COM W. Arevolo, J. Sinur, C. Mann

Transcription

1 W. Arevolo, J. Sinur, C. Mann Research Note 21 May 2003 Commentary Compound Metrics Required to Reflect Full Value of BPM Enterprises that justify investments in business process management through return on investment alone see only part of the picture. You can better justify business process management by also focusing on business value. You may overlook some valuable benefits of business process management (BPM) projects if you try to justify them simply by calculating return on investment (ROI). A more complete evaluation of benefits, examining ROI as well as the long-term value on investment (VOI), will better capture the full effects of your BPM project. VOI seeks to track the wealth created by investments in intangible workplace capabilities that we intuitively know are beneficial, but are difficult to measure (see "Changing the View of ROI to VOI Value on Investment"). The importance of these intangible benefits became clear in January 2003, when Gartner surveyed large enterprises that used BPM solutions (see Figure 1). The highest percentage of responses cited productivity and quality, rather than cost savings, as the key benefits of BPM. The enterprises we surveyed may have justified the purchase of BPM solutions by citing cost savings in the form of reduced personnel or lower cost per transaction, but the "soft" business benefits provided greater value, including competitive advantage, in several cases. Gartner 2003 Gartner, Inc. and/or its Affiliates. All Rights Reserved. Reproduction of this publication in any form without prior written permission is forbidden. The information contained herein has been obtained from sources believed to be reliable. Gartner disclaims all warranties as to the accuracy, completeness or adequacy of such information. Gartner shall have no liability for errors, omissions or inadequacies in the information contained herein or for interpretations thereof. The reader assumes sole responsibility for the selection of these materials to achieve its intended results. The opinions expressed herein are subject to change without notice.

2 Figure 1 Percentage of Enterprises Reporting BPM Benefits Reduction in inelapsed time time Higher productivity per per person Improved quality/reduced errors Reduced number of of steps Higher employee satisfaction Fewer people needed Improved coordination across depts./geographies. Automation of of admin. tasks Reduced cost per transaction Enabling external users Improved regulatory compliance Flex. in in processes/bus. agility agility Data/process integ. integ. across across apps. apps. Reduced risk risk Reduced waste/scrap 0% 10% 25% 40% 55% 70% 85% (The indicated percentages highlight the impact of the top BPM benefits.) Source: Gartner Research (May 2003) Caution! A Short-Term Financial View of BPM Results Can Lead to Problems Later ROI remains difficult to sustain over the many years of a BPM project. ROI represents financial gains that are expressed as a percentage of the funds invested to generate that gain within a predetermined period of time. Elements of financial gain that are part of an ROI analysis often revolve around cost minimization. They include: Cost per transaction Time to market for new products Elapsed time to problem resolution Investment funds include items such as: Development time and costs of implementation, including purchase prices of needed hardware and software, along with the costs of programmers, consultants, third-party integrators, and training and familiarization Maintenance costs, including the frequency and difficulty of making changes to the system Programming costs, including the specialized personnel required to make changes The cost of lost opportunities during the project's development and maintenance 21 May

3 Using these financial criteria only, enterprises may take a faulty approach when implementing BPM, which will lead to problems down the road. Although rapid returns are possible, they are often achieved through opportunistic process optimization efforts that can have unforeseen side effects, such as: Insufficient Budgets: Unlike the implementation of typical enterprise applications, BPM often has multiple rollouts. Additional processes are identified for automation, and previously automated processes must be revised to meet changing business needs. Building new connectors to legacy applications, and the testing involved in revising workflows and rules, requires ongoing IT and business resources. Using an ROI approach to evaluating BPM success often leads enterprises to cut budgets by the amount saved in the first year. As a result, there are insufficient resources to handle the ongoing evolution of the software's use within the business. Nor are there resources to deal with unexpected problems, such as processes not installed promptly, workflows not updated to meet new business requirements, or improper business decisions. Unexpected costs incurred after the project's initial development can include "inconvenience factors," such as paying personnel to manually adjust transactions that are not covered by the BPM solution. In other cases, costs may increase because of mistakes in the design of the automated process, such as ordering medical records or credit reports in every case, instead of selectively ordering them when they are really needed. Thus, short-term ROI metrics can be misleading. Preparation for future uses of BPM, as well as the possibility of repairing broken processes, should be calculated into the total value of the investment before departmental budgets are touched. Redundant Costs: Many organizations are plagued by disparate, siloed systems that usually fail to properly address parts of larger processes. Business units, which are driven to solve immediate process problems, lead the majority of BPM initiatives today (rather than the IS department), and are liable to fund projects that supposedly serve only their own needs. Moreover, ROI calculations for BPM alone can encourage departments to miscalculate ROI, and drive enterprises to make many investments to solve the same processes in other departments, and to acquire different BPM solutions, which often results in additional costs and problems, such as integration among different systems and BPM solutions, acquisition and retention of different IT skills, and negotiation of BPM software licenses and services. Without a more enterprisewide and systemwide view, the BPM solution is in danger of becoming another siloed, costly system. Thus, short-term and single-vision ROI metrics can generate redundant costs. The addition of long-term vision and VOI to ROI can help to justify investments. More important, this approach can better leverage BPM efforts, and extend BPM benefits within the enterprise and its value chain. Composite Justifications Effectively Capture All BPM Costs and Benefits As mentioned above, ROI calculations often fail to capture long-term costs, such as rollouts to additional processes and the development of adapters to additional applications and data sources. ROI calculations also usually don't encompass "soft" benefits, such as increased business throughput, minimized lost opportunities, increased business agility and assured regulatory compliance. BPM can also create intangible value by increasing organizational cohesion, and making the enterprise more proficient at reacting to change or more able to transform itself. A more holistic view of the value of a BPM project will augment ROI analysis with nonfinancial measures that go beyond the initiative's original target business unit to identify the effects on the enterprise as a whole, with a specific emphasis on intangible assets that are usually overlooked. We call this comprehensive approach to developing a project's benefits VOI (see "Projecting, Monitoring and Measuring Business Value" and "TVO Methodology: Valuing IT Investments via the Gartner Business Performance Framework"). This method helps to identify long-term increases in business performance that may result from BPM investments, including: 21 May

4 Reduced Opportunity Costs: BPM can reduce the time to make complex decisions through intelligent routing and automation of policy rules. Many enterprises can design automated processes using BPM tools where other technologies failed. Delivering a timely, effective process reduces the chance of lost opportunities. Moreover, BPM can deliver increased benefits over time because the enterprise can reuse initial designs for other processes. Delaying necessary changes can result in many lost opportunities during the life of an application. The need to revise specifications and recode and re-implement the application contributes to this delay. BPM can reduce the length of this cycle by facilitating a quick response to a problem or a need for change. Enterprises can alter the business logic in a secure, controlled way without jeopardizing the application infrastructure code. Even complex changes become easier due to the separation of business processes, rules and services from application codes. Enterprises can proceed with alterations, testing and impact analysis more confidently. BPM therefore becomes a contributor to business agility a benefit that is not measurable by standard ROI models. Reduced Development Costs: BPM aligned to analysis and simulation features can reduce the time and cost of developing business processes. Clear business processes and rules syntax, graphical workflow, and other powerful functions enable business units to help with design and development. BPM system architecture is also more modular and intuitive for programmers and business units. Thus, business units can do more work themselves, thereby lowering the effort and cost of specifications, retesting and iterative code development. The cost reduction grows in proportion to the complexity of the challenge, thanks to the design, simulation, development and testing facilities that are included with the morecomplete BPM solutions. Enterprises should also consider BPM solutions that are integrated with pre-built subsystems to handle: Case-dependent rule execution Multiuser interaction with rules On-the-fly rule replacement without downtime Documentation Integration with external data and systems Otherwise, the enterprise would need to design, build and test these functions. development costs can be reduced even more by renovating and extending legacy systems. Give them a new, independent "nervous system," based on business processes that have been automated using BPM technology. These reductions in development cost are difficult to measure in ROI terms, but deliver real value to the enterprise. Reduced Maintenance Costs: Applications using BPM functions that simplify development will more likely operate correctly from the start. Associated functions (such as cross-referencing, reporting, performance monitoring and graphical debugging), combined with the power of declarative rules, can provide better, faster results that make maintenance work quicker and less expensive. Because it automates, consolidates and facilitates the flow of change, a BPM solution can lower IT support costs, freeing time and talent for more-strategic initiatives (or reducing the need for staff). Using VOI in addition to ROI will better capture this effect. A BPM Bonus: Innovation 21 May

5 BPM can help derive explicit value from human capital. By driving repetitive tasks out of a business process, users are able to spend a higher percentage of their workday on complex, value-added tasks that require specialized skills and knowledge. Developing automated decision-making capability in a credit approval process enabled one bank card company to eliminate routine calls, empowering its call center staff to focus on exceptions that used their probing skills, data evaluation skills and professional judgment. Improvements in employee satisfaction can be tracked, but it is difficult to determine a financial result from such metrics. A total VOI approach to measuring BPM projects will bring these intangible benefits to light. Bottom Line: Competitive pressures, limited resources and accelerating change make business process management solutions highly desirable. Enterprises and their executives expect to continue dealing with exponentially growing and changing business processes without the corresponding exponential growth in employees or contractors These are the primary reasons to implement BPM. In addition, there are numerous other benefits that are difficult to measure in the beginning, which are clearly measurable and valuable in the long run. To justify such investments and identify best methods for implementation, conduct return on investment and value on investment analyses over an extended period. Using this more-holistic approach, the total costs and benefits of BPM will become apparent. 21 May