Business Process Analysis and Modelling

1. Business Process Analysis and Modelling Integrerade affärssystem och affärsprocesser

2. Contents • ARIS • eEPC method • Business process management • Process measures • Process cost analysis: ABC-costing

3. ARIS Background • ARIS: a recognized market leader in business modelling (Gartner Group, 1997) • Developed by Prof. August-Wilhelm Scheer at Department of Information Systems, University of Saarland, Germany, in collaboration with SAP AG. • ARIS: a product of IDS Prof. Scheer GmbH (set up in 1992; a public company IDS Scheer AG in 1999; merged with Changeware Group in 2006)

4. ARIS(Rob Davis, 2001) • ARIS: Architecture of Integrated Information Systems • a method rather than one technique • a framework for business modelling (not only limited to process modelling, but focus on the support of business processes) • support requirement definition, conceptual design to logical design and physical implementation descriptions • ARIS Toolset • software tool/environment for modelling following the ARIS method

5. ARIS • Business process models in accordance with the ARIS concept and framework • ARIS provides a modelling framework and method • a semi-conceptual method for describing process-organizational issues (organization charts, network diagrams moved one step further in ARIS) • helps to captures a wide range of descriptive aspects of business process • tools for generating, constructing and configuring models

6. ARIS Method • Aims at modelling all aspects of a complex business. It can model: • processes, data, organizations, systems, information, products, knowledge, business objectives, information flows • ARIS: • supports software system modelling using UML • uses Event-driven Process Chain (EPC) methodology • has a strong focus on modelling complex business relationships • is a multi-user process design tool • is capable of fully distributed model development • One main use is defining business implementations of the SAP R/3 ERP systems

7. Business process models in ARIS • Business process models should address multiple aspects of business processes: process structure, organization, document resources, etc. – numerous description methods are necessary • ARIS was developed independently of any particular method; ARIS concepts especially excel in creating enterprise-wide as well as inter-business business models and production models

8. ARIS Background • Process models need to be linked to the achievement target and objects, with metrics gathering built into them • Regulations places additional requirements on a business • More complex relationships between businesses: no longer is there a simple business-to-business competitor or supplier-customer relationships. The interfaces between businesses are now many and complex. • The move to e-business operations will make these interfaces more common and will require them to be automated. • How the nature of business has changed over the last few decades and how business modelling has changed with it?

9. ARIS models • Acknowledge links between models • It is becoming necessary to share parts of your business model with other businesses, suppliers, quality assessment organizations, regulators, etc. • a global business modellling method will be ideal, but of course no such method exist • a number of well-known, slightly different business modelling methods exist: ARIS, Catalyst, Zackman Framework • language standards, BPML (www.bpmi.org), UML

10. ARIS • A framework that provides a way of expressing business concepts sufficiently precise to allow detailed analysis • An architecture for describing business • A set of modelling methods with an associated meta-model • The core of ARIS concept is the representation of business processes in diagramatic forms as chains of events and process tasks. • It can also model other business objects and relationships between any objects

11. ARIS Concepts • Business modelling: a single large model from one single viewpoint is not so useful • It is more useful to build many small models from specific viewpoints and relate them to one another • Each model may contain many objects and relationships. Objects used in one model may be used in another model. • For any specific purpose, only one or two models will be built, supplemented by a small number of special models focusing on certain small aspects

12. The ARIS Concept • Different models can be built from four different views: • Organizational view: What types of organizational devices exist? (e. g. purchase, distribution, accountancy) • Data view: What types of information are relevant? (e. g. customers, suppliers, article, list of materials) • Functional view: What types of functions are to be executed? (e.g. create enquiries, verify accounts) • Control view: Coherency of data, functions and organizational devices • The ARIS House or ARIS House of Business Engineering (HOBE)

13. ARIS House

14. ARIS Model types

15. Different description levels in ARIS

16. ARIS Concepts and principles • ARIS supports all phases of business design: • Phase I • Phase II conceptual development (capture and model requirements; capture and model conceptual design) • Phase II logical development

17. ARIS • Analysis and simulation tools can be used to test the models at each stage and validate it against the objectives and requirements • Conceptual design: • defines in very broad terms how the objective can be reached • Logical design • decompose these ideas into a detailed design, but does not tell how the design will be implemented • Physical design: • shows in details how the design will be implemented using specific equipment, software applications or communication devices

18. ARIS model - Function tree

19. ARIS model - Organigram

20. ARIS model – Technical term model

21. ARIS model – eEPC (enhanced Event-driven process chain)

22. eEPC combines the different views (data, organization, function, resources) in one single model

23. Business process management- process measures and cost analysis

24. Business Process Management • 5 steps: • Business process identification • Business process analysis • Business process modelling • Business process change/implementation • Business process monitoring, control and evaluation

25. Business Process Performance Variables(Alter, 2002) • Activity rate • Output rate • consistency • productivity • cycle time • downtime • security • cost • What is important is to find the right value for each process performance variable, and find balance between the measures.

26. How to evaluate business processes? • Measuring process performance • achieved business objective or not? • how well does it support business goals? • how to estimate process performance? • simulation • Performance measurement: • qualitative measures • quantitative measures • DEA method: a technology for the empirical calculation of the most effective combination of resources that can be used to perform a process that is performed in many different places (of similar organization)

27. Cost Analysis • One of the most common motivation of BPM is to reduce costs. • Cost is one dimension of measurement of inputs and outputs. • It may prove to be difficult to decide how much a process costs: • one problem is in deciding how to allocate costs that arise from multiple processes. • infrastructure (overhead) is a major problem • Beyond the concept of cost, the main concern is about the bottom line (i.e. margin or profit). Reducing costs does not automatically lead to increased benefits.

28. Cost analysis • Pay attention to different types of costs: • variable and fixed costs • average costs, total costs, opportunity costs… • Charts of accounts can be a useful source of cost information • Cost classification: • employment expenses, employee travel, property occupancy costs, utilities, buildings, raw materials, office supplies… • Some costs are related to infrastructure where as other costs are related directly to production and delivery of goods and services.

29. Cost analysis • Conventional approach to cost allocation: • overhead per person • overhead per machine hour • overhead per square meter • Opportunity costs: consider alternatives to the decision to do the process • could resources be used for a different process? • could the process be done by someone else at a lower cost? • would a different process lead to higher revenues or higher added value?

30. Cost analysis – cost drivers • Cost drivers are a step towards Activity based costing • Cost drivers can be identified from activities performed – in other words identifying the components of business processes • Events and inputs are usually the cost drivers of processes.

31. Cost analysis – Activity Based Costing • Conventional approach to cost allocation poses problems because it allocates costs to functions rather than processes • Activity Based Costing is an alternative approach, which is concerned with identifying activities (processes) that contribute the most to the emergence of overhead costs. • Determines how a process and its sub-processes consume resources by identifying cost drivers to activities

32. Example: ABC-costing Overhead: 25000 € Total costs= (1000 +500)*10 + (2000+5000)*5 + 25000= 75000 Direct production costs of A and B can be defined, but what about allocation of overhead? We can use ”units produced”: Overhead/unit= 25000/60000=0.4166 Production costs A= (1000*10) + (2000*5) + (10000*0.4166)=24166,66 Production costs B= (500*10)+ (5000*5) + (50000*0.4166)=50833,33

33. ABC-costing (2) • We need to identify the cost drivers of the production process: • Labor? Machine hours? • Labor as cost driver: • Labor cost driver 25000/(1000+500)=16,666 • Production costs A= (1000*10) + (2000*5) + (1000*16,666)=36666,66 • Production costs B= (500*10)+ (5000*5) + (500*16,666)=38333,33 • Machine hours as cost driver: • Machine hours cost driver: 25000/(2000+5000)= 3,571 • Production costs A= (1000*10) + (2000*5) + (2000*3,571)=27144 • Production costs B= (500*10)+ (5000*5) + (5000*3,571)=47856

34. ABC-costing (3) • Depending on how overhead is alllocated, costs will be different • When performing process analysis, it is important to consider how the cost calculation method will be influenced by different cost drivers. • ABC helps understanding the cost structure.