organization.” • Operating Events are the operating activities performed within a business process to provide goods and services to customers. • Information Events include three activities: recording data about operating events, maintaining reference data that are important to the organization, and reporting useful information to management and other decision makers. • Decision/Management Events are activities where management and other people make decisions about planning, controlling, and evaluating business processes.

10. Event 1: Marketing Event 2: Take Customer Order Event 3: Ship the Goods Event 4: Collect Payment Business Processes and Business Events Business Process: Delivering Goods and Collecting Payment

11. Exhibit 2-3 Business Process Activities (Events) Define and often trigger Decision / management events Operating events Trigger Trigger Information events

12. Managing Business and Information Processes Opportunities/Risks Management Process Objectives Resources Recommendations Plan Execute Evaluate Rules Trigger Measures Measures Business Processes Data Information Processes

13. Processes that Trigger Information System Responses • Information System • Response • Record (event data) • Maintain • (agent, resource, location data) Trigger Business events Information processes • Information System Response • Report • (in many forms) Trigger Decision Making Needs of Information Customers Information processes

14. Acquisition / Payment Process • Regardless of the type of good or service being acquired, the following are typical operating events in the acquisition / payment business process: • Request goods or services. • Order goods or services. • Receive and inspect goods or services. • Store and/or maintain goods. • Pay for goods or services. • Return goods. • Some organizations : • may order the events differently, • may use a subset of the events, or • may add more detailed events.

15. Sales/Collection Process • Although there is some diversity across the types of goods and services sold, the sales/collection process typically includes the following events: • Receive an order for goods or services. • Select and inspect goods or services to be delivered. • Prepare goods or services for delivery. • Deliver goods or services. • Receive payment for goods or services. • Accept customer returns of goods. • Some organizations : • may order the events differently, • may use a subset of the events, or • may add more detailed events.

16. Conversion Process • Finally, examples of some of the more general activities in the conversion process include: • Assembling. • Growing. • Excavating. • Harvesting. • Basic manufacturing (e.g., metals, woods, and chemicals). • Finished manufacturing (e.g., tools, instruments, and components). • Cleaning. • Transporting. • Distributing. • Providing (e.g., power, water, protection, and communication). • Educating. • Discovering (e.g., research and development).

17. Process Analysis: Golden Pizza Decision/Management Operating Events Information Events • Analyzing the Standish market, competitors, and customers. • Deciding what pizzas to place on Golden’s menu. • Determine if the cooked pizza is correct for the customer presenting his/her copy of the order form. • Receive customer pizza order. • Receive customer payment. • Make pizza. • Box pizza. • Give pizza to customer. • Record customer order. • Calculate order amount. • Mark order “Paid.” • Give customer copy of order. • Give cook copy of order. • Tape order to pizza box. • Remove copy of order from box. • Send order copies to accounting. • Generate a customer analysis report. • Generate a report of sales by pizza type. • Generate a gross margin analysis. • Generate a report of lost sales due to the 20 minute guarantee. Trigger Trigger

18. Developing a REAL Business Process Model • REAL Business Process Modeling is a formal method of identifying and representing the essential characteristics that collectively describe business processes and events. • The title REAL is an acronym for Resources, Events, Agents, and Locations. • Preparing a REAL Business Process Model requires you to identify strategically significant business activities and essential characteristics about these business activities (see Exhibit 2-4).

19. Exhibit 2-4Real Business Process Model Matrix Strategically relevant eventsWhat happened?How is each event executed and why is it executed.? Date/Time When did each event occur? Internal and external agentsWhat roles are performed and who/what agents perform the roles in executing each event? Resource(s)What kinds of resources were involved and how much was used?. Location Where did the event occur? Risks What can go wrong in executing the event?

20. Step 1: Understand The Organization’s Environment and Objectives • REAL modeling is an aid in analyzing an organization and its activities. • Collect data and insights about the organization’s objectives, industry, value chain, strategies, product lines, and customers. • Pay attention to the organization’s people, structure, technologies, and measurements. • A better understanding of these factors will enhance your ability to evaluate business processes and identify processes and events that are not valuable, not competitive, and/or not meeting the objectives of the organization

21. Industry The Company Objectives Competitors Strategies Technologies Measurements EconomicForces Value Chain People Capital Technology Products Customers Structure Understanding the Business Environment

22. Step 2: Review the Business Process and Identify the Strategically Significant Operating Events • Begin by dividing the organization into its business processes. “What happened? How and Why? ” • REAL graphical model—include thestrategically significantoperating events that comprise a business process. (the ones that the organization wants to plan, evaluate and execute/or control) • Begin your REAL graphical model by representing events as rectangleswith a descriptor inside the rectangle. Select terms that accurately describe each operating event. We suggest using an active voice to name events. Receive Customer Order

23. An event trigger is the action that initiates the event. Sample triggers include a previous event, input from an external entity, a decision by an internal agent, or a business need. Planning, executing and evaluating business processes are vehicles for implementing and supporting organizational strategies. Therefore, the why question is answered by defining where a particular event fits into the fabric of an organization’s business processes and the event’s relative importance in accomplishing the organization’s strategy. An operating event is strategically significant if an information customer wants information to help him/her plan, execute, control, or evaluate that activity. Strategically significant events also include those that are regulated or mandated (e.g., inspecting meat, paying taxes, or performing an environmental study). Be careful not to identify “information events” as “operating events.” To avoid this error, focus on the essential characteristics about business activities “What kind of resources were involved and how much was used?” If, by chance, you mistake an information event (e.g., Print Customer Invoice) for the operating event (e.g., Receive Customer Order) you will struggle to answer some of the questions. Using the Worksheet ReceiveCustomer Order

24. Events Sell merchandise Receive customer payment Exhibit 2-5 McKell’s Retail Model: Step 2 McKell’s Retail Store has hired you to analyze their sales/collection process. Customers can purchase a variety of merchandise from McKell’s store. Each sale involves a customer assisted by a salesperson. The customer can buy one or more items of merchandise. McKell’s sales force randomly assists customers (McKell’s does not assign customers to specific salespersons); and each sale occurs at a specific register (McKell’s has several registers). Individual items of merchandise are not uniquely identified. This means that McKell’s does not assign a unique identifier to each white T-shirt sold, or each pair of size 9 white tennis shoes. The customers are allowed to pay with cash, check, or credit card.

25. Step 3: Analyze Each Event Listed In Step Two To Identify The Event Resources, Agents, And Locations • Describe essential characteristics of the events—the characteristics which: • if omitted, would render an inaccurate or incomplete description of the event. • form the basis for generating outputs for information customers to plan, execute, control and evaluate organization activities. • What kinds of resources were involved? • What roles are performed and who/what agents perform the roles? • Wheredid the event occur? (location)

26. Events Agents Location Resources Exhibit 2-6 McKell’s Retail Store REAL Model: Step 3 Salesperson Merchandise Sell Merchandise Register Customer Receive Customer Payment Cash

27. At what time or sequence in the process should the event occur? What are the exceptions to the “normal” ordering of events in the process? What is the proper authorization or approval to execute this event? What is a reasonable amount of resource associated with this event? What are the acceptable locations for executing this event? What is an acceptable time period between events in a business process? How might the order of events vary by customer? Does the location from which goods are shipped matter? How many salespeople are assigned to each customer? Should a sales order clerk have custody of cash? Can a customer have two different addresses? Why or why not? Step 4:Identify The Relevant Behaviors, Characteristics, And Attributes Of The Events, Resources, Agents, And Locations

28. Ship merchandise Receive payment Sequence of Events • The sequence of events may also be a function of the physical characteristics of the event. In this case, construction techniques, local regulation, and laws of nature determine the event sequence. • Sometimes the sequence of events is dictated by customer preference. Receive payment Provide Credit Cash inAdvance OR Ship merchandise Business Policies Constructing a building • Excavate Construction Site • Pour Foundation • Lay Floor • Frame Building • Side Building • Install Rough Plumbing • Install Rough Electrical

29. Event Risks • An operating event occurring at the wrong time or sequence, • An operating event occurring without proper authorization, • An operating event involving the wrong internal agent, • An operating event involving the wrong external agent, • An operating event involving the wrong resource, • An operating event involving the wrong amount of resource, and/or • An operating event occurring at the wrong location.

30. McKell's Retail Sale Store Case Checkpoint—Business Rules • Each sale takes place at a specific register (location). • Each sale involves only one customer (external agent). • Only one salesperson (internal agent) is responsible for each sale. • Each sale involves one or more items of merchandise (resource). • McKell's merchandise items are not uniquely identified. Each instance of Merchandise refers to a type or class of Merchandise (e.g. size 12 white T-shirt, or size 9 white tennis shoes, or size 5 leather gloves). • The salesperson and customer do not have a direct relationship, because McKell does not assign customers to specific salespersons. The customer and salesperson are related only through the sale.

31. McKell’s Retail Store Case Checkpoint—Business Rules • While analyzing this event, you may document several additional rules, such as: • Sales can only involve merchandise, not fixed assets. • Sales cannot involve more merchandise (quantity) than McKell has on hand. • Sales cannot involve merchandise McKell does not offer. • Each sale must take place at only one register and the register identification must match a register identification on record. • Each sale must include only one salesperson whose identification matches a salesperson identification on record.

32. Step 5:Identify And Document The Direct Relationships Between Resources, Events, Agents, And Locations • Draw a line from each event to each resource, internal agent, external agent, and location associated with that event. On the line, add a meaningful term or phrase that describes the relationship between the objects. See Exhibit 2 - 7 or 2 - 8. • Graphically display events that are related to other events to show the required sequence of events in a business process. Draw lines from event to event in the correct sequence • Document direct relationships between pairs of agents, locations, and resources that exist independently of an operating event. Connect the pairs with a line.

33. Exhibit 2-7 Template Without Diamonds Internal Agent Resource Event External Agent Location Internal Agent Resource Event External Agent Location Place Relationship Descriptions on the Lines

34. Exhibit 2-8 Template With Diamonds Internal Agent Resource Event External Agent Location Internal Agent Resource Event External Agent Location Place Relationship Descriptions inside the Diamonds

35. internal agent involves takes place at external agent results in takes place at external agent internal agent increases Exhibit 2-9 McKell’s Retail Store REAL Model: Step 5 Merchandise Salesperson Sell Merchandise Register Customer Receive Customer Payment Cash

36. Identifying Direct Relationships Example: A sales/collection business process that consists of three events: Take Customer Order, Sale Inventory, and Collect Cash Step 1: Relationships between the event(s) and related resources, agents, and locations Related Objects Related Objects order - inventory order - salesperson order - customer sale - inventory sale - customer cash receipt - cash cash receipt - customer

37. Identifying Direct Relationships (cont.) Example: A sales/collection business process that consists of three events:Take Customer Order, Sale Inventory, and Collect Cash Step 2: Relationships between directly related events (e.g. consecutive or sequential events that occur during the business process) Related Objects order - sale sale - cash receipt Step 3: Relationships between any resources, agents, or locations that have a direct relationship independent of any event occurring. Related Objects salesperson - customer

38. Step 6:Validate The Real Business Process Model With Business Persons • Those who understand the details and objectives of the business process and events being modeled should perform the validation. • Validation sessions should result in either the confirmation of the model’s accuracy or modification of the model. • Modifications typically involve decomposing one or more operating events into more detailed operating events, or combining events. • Once a REAL model is created, does it need updating or maintenance? Yes. The nature of business processes and events can change over time. More importantly, in today’s fast paced world, the nature of business processes and events often must change with time.

39. Linking Processes • Understanding the relationship between individual business processes is very important. • Collectively business processes result in the acquisition of goods and services, the conversion of acquired goods and services into goods and services for customers, the delivery of the goods and services to customers, and the collection or payment from customers. • Business processes are linked together in two ways: • by sharing common resources or • by an event in one process triggering an event in another process. • For example, consider the simple model presented in Exhibit 2 - 11.

40. Exhibit 2-10 Partial REAL Diagram for Linked Business Process Example Receive goods from vendor Ship goods to customer + - Inventory Pay vendor for goods Receive customer payment + - Cash + Acquire financing Acquire human resource - + - Human resource Pay for human resource Repay vendor

41. Appendix Two Further Practice Using REAL Modeling—Cherry Bee, Inc. • Cherry Bee, Inc. is a small bee keeping operation located in Preston, Idaho. Each spring Marc, the owner, hires several beekeepers to manage and care for the hives owned by Cherry Bee. Marc pays these hive workers weekly during the spring, summer, and fall. • Marc purchases new supplies and materials for hive workers to use. The beekeepers go to the fields to check each hive, medicate each hive, clean any dead bees out of the hive, and add sugar water if the supply of honey in the hive is low. Business Events Hire Workers Pay Workers Purchase Supplies Check hives

42. Appendix Two Further Practice Using REAL Modeling—Cherry Bee, Inc. • Twice during the summer, hive workers extract honey from the hives. Then they go into the supply barn to strain the honey and package the finished product in a variety of different sized containers. The finished honey is placed on shelves in the storage room. In the late fall, hive workers again check each hive, give them more medicine, and wrap the hives in black plastic to keep them warm during the winter. • Throughout the year, customers purchase honey from Marc at the Cherry Bee Store. Some commercial customers purchase the honey on account, while most customers pay cash. Marc purchases the supplies both on account and with cash from local vendors. The medicine, sugar, and black plastic are kept in thesupply barn along with other supplies and materials, as well as the honey inventory. Extract honey Strain honey Package honey Store honey Sell honey Receive Payment Pay for Supplies Store Supplies

43. Supplies and Materials Acquisition/Maintenance/ Payment Process Labor Acquisition/Maintenance/ Payment Process Conversion Process Sales/Collection Process Check hives Sell honey to customer Purchase supplies Hire workers Extract honey Pay for supplies Pay workers Receive payment for honey sold Strain honey Store Supplies Package honey Store honey Exhibit 2-11Cherry Bee Business Processes

44. Cherry Bee Business Process Model Matrix Internal Agents External Agents Event Resources Hire workers manager (Marc) human labor Potential workers cashier (Marc), hive workers Pay workers cash purchasing agent (Marc) materials & supplies Purchase mat. & supplies vendors payables clerk (Marc) Pay for mat. & supplies cash vendors Store mat. & supplies materials & supplies hive workers hives, mat. & supplies hive workers Check hives

45. Cherry Bee Business Process Model Matrix Internal Agents External Agents Event Resources Store mat. & supplies hive workers hives, mat. & supplies hive workers Check hives hives, mat. & supplies hives, mat. & supplies Extract honey hive workers hive workers Strain honey hives, mat. & supplies Package honey hive workers packaged honey Store honey store worker (Marc) packaged honey Sell honey store worker (Marc) customers packaged honey Collect payment cashier (Marc) customers cash

46. Cherry Bee Business Process Model Matrix Locations Business Objectives Event Trigger Cherry Bee store Hire skilled, dependable workers at a fair rate ... need for labor Pay only for services received, pay in a timely manner.... payment for services due Cherry Bee store Have mat. & supplies on hand when needed, pay lowest prices.. need for mat. & supplies vendor store at Cherry Bee or vendor store Pay for supplies in a timely to maintain vendor goodwill... purchase of mat.&supplies Store materials & supplies in a safe, convenient location purchase of mat.&supplies supply barn Make sure hives are healthy and prepared for production.. beginning of Spring field

47. Cherry Bee Business Process Model Matrix Locations Business Objectives Event Trigger Make sure hives are healthy and prepared for production.. beginning of Spring field Extract all the honey at the right point in time without waste.. field hive full of honey supply barn Produce clean honey for sale... Extracted honey Package honey in containers that promote a long shelf life... supply barn honey was strained Store honey in a safe, convenient location until needed at store... honey was packaged supply barn Sell quality honey for a fair price as quickly as possible ... customer enters store Cherry Bee store Collect payments from customers in a timely manner ... Cherry Bee store sale of honey

48. Cherry Bee REAL Models Labor Acquisition/Maintenance/ Payment Process Human Labor Hire workers Marc Cherry Bee Store Pay workers Hive Workers Cash

49. Cherry Bee REAL Models Supplies and Materials Acquisition/ Maintenance/ Payment Process Supply Barn Hive workers Store mat. & supplies Materials & Supplies Marc Vendor Store Purchase mat. & supplies Cherry Bee Store Vendor Pay for mat. & supplies Cash

50. Cherry Bee REAL Models Sales/Collection Process Packaged Honey Sell honey Marc Cherry Bee Store Collect payment Customer Cash