CHAPTER 1 Business Process Management & Information Technology
Q. Process From System Engineering Perspective From Business Perspective
In system Engineering Arena Process is defined as - a sequence of events that uses inputs to produce outputs."
for example; reading a file and transforming the file to a desired output format; taking a customer order, filling that order, and issuing the customer invoice.
From a business perspective, a process is - a coordinated and standardized flow of activities performed by people or machines, which can cross organizational boundaries to achieve a business objective and creates value for internal or external customers." Customers can also be internal customers who require certain materials from other departments in order to, for instance, continue manufacturing.
Q. Classification of BP 2 categories 1. Organizational BP 2. Operational BP
Q. Organizational BP
Q. Operational BP
Q. Accounting Process Flow or Life Cycle of Accounting Process:
Q. Sales Process Flow or Life Cycle of Sales Process:
Q. Purchase Process Flow or Life Cycle of Purchase Process
Q. Financial Management Life Cycle:
Business Process Flow - It consists of phases that are related to each other. The phases are organized in a cyclical structure, showing their logical dependencies. Examples of key business process life cycle pertaining to accounting, sales, purchase and finance are explained below.
Accounting (or Book keeping) Process Cycle - It covers the business processes involved in recording and processing accounting events of a company. It begins when a transaction or financial event occurs and ends with its inclusion in the financial statements.
Financial management Process Cycle - The finance function is responsible for managing the firm's financial assets, such as cash, stocks, bonds, and other investments, to maximize the return on these financial assets. From the financial planning stage to resource allocation, monitoring and analysis, at every step of the way, organization must ensure that these resources are used effectively & efficiently.
Sales (Order to cash or OTC or 02C) Process Cycle - Sales process cycle covers all the business processes relating to fulfilling customer requests for goods or services. It starts with the documenting of a customer order and ends with the collecting the cash from the customer.
Purchase (Procure to Pay or P2P) Process Cycle Purchase cycle covers all the business processes relating to obtaining raw materials required for production of a product or for providing a service. It starts from the point of placing an order with a vendor and ends to the point of payment to the vendor.
Q. Business Process Management: BPM can be defined as Achievement of an org. s objectives through Organization, Management, Improvement (Making BP more efficient & effective). & Controls of essential business processes.
Key terms of the definition are explained below - Achievement - Realizing strategic objectives as outlined in the organization's strategic plan. Objectives- Strategic goals and individual process goals. It is about achieving the business outcomes or objectives. Management- Arranging the people, their skills, motivation, performance, rewards, the processes themselves and the structure and systems necessary to support a process. Essential - Essential processes are those which contribute towards the achievement of the organization's strategic objectives.
Key terms of the definition are explained below - Business Process Reengineering (BPR) Six Sigma Total Quality Management Will study in Strategic Management
Key Terms Organization Indicates organization of distinct business units. It ensures that a silo approach (lack of collaboration & standardization between business units) does not develop.
Key Terms Controls BPM includes Plan-Do-Check-Act. It measures & controls successful BPM implementation.
Thus BPM can be defined as follow: BPM is a collaborative effort between business units & the IT world, and this effort promotes a new model of efficient & logical business processes. It is designed to produce better business processes. Better business processes produce lower cost, higher revenues, motivated employees, and happy customers. BPM s emphasis on processes rather than functions. BPM evaluates efficiency, effectiveness and usefulness of BP BPM helps to terminate the redundant processes to save costs. BPM helps to align organization's BP with organization's objectives & goals
For example, CRM & SCM etc are part of BPM Traditional approaches such as accounts, finance, production, sales, marketing etc are the part of functional management.
Q. Key BPM Principles: BP are organizational assets Deliver consistent value to customers BP should be improved continuously IT is essential enablers of BPM.
Q. key Practices for achieving successful BPM: Utilize some incremental approached such as Six Sigma/TQM and radical methodologies such as BPR. Senior management commitment is needed to implement BPM IT systems should be placed to monitor & control BP. Work collaboratively with business partner via. Extranet. Execution of BPM process improvement should take a bottom up approach Continuous training to improve the processes
Organization should go for processes oriented organization structure Appoint process owners. Align employees bonuses & rewards to BP performance
Q. Benefits of BPM Automating repetitive Business Process Provide immediate information to the TLM for decision making purpose. Reduction in administration involved in compliance & ISO activities: Freeing up of employees time BPMS compatible with a company s existing applications
Processes vs. Functions Processes are very different from functions A function is a group of people performing similar tasks. Functions focus on completing tasks.
Processes vs. Functions Processes are very different from functions A process covers a range of tasks, & multiple departments participate in the creation of a process s outcome. For example, the shipping department may be responsible for sending orders to customers, but it can't do so without the rest of the activities that make up the order fulfillment process, such as manufacturing, transportation & so forth. Processes cut across functional departments such as marketing, manufacturing, accounting and so forth.
Q. Levels that play important roles in BPM (or Classification of Business Processes) Level 1 Business Strategy The Strategies of a company specify the long-term positioning of the company, its core competencies & business sectors addressed. For example cost leadership for products in a certain domain.
Level 2 Goals Strategies are supported by Goals (which are further divided into a set of sub-goals). Goals are Strong focus on the customer, Leadership in innovation, Leadership in quality, Leadership in price & cost efficiency.
Level 3 Organizational Business Processes These are high-level processes which indicates their inputs, their processing, their expected results & their dependencies on other organizational business processes. For example, managing incoming raw materials provided by a set of suppliers is an organizational business process. Diagram Previously discussed
Level 4 Operational Business Processes Organizational business processes are realized by operational business processes. These are specified not in textual form but using graphical process notations. Diagram Previously discussed
Level 5 Implemented Business Processes At this level, operational business processes are realized in implemented business processes. There are different implementation platforms & strategies, ranging from fully automated to completely manual process.
Q. Business Process Management Life Cycle Analysis phase - This involves analysis of the current environment & current processes, identification of needs & definition of requirements. Design phase - This involves evaluation of potential solutions to meet the identified needs, business process designing & business process modeling. Implementation phase - This involves project preparation, blue printing, realization, final preparation, go live & support.
Run & Monitor phase- This involves business process execution and business process monitoring. Optimize - Iterate for continuous improvement.
Theories of Business Process Management
Q. Six Sigma (V.IMP) In Strategic Management
Q. Total Quality Management (TQM) In Strategic Management
Q. Business Process Reengineering (BPR) M. Imp In Strategic Management
BPM Implementation BPM involve simplifying processes & then automating them to the extent possible. The key idea of BPM is to focus on processes when organizing & managing work in an organization. A company starts by mapping out its key processes and defines the steps in each process. Then it uses BPM software to automate many of the routine tasks.
BPM Implementation Processes are multi-functional & need to be properly integrated. The organization should also consider allocating issues such as process owners, process managers, and the method of measuring the effectiveness & efficiency of a business process. The key to a successful BPM implementation is to consider it not just as an improvement programs but make it an integral part of business strategy. BPM helps an organization cut costs, improve service, and achieve growth.
Q. BPM implementation is needed due to following reasons Creates an environment for continuous process improvement; Create the long-term future positioning of the business Create short-term cost effectiveness Create improvement to current customer service; Introduce a knowledge of product & customer profitability;
Re-engineer the business radically and provide clear competitive differentiation; Introduce leadership & a role for managers & empowered staff.
Q. Business Process Automation (BPA) BPA (Business Process Automation) is used to optimize & simplify the essential business processes, using the latest technology to automate the functions. The core objective of BPA is achieved through integrating various business processes.
Benefits of BPA Saving on costs- Automation leads to saving in time & labor costs. Ahead in competition- To stay competitive, businesses need to adopt automation. Fast service to customers- Automation could help serve customers faster and better.
Risks of BPA Risk to jobs - Jobs that were earlier performed manually by several employees would post - automation would be mechanized, thereby posing a threat to jobs. False sense of security - Automating poor processes will not gain better business practices.
Q. Challenges in implementing BPA Number of interfaces with the customers is growing (e.g. phone, fax, email, sms, etc.) Increased complexity due to various product, service and price options. Lower IT budgets. All the organization's assets, systems, departments and people are interlinked.
Challenges in implementing BPA - There are numerous internal processes that form an internal supply chain, which relate to the end-to- end process of the organization. Basically, one simple interface with the organization would be preferable. It is important to improve the processes before automating them.
Q. BPM Technology The traditional IT architecture contains 3 layers: Database, Application & Presentation. Database layer physically contains (business) data; Application Layer contains applications & process logic; Presentation Layer is what users see. BPM provides an independent process layer. Process Layer is situated between Presentation & Application Layer linking the various independent applications needed to execute a single end- to-end business process. By tracking the business process, an organization can monitor its performance and at the same time audit for compliance.
Q. Value Chain Automation Will come in Strategic Management Value Chain is defined as a chain of activities that a firm operating in a specific industry performs in order to deliver a valuable product or service for the market. The idea of the Value Chain is based on the process view of organizations. The process view highlights the fact that every organization is a collection of inter-connected processes. Value chain analysis is a useful tool for determining how to create the greatest possible value for customers.
Value Chain Automation - The value chain groups a firm's activities into 2 categories, 1. Primary value activities, 2. Support value activities. Primary ones are inclusive of inbound logistics, operations, outbound logistics, marketing & sales, and after sales services. The supportive activities relate to procurement, human resource management, technology development and infrastructure.
Six business functions of the value chain are as follows: Research & development Design of products, services, or processes Production Marketing & sales Distribution Customer service
BPM Systems or suites (BPMS) It is a class of software that allows enterprises to devise process centric IT solutions. 'Process-centric' means BPM solutions are able to integrate people, systems & data
Capabilities of BPMS Designing IT enabled business processes, Integrate people & systems that participate in business processes, Monitor, control, & improve business processes in real time, Effect change on existing business processes in real time without an elaborate process conversion effort, and Create business processes to design the most optimal processes for implementation.
Benefits of BPMS - (IMP) Automating repetitive business processes - BPMS contributes to the competitive advantages of firms, by automating activities of the value chain & facilitating control and decision functions. Flexibility - BPMS works by 'loosely coupling' with a company's existing applications. Operational Savings BPM is concerned with continuously improving the way work gets done, in order to make the process more efficient, less costly, & more productive.
Reduction in the administration involved in Compliance - BPM help companies in their mission for process improvement and compliance/governance certification. Freeing-up of employee time - By automating the mass of routine, and repetitious work, employees can concentrate on activities that are important to the success of business.
Reasons for failure of BPMS Primary reasons for failure of BPMS are - Inadequate investment in ongoing training for personnel, Lack of corporate policy protecting the integrity of the data in the BPM systems.
Some of the other reasons for failure of BPMS include the following - Compatibility problems with the various systems of the partners. Not flexible enough or too complicated to be customized to meet the business process.
Inadequate assessment of the need for change management Failure to identify future business needs Resources not available when desirable Software fails to meet business needs System may be over-engineered when compared to the actual requirements. Poor executive involvement Limited options for customization of the BPM software is required Technological obsolescence. Deficient project management
Q. Approaches to Mapping Systems A business process is a natural group of business activities that create value for an organization. Process maps document business processes in easy-to-follow diagrams.
Approaches to Mapping Systems Some of the popular pictorial representation or techniques adopted for mapping business processes are explained below Flowchart Entity relationship diagram Data flow diagram Decision tree Decision table
1. Entity Relationship Diagram It depicts entities & their relationships graphically. Boxes represent entities. Diamonds are used to represent relationships. Ovals are used to represent attributes
ERD Notations: Attributes Entity Relationships Connectors
Types of Relationships - One-to-One relationship (1:1) For example - Each class must be in-charge of by one teacher.
One-to-Many relationship (1 :M) A line connecting two entities that ends with a crow s foot indicates a one-to-many relationship. For example - A student may borrow some books
Many-to-one relationship (M:1) For example - Many students applying for admission in one school
Many-to-Many relationship (M:M) For example many students may apply for more than one scholarship.
Advantages of using E-R Diagram Simple & easily understandable can be understood by non-technical specialist. Helps in Physical Database creation. Can help in database design. Can be generalized & specialized based on needs. Gives a higher level description of the system.
Limitations of using E-R Diagram Physical design derived from E-R Model may have some amount of ambiguities. Sometime diagrams may lead to misinterpretations.
Data Flow Diagram DFD presents the flow of data. DFD is used to describe the path of data that will complete that process. DFD define the functionality of a system. DFD describes path of data from external source to internal source or vice versa. Types of DFD - Physical Data Flow and Logical Data Flow.
Advantages of using DFD Easy to recognize. Easier to understand by technical & nontechnical audiences. DFDs can provide a detailed representation of system components. It is beneficial for communicating existing system knowledge to the users. Used as the part of system documentation file. It aids in describing the boundaries of the system. It supports the logic behind the data flow within the system.
Limitations of using DFD It make the programmers little confusing concerning the system. It simply takes a long time to create, the analyst may not receive support from management to complete it. Physical considerations are left out.
Q. Flowchart It is a diagrammatic representation of the system process. Flowchart presents steps to complete a process. Flow chart is used in designing a process. Flow chart shows how to make a system function. Flow chart does not have any input from or output to an external source. Types of Flow charts - Document, System and Program.
Flowchart Types Document flowchart - This flowchart traces the physical flow of documents through an organization - that is, the flow of documents from the departments, groups, or individuals who first created them to their final destinations. System Flowchart - It depicts the electronic flow of data and processing steps in an Information System. Program Flowchart It graphically presents the detailed series of steps (algorithm, or logical flow) needed to solve a programming problem.
Advantages of using Flowchart Quicker grasp of relationships - Programmers use flowchart to understood the relationship between various elements of the application. Communication - Flowcharts aid in communicating the facts of a business problem to those whose skills are needed for arriving at the solution. Orderly check out of problem - Flowcharts serve as an important tool during program debugging. They help in detecting, locating & removing mistakes.
Documentation - Flowcharts serve as a good documentation which aid greatly in future program conversions. In the event of staff changes, they serve as training function by helping new employees in understanding the existing programs. Effective Analysis - The flowchart becomes a blue print of a system that can be broken down into detailed parts for study. Efficient coding - Flowcharts act as a guide during the system analysis and program preparation phase. Efficient program maintenance -Flowcharts help programmer to concentrate attention on that part of the information flow which is to be modified.
Limitations of using Flowchart Modification - Modifications to a flowchart may require complete re-drawing. Reproduction - Reproduction of flowcharts is often a problem because the symbols used in flowcharts cannot be typed. Standardization - Program flowcharts are not such a natural way of expressing procedures as writing in English nor are they easily translated into Programming language. Complex logic Flowchart becomes complex where the problem logic is complex.
Link between conditions & actions Sometimes it becomes difficult to establish the linkage between various conditions and the actions to be taken there upon for a particular condition.
Decision Tree (also called Inference Tree or Logical Tree) is a collection of a basis (condition) and a conclusion (action). It is one way to display an algorithm. A decision tree is a decision support tool that uses a tree-like graph or model of decisions and their possible consequences, including chances, event outcomes, resource costs, and utility. Decision trees are a simple, but powerful form of multiple variable analyses.
Advantages of using Decision Tree Simple to understand and interpret. Possible scenarios can be added. Worst, best and expected values can be determined for different scenarios.
Limitations of using Decision Tree Calculations can get very complex particularly if many values are uncertain and/or if many outcomes are linked. Information gain in decision trees are biased in favor of those attributes with more levels.
Q. Decision Table Decision Table is a Table which may come with a Flowchart, defining the contingencies within a program and appropriate course of action for each contingency.
A Decision Table is divided into four parts: Condition Stub - comprehensively lists the comparisons or conditions; Action Stub - comprehensively lists the actions to be taken along. Condition Entries - list in its various columns the possible permutations of answer to the questions in the conditions stub; and Action Entries - list in its columns corresponding to the condition entries the actions contingent upon the set of answers to questions of that column.
Advantages of using Decision Table Easy to Draw - Decision Tables are easy to draw and modify as compared to flowcharts. Better Analysis - A decision table shows various alternatives and their respective outcomes side by side for better analysis of the problem. Non-technical - No knowledge of computer language or CPU working is necessary for drawing decision tables. Direct Codification - The decision tables can be directly coded into a program.
Modularity - The complex problems would require complex decision tables which can be easily broken down to microdecision tables. Simplicity - It is easier to follow a particular path in one column of a decision table than it is to go through several pages of the flowcharts.
Limitations of using Decision Table All programmers may not be familiar with Decision Tables and therefore flow charts are more common. Flowcharts can better represent a simple logic of the system rather than a decision table. The decision tables do not express the total sequence of the events needed to solve the problem.
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