Tracking and measuring effectiveness of BPM

1. Tracking and measuring effectiveness of BPM Greg Hyde Strategic Change & Transformation Greg.A.Hyde@bigpond.com 23rd August 2012

2. Topics A background to measurement Defining measures Managing suppliers Identifying and measuring waste Measuring customer requirements Quantifying the value of BPM Getting started

3. 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

4. The measurement spiral Measure what can easily be measured => OK Disregardthat which can't be easily measured, or to give it an arbitrary value => artificial and misleading Presume that what can't be easily measured, isn't important => blindness To say that what can't be easily measured, doesn't matter => Stupidity - Charles Handy

5. 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

6. Topics A background to measurement Defining measures Managing suppliers Identifying and measuring waste Measuring customer requirements Quantifying the value of BPM Getting started

7. 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

8. Which measures to choose? Process Steps InputMeasures Output Measures In-Process Measures • Inputor 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)

9. Types of measurement data Binary (yes/no) Ordered categories (limited options eg. 1-9) Ordered categories (Many options eg. 1 - 100) Count data (Limited possibilities < 10) Count data (Many possibilities) Infinite possible values (eg. Cycle time) Discrete ‘’Discrete’, but treated as ‘continuous’ Continuous

10. Continuous data is about the process Continuous data supports trend analysis over time and enables progressive or individual comparisons against tolerance limits

11. Five deadly measurement sins Strategic Minimal correlation to financial performance/results Overemphasis on internal point of view Nature of mistake Lack of prioritisation Measurement level too broad Evaluation against incorrect standard Tactical Selection Collection Reporting Usage Lifecycle of performance measurement process

12. “Just measuring your job performance…”

13. Topics A background to measurement Defining measures Managing suppliers Identifying and measuring waste Measuring customer requirements Quantifying the value of BPM Getting started

14. 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

15. Service Level Agreement measures Key features • Service specification (egperformance objectives, measurement, targets) • Relationship (egreporting mechanism, service reviews) • Development (egimprovement 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

16. Topics A background to measurement Defining measures Managing suppliers Identifying and measuring waste Measuring customer requirements Quantifying the value of BPM Getting started

17. Defining value-added Value-Added(typically around 1% - 5% of the total process) • Customer willing to pay for • If left out, would the endcustomer 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 internalcustomers complain? - Yes! • Necessary to support value-added steps • Must be done right the first time Non-Value-Added (Waste) • Customer sees no value andis not required for internal customer • If left out, would internal or end customers complain? - No! • Anything not done right the first time!

18. The hidden workforce Verify? Operation Product Yes No Rework • How many processsteps? • How many handoffs? • How many decisionpoints? • How many measurement/inspectionpoints? • Where are the bottlenecks? • How many rework loops?

19. Types of Waste Missing Information Causes delays due to poorly designed forms, processes or lost documents Human Potential Not using our full skills, intellect, ideas, and capability of our people to solve issues and run our business Over-Processing Over processing (too complex specifications or excess handling) Excessive Motion Any motion that does not add value, (eg. excess movement of people around the business) Excess Inventory Any more than the minimum needed to get the job done Excessive TransportationAny non-essential transport or movement of the product Waiting Waiting on people to conduct the next step Defects & Rework Any repair or correction or rework of an item in the process, (eg. input errors)

20. 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.” - TaiichiOhno (Toyota)

21. Topics A background to measurement Defining measures Managing suppliers Identifying and measuring waste Measuring customer requirements Quantifying the value of BPM Getting started

22. 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 Gap 4 Customer’s own specification of quality The actual product or service Gap 2 Management’s concept of the product or service Organisation’s specification of quality Gap 3 Gap 1 A perception-expectation gap model of quality

23. Selecting customer specific metrics Example Process : Invoicing Output : Bill sent to customer = Product or service Process: Payment Processing Primary output (product or service): Bills sent to customers 1 Potential output measures 1 1 2 3 4 Importance to customer Variationindelivery Measurement selection matrix Total cycle time Number of customer complaints Number of errors per bill (1 to 5) date CTQ 1 Consistent bill delivery 5 9 1 3 1 Customer CTQs CTQ 2 4 0 Accurate bills 0 9 1 2 CTQ 3 3 0 Easy to read and understand 0 1 0 = Critical to quality 2 45 41 15 12 Score 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)

25. Topics A background to measurement Defining measures Managing suppliers Identifying and measuring waste Measuring customer requirements Quantifying the value of BPM Getting started

26. Aligned performance measures High strategic relevance and aggregation Overall strategic objectives Broad strategic measures Market strategic objectives Operations strategic objectives Financial strategic objectives Functional strategic measures Customer satisfaction Resilience Agility Composite performance measures High diagnostic power and frequency of measurement Generic operations performance measures Cost Quality Dependability Flexibility Speed

27. 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?

28. Measuring process performance

29. The sand cone improvement model Cost reduction relies on a cumulative foundation of improvement in the other performance objectives Cost Flexibility Speed Dependability Quality

30. Topics A background to measurement Defining measures Managing suppliers Identifying and measuring waste Measuring customer requirements Quantifying the value of BPM Getting started

31. Next steps… Define a decision problem and the relevant uncertainties Establish what you already know Compute the value of additional information Apply the relevant technique to the high-value measurements Make a decision… and act on it! “It’s better to be approximately right than to be precisely wrong.” - Warren Buffett

32. 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