Business Process Management (BPM) (for Masters of ETM) Lecture 3: Process Lifecycle Management

Transcription

1 MTAT Business Process Management (BPM) (for Masters of ETM) Lecture 3: Process Lifecycle Management Marlon Dumas marlon.dumas ät ut. ee

2 Agenda for Today Time Contents t Review of homework Process Lifecycle Management Lunch break Process Lifecycle Management (cont.) Process Lifecycle Management (cont.) 2

3 Another View on Process Improvement

4 Business Process Lifecycle Management Process identification Process modelling (as-is) Process analysis Process improvement (to-be) Process implementation Process execution Process monitoring/controlling 4 4

5 Process Improvement - Object-oriented Approaches (1/2) - Elimination i of object types secondary objects (copies, reports) e.g. prebilling Elimination of objects statistical checks in goods receipt or invoice verification Substitution of objects credit vouchers instead of invoices (Hammer: Ford) (Evaluated Receipt Settlement) Digitalisation of objects document management, EDM-systems Microsoft s invoicing process Michael Rosemann 5

6 Process Improvement - Object-oriented Approaches (2/2) - Harmonisation of objects Unitisation Logistical units (e.g. pallets) Separation of objects Differentiation of standard-cases and exceptions Increased time-/cost-homogenity Process oriented optimisation of objects Design for process Design of products meets needs of production, assembly, logistics and recycling Michael Rosemann 6

7 Process Improvement - Function-oriented Approaches (1/2) - Elimination of functions Lean Management-approach Outsourcing Integration of functions (unification) Job Enlargement (horizontal compression) Process Owner Case manager / case worker Job Enrichment (empowerment) delegation of decisions Michael Rosemann 7

8 Process Improvement - Function-oriented Approaches (2/2) - Change process direction pull instead of push Kanban, Just-in-time time Automation of functions Basic idea of IT-use Especially: Automation of control flow (workflow mgmt) Parallel routing of functions create natural order delinearize processes e.g. simultaneous/concurrent engineering Michael Rosemann 8

9 Process Improvement - Resource-oriented Approaches - In general: extend the control sphere of a (human, technical) resource to its limits organisational: - case worker/process owner - reduced interfaces - delegation of responsibility IT: - integration of different media - reduced media changes (e.g. Enterprise System) - standardisation (e.g. Web services) Optimal synchronisation of demand and offer Michael Rosemann 9

10 Abandon / eliminate Outsource/ off-shore/ self-service Pull principle Process Improvement - Another Classification - Resource Function/ Process Process Object Downsizing Lean Management e.g. copies, reports External service provider Management by exception Business process outsourcing Kanban Modular sourcing reports Streamline Training i Re-design of Re-design of function document Automate Increased use of Workflow Digitalization IT management Natural order Simultaneous engineering g Multi-user access Michael Rosemann 10

11 Horizontal integration Process Improvement - Another Classification - Resource Job enlargement Function/ Process Workflow management Standardise Standardised roles (Global) Integration Process Object Unitization XML, ontologies Eliminate OPT Smoothen Multi-user user access bottleneck demand Specialisation/ Specialised roles Design alternative Design of variants decentralisation ti cases Empowerment Job enrichment Integrated quality assurance Integration of delivery note and invoice Centralisation Shared service Process consolidation Elimination of variants Michael Rosemann 11

12 Process Implementation

13 Business Process Lifecycle Management Process identification Process modelling (as-is) Process analysis Process improvement (to-be) Process implementation Process execution Process monitoring/controlling 13 13

14 Harmon s Process-centric Enterprise Architecture 14 Harmon (2004)

15 Process Implementation Organisational Change User Participation User Training Change Management IT Implementation Custom Software Application In-house development Outsourced Packaged Enterprise System Workflow Management System (WfMS / BPMS) 15

16 User Participation/Involvement 1. Buy-in, not only commitment 2. Select first processes carefully 3. Involve users and sponsors 4. Highlight business impact 5. Provide short-term benefits and long-term objectives 6. BPM must be in their self-interest 7. Proof of concept 8. Communicate (internal) success stories 9. Identify and coach BPM champion 10. Communication is different to consensus 16

17 Management of User Participation in Processes Harmon

18 IT Implementation Packaged Enterprise Systems Typically classified into: ERP: Enterprise Resource Planning, including Manufacturing, inventory control, procurement, financials, human resources SCM: Supply Chain Management, including Material acquisition (forecasting, planning), logistics/transportation Supplier relationship management CRM: Customer Relationship Management Marketing, lead management, sales These functions can come together, or acquired separately, e.g. E.g. Peoplesoft for HR (now Oracle), SAP for manufacturing and SCM, Oracle Apps for financials, Salesforce for CRM 18

19 ERP System Data Warehouse Legacy Systems Customers On-Line Analytical Processing (OLAP) ERP System Bolt-On Applications (Industry Specific Functions) Core Functions [On-Line Transaction Processing (OLTP)] Suppliers Sales & Distribution Business Planning Shop Floor Control Logistics Sumit Lodhia Operational Database Customers, Production, Vendor, Inventory, etc. 19

20 What is an ERP System? Multi-module l application that t helps a company manage key parts of its business in an integrated fashion. Key features include: standardized environment with shared database independent of applications and integrated applications enables information flow across organizational boundaries to support common transactions and business processes intended to be customized for specific companies database configuration bolt-on software 20

21 Risks Associated with ERP Implementation ti Pace of implementation Big Bang --switch operations from legacy systems to ERP in a single event Phased-In --independent ERP units installed over time, assimilated, and integrated Opposition to change user reluctance and inertia need of upper management support Choosing the wrong ERP goodness of fit: no one ERP product is best for all industries scalability: system s ability to grow 21

22 Risks Associated with ERP Implementation High cost and cost overruns training testing and integration database conversion Disruptions to operations ERP implementations usually involve major process changes Need to align ERP-imposed processes with existing processes 22

23 Workflow Systems / BPM Systems BPMN-based: Savvion, Lombardi, BizAgi BPEL-based (Service-Oriented Architecture) Oracle SOA Suite ActiveBPEL IBM Websphere Process Engine Microsoft: BizTalk, Windows Workflow Foundation Community-based open-source: YAWL 23

24 Workflow Technology in a Nutshell Animation by Wil van der Aalst, Vincent Almering and Herman Wijbenga 24

25 Worklist Work Item 25

26 Danske Bank: Customer Package Process Juni 2003 August 2003 October 2003 December 2003 Marts 2007 Introduction of Customer packages. Word template to collect info Steen Brahe, Danske Bank 26

27 Danske Bank: Customer Package Process Customer Create Card Create Account Advisor Backoffice workers Create Credit Juni 2003 August 2003 October 2003 December 2003 Marts 2007 Backoffice group created Handles the creation process Steen Brahe,

28 Danske Bank: Customer Package Process Juni 2003 August 2003 October 2003 December 2003 Marts 2007 Case Transfer System Automatic validation and transfering Steen Brahe,

29 Danske Bank: Customer Package Process Juni 2003 August 2003 October 2003 December 2003 Marts 2007 Workflow enabled creation process v. 1 Automatic process control, 0% automated activities Steen Brahe,

30 Danske Bank: Customer Package Process Customer Service A Service B Service C Not valid XML Advisor Case Transfer System Create Credit Backoffice workers Juni 2003 August 2003 October 2003 December 2003 Marts 2007 Workflow v. 6 80% automated activities Steen Brahe,

31 Danske Bank System Architecture Executable Business Process A1 A2 A4 A3 WSDL A1 WSDL A2 WSDL A3 WSDL A4 Service Bus / Container App1: COBOL App2: PL1 App3: Java App4: C# Steen Brahe,

32 The YAWL Workflow System PROM YAWL Workflow Engine Event Log Case Data YAWL Process Editor Resource Service Web Service Invoker Worklet Service Admin Worklis t Process Repository Org Model Event Log users Web Service Web Service 32

33 YAWL Editor 33

34 Simple Process Model in BPMN 34

35 Equivalent YAWL Net 35

36 Path of a Work Item in YAWL 36

37 Default YAWL Worklist Handler 37

38 Process Monitoring & Controlling

39 Business Process Lifecycle Management Process identification Process modelling (as-is) Process analysis Process improvement (to-be) Process implementation Process execution Process monitoring/controlling 39 39

40 Process Monitoring and Controlling Process design Process design Strengths/ weaknesses Process Monitoring & Controlling Process execution Implementation (Re-) implementiation Analysis Process execution Michael zur Muehlen 40

41 Process Monitoring Technical Monitoring: - System performance measurement (response time, system-load, reliability, etc.) Organizational Monitoring: - Measurement of organizational efficiency Objective: enhanced transparency about the current process status (e. g. improvement of the response on customer requests) 41

42 Process Monitoring: Dashboards Process Cycle Time of Order Processing Process Frequency of Order Processing Process Cycle Time of Order Processing split up to different Plants IDS (2003) 42

43 Contact customer (Re)send bill Start Register order Receive payment Archive order End Prepare shipment Ship goods Beyond Monitoring Process Mining 2) process model 3) organizational model 4) social network 1) basic performance metrics 5) performance characteristics ti 6) auditing/security If then 43

44 Process Mining The ProM Framework 44

45 Example: Event log (audit trail) Case 21 Description Event User yyyy/mm/dd /dd hh:mm Start 2006/02/05 15:00 Register order Processed To edl 2006/02/05 15:00 Register order Released By 2006/02/05 15:00 Prepare shipment Processed To 2006/02/05 15:00 (Re)send bill Processed To 2006/02/05 15:00 (Re)send bill Released By dl 2006/02/05 15:01 Receive payment Processed To 2006/02/05 15:01 Prepare shipment Released By 2006/02/05 15:01 Ship pg goods Processed To _ edl 2006/02/05 15:01 Ship goods Released By 2006/02/05 15:02 Receive payment Released By 2006/02/05 15:02 Archive order Processed To 2006/02/05 15:02 Archive order Released By dl 2006/02/05 15:02 Terminated 2006/02/05 15:02 45 W.v.d.Aalst (2003

46 Process discovery Prepare shipment Ship goods Register order (Re)send bill Archive order process discovery Contact customer Receive payment 46

47 Conformance testing Prepare shipment Ship goods Register order (Re)send bill Archive order Receive payment Requirement for material has arisen Contact customer Purchase Requisition Requisition released for scheduling agreement schedule/sa release Purchase requisition released for purchase order Purchasing Goods received Inbound delivery entered Purchase order created Goods Receipt Goods receipt posted Warehouse/ Stores Material is released Invoice received TO item confirmed without differences Transfer order item 47 is confirmed Invoice Verification Payment must be effected

48 Log based verification formula four_eyes_principle (a1:activity,a2:activity) it it := forall[p:person (!(execute(p,a1)) \/!(execute(p,a2)))]; ( 48

49 ProM Demo

50 Process Controlling Collation and analysis of runtime data Comparison of actual- and target data Active impact on current process execution as well as future process modeling (target) Goal: Improvement of an enterprise s adaptability to changes in the environment and in the enterprise itself 50

51 Objective: Process Controlling Establish a system for controlling the process and providing feedback to the people involved Establish Control Points Control points are activities such as Inspection, verification, auditing, measuring, counting Usually considered business value adding Without control points and a control system the only way of assessing gprocess performance is customer feedback The process ends up in a reactive mode Poor quality is discovered too late Location of control points is determined d by Criticality impact on customer satisfaction Feasibility physically and economically possible Laguna & Marklund 51

52 Process Controlling (cont.) Develop and Implement Measurements Involves answering the questions 1.What is to be measured and controlled (Ex. FedEx)? 2.What is currently measured (available data)? 3.Can a business case be made for a new measurement system? 4.What is an adequate sampling method, sampling size & frequency? Measurements should be meaningful, accurate and timely Statistical and graphical tools needed to turn data into information. Five measurement categories: Measures of Conformance (to given specifications) Response time (lead-time, cycle time) Service levels (degree of availability, service reliability) Repetition (frequency of recurring events such as rework) Cost (Quality, PAF, internal and external failure costs) Laguna & Marklund 52

53 Performance Measures in SCM Overall Inventory Turns Raw Materials Inventory Turns (manufacturing companies only) Work-in-Process Inventory Turns (manufacturing companies only) Annual cost of goods sold (company info) average total inventory Annual cost of raw materials purchased (3) average raw material inventory (Annual cost of raw materials purchased (3) + Annual cost of conversion (4)) average work in process inventory Finished Goods Inventory Turns Annual cost of goods sold (company info) average finished goods inventory Percentage of safety stock Average safety stock total inventory Purchase order cycle time (in days for Average amount of time (in days) elapsed from point of intention to purchasing department t and excludes place order to receipt of order by vendor supplier lead time) Supplier lead time Supplier on-time delivery Average amount of time (in days) elapsed from point of order to delivery Percentage of orders supplier delivers on scheduled due date Find more at: 53

54 What to Measure? The Balance Scorecard Framework After Kaplan & Norton (1992) 54

55 Strategy Map: Capture a Cause Effect Relationship from the Bottom Up Inte ernal Process s Stakeho older Economic Model Process Improved Returns on Investments Reduce Re-Activities thru ABC More rapid and accessible services Establish Web- Based Self Services Learn ing & Grow wth Expand Global Facility Reach Leadership Development Knowledge Management Financial ) nvestments) Facilities and Fixed Assets Human Capital IT Infrastructure (I 55

56 Examples of Measurements by Perspective Stakeholder / Customer Current customer satisfaction level Improvement in customer satisfaction Customer retention rate Frequency of customer contact by customer service Average time to resolve a customer inquiry Number of customer complaints Learning and Growth Internal Processes Number of unscheduled maintenance calls Production time lost because of maintenance problems Percentage of equipment maintained on schedule Average number of monthly unscheduled outages Mean time between failures Financial / Investments Percentage employee absenteeism % of facility assets fully funded for Hours of absenteeism upgrading Job posting response rate % of IT infrastructure investments approved Personnel turnover rate # of new hire positions authorized for Ratio of acceptances to offers filling Time to fill vacancy % of required contracts awarded and in place 56

57 Extend the Map into Measurements, Targets and Initiatives der Strategy Map Internal Process Stakehol Faster Service Access Self Service Applications Process and Value Map Analysis Lean Processes Detailed statement of what is critical to successfully achieving i the strategy Objective Description Eliminate waste, reworks, and other errors in our processes How success in achieving the strategy will be measured and tracked Measure Number of Reworks The level of performance or rate of improvement needed d Target 2 per setup per month each Outlet Office Key action programs required to achieve objectives Initiative Lean / Six Sigma L&G Web Enable Technologies ooges Inve estments Invest in IT 57

58 Alignment of Scorecard Components Make sure the components of your scorecard fit together. We want to create a tight model for driving execution of your strategy. Goal Objective Measurement Target Initiative Achieve Agency operational efficiencies with best practices in the private sector Reduce Operational Service Costs by 50% over the next 5 years Reduce identified re-activities within primary processes by 80% over the next 3 years Cost per Outlet Office, Cost per Region, Cost per FTE Waste Volume Charts, Rework Tracking, Cycle Time End to End in S-LX (5 of 7 Regions) 5% - Year 1 10% - Year 2 15% - Year 3 Waste stream reductions of 5% each year, Reworks cut in half for next 3 years, cycle time cut by 75% Activity Based Costing / Management Lean / Six Sigma 58

59 Guidelines for Performance Measures At least one measurement per objective. Measurements define or explain objectives in quantifiable terms: Vague => We will improve customer service Precise => We will improve customer service by reducing response times by 30% by year end. Measurements should drive change and encourage the right behavior. Should be able to influence the outcome. 59

60 Benchmarking: SCORcards T. Gulledge & T. Chavusholu: Automating the construction of supply chain key performance indicators, Industrial Management & Data Systems,

61 Process Controlling (cont.) Performing Feedback and Control Important for stabilizing and improving the process Objectives of control/corrective action are Regulation to maintain a certain performance level Improvement aiming at reducing variability or raising the average performance level (see for example Six Sigma) Feedback is an important enabler for corrective action People in the process need to understand how their actions affect the overall process and its performance Feedback should be constructive and non-punitive Constructive feedback Makes people feel that they matter Encourages involvement and commitment Laguna & Marklund 61

62 Six Sigma Quality Programs Six Sigma is originally a company wide initiative at Motorola for breakthrough improvement in quality and productivity Launched in 1987 The ongoing success of Six Sigma programs has attracted a number of prestigious firms to adopt the approach Ex. Ford, GE, AMEX, Honeywell, Nokia, Phillips, Samsung, J.P. Morgan, Maytag, Dupont Broad definition of Six Sigma programs A company wide strategic initiative for process improvement in both manufacturing and service organizations with the clear objective of reducing costs and increasing revenues Fierce focus on bottom-line results Laguna & Marklund 62

63 Technical Definition of Six Sigma Reduce the variation of every individual process to render no more than 3.4 defects per million opportunities Assuming the process output is normally distributed with mean μ and standard deviation σ the distance between the target value and the closest specification limit is at least 6 σ and the process mean is allowed to drift at most 1.5 σ from the target μ -1.5σ μ μ + 1.5σ Lower Specification Limit (LSL) Target Value (T) Upper Specification Limit (USL) 4.5σ 1.5σ 1.5σ 4.5σ 6σ 6σ Laguna & Marklund 63

64 The Six Sigma Cost or Efficiency Rationale Reducing costs by increasing process efficiency has an immediate effect on the bottom line To assure worker involvement Six Sigma strives to avoid layoffs The Six Sigma Efficiency loop Variation Improvement projects Commitment Reduced Costs Cycle Time Increased Profits Yield Laguna & Marklund 64

65 The Six Sigma Cost or Efficiency Rationale Rationale Based on the dimensions of variation, cycle time & yield Variation Can be divided into two main types 1. Common cause or random variation 2. Special cause or non-random variation Non-random variation Relatively few identifiable root causes First step in reducing the overall variation is to eliminate nonrandom variation by removing its root causes Random variation The result of many different causes Inherent in the process and can only be affected by changing the process design Laguna & Marklund 65

66 The Six Sigma Cost or Efficiency Rationale Variation (cont.) Important concepts to understand the impact of variation Dispersion Predictability Centering Dispersion Magnitude of variation in the measured process characteristics. Predictability Do the measured process characteristics belong to the same probability distribution over time? For a predictable process, dispersion refers to the width of the pdf. Centering How well the process mean is aligned with the process target t value Laguna & Marklund 66

67 The Six Sigma Cost or Efficiency Rationale Variation (cont.) Ideally the process should be predictable, with low dispersion, and well centered Standard d approach for reducing variability in Six Sigma programs 1. Eliminate special cause variation to reduce overall dispersion and improve predictability 2. Reduce dispersion of the predictable process 3. Center the process to the specified target Six Sigma use traditional tools for quality and process control/analysis Basic statistical tools for data analysis The 7 QC tools Laguna & Marklund 67

68 The Six Sigma Cost or Efficiency Rationale Cycle time and Yield Cycle time (lead-time, response time) The time a job spends in the process Yield (productivity) i Amount of output per unit of input or per unit time Improvement in cycle time and yield follow the same tactic as for variation Gain predictability, reduce dispersion and center to target The target is usually broadly defined as Minimize ecycet cycle time eand Maximize eyed yield Six Sigma principle Improvement in average cycle time and yield should not be made at the expense of increased variation Laguna & Marklund 68

69 The Six Sigma Revenue or Effectiveness Rationale Determinants of the company s revenues Sales volume closely related to market share Sales prices Revenues contingent on how well the firm can satisfy the external customers desires An important Six Sigma Success factor is the focus on internal and external customer requirements in every single improvement project Laguna & Marklund 69

70 The Six Sigma Cost & Revenue Rationale Variation Improvement projects Customer satisfaction Increased Market Commitment Reduced d Costs Share & potentially higher prices Cycle Time Increased Profits Increased Revenues Yield Laguna & Marklund 70

71 The Six Sigma Framework Centered around a disciplined and quantitatively oriented improvement methodology (DMAIC) Define, Measure, Analyze, Improve, Control Top Management Commitment Training Improvement Methodology Define Measure Analyze Improve Control Measurement System Stakeholder Involvement Laguna & Marklund 71

72 Six Sigma Success Factors The bottom line focus and big dollar impact Encourages and maintains i top management commitment t The emphasis on - and consistent use of - a unified and quantitative approach to process improvement The DMAIC methodology provides a common language to share experiences and successes across the organization Creates awareness that decisions should be based on factual data Emphasis on understanding & satisfying customer needs Creates focus on doing the right things right Anecdotal information is replaced by factual data Combination of right projects, right people and right tools Careful selection of projects and people combined with hands on training in using statistical tools in real projects Laguna & Marklund 72

73 Recap: The Layers of BPM Activities BPM Setup Strategic Alignment BPM Governance BPM Methodology Process-aware Infom. Systems Culture & People Process Analysis Process Identification Process Modelling Process Measurement Process Analysis Process Improvement Lean/ Six Sigma Process Implementation Process Process Process Process Change Configuration Development Training Testing Management Process Execution and Controlling Process Execution Process Monitoring Process Mining Process Perform. Mgt. Process Controlling 73

74 Project (see project description on the course web page)

75 Readings P. Harmon. Business Process Architecture and the Process-Centric Company, BPTrends Newsletter, March P. Harmon. Business Processes at a New Company: What Do You Do First?. BPTrends Newsleter, October