Business process

A business process or business method is a collection of related, structured activities or

tasks that produce a specific service or product (serve a particular goal) for a particular
customer or customers.

There are three types of business processes:

1. Management processes, the processes that govern the operation of a system. Typical
management processes include "Corporate Governance" and "Strategic Management".
2. Operational processes, processes that constitute the core business and create the
primary value stream. Typical operational processes are Purchasing, Manufacturing,
Marketing, and Sales.
3. Supporting processes, which support the core processes. Examples include
Accounting, Recruitment, Technical support.

A business process begins with a customer’s need and ends with a customer’s need
fulfillment. Process oriented organizations break down the barriers of structural departments
and try to avoid functional silos.

A business process can be decomposed into several sub-processes, which have their own
attributes, but also contribute to achieving the goal of the super-process. The analysis of
business processes typically includes the mapping of processes and sub-processes down to
activity level.

Business Processes are designed to add value for the customer and should not include
unnecessary activities. The outcome of a well designed business process is increased
effectiveness (value for the customer) and increased efficiency (less costs for the company).

Business Processes can be modeled through a large number of methods and techniques. For
instance, the Business Process Modeling Notation is a Business Process Modeling technique
that can be used for drawing business processes in a workflow.

ANOTHER VERY INFORMATIVE LINK TO UNDERSTAND BUSINESS PROCESS

http://www.sparxsystems.com/downloads/whitepapers/The_Business_Process_Mo
del.pdf

http://books.google.co.uk/books?id=Hcpf6Tmg-
dwC&printsec=frontcover&dq=what+is+a+business+process#PPA427,M1
Resources of a business
In our introduction to the topic of business strategy, we used Johnson & Scholes' definition stating
that "Strategy is the direction and scope of an organisation over the long-term: which achieves
advantage for the organisation through its configuration of resources within a challenging
environment, to meet the needs of markets and to fulfil stakeholder expectations".

So, what are these "resources" that a business needs to put in place to pursue its chosen strategy?

Business resources can usefully be grouped under several categories:

Financial Resources

Financial resources concern the ability of the business to "finance" its chosen strategy. For
example, a strategy that requires significant investment in new products, distribution channels,
production capacity and working capital will place great strain on the business finances. Such a
strategy needs to be very carefully managed from a finance point-of-view. An audit of financial
resources would include assessment of the following factors:

Existing finance - Cash balances

funds
- Bank overdraft
- Bank and other loans
- Shareholders' capital
- Working capital (e.g. stocks, debtors) already invested in the business
- Creditors (suppliers, government)

Ability to raise - Strength and reputation of the management team and the overall business
new funds
- Strength of relationships with existing investors and lenders
- Attractiveness of the market in which the business operates (i.e. is it a market
that is attracting investment generally?)
- Listing on a quoted Stock Exchange? If not, is this a realistic possibility?
Human Resources

The heart of the issue with Human Resources is the skills-base of the business. What skills does the
business already possess? Are they sufficient to meet the needs of the chosen strategy? Could the
skills-base be flexed / stretched to meet the new requirements? An audit of human resources would
include assessment of the following factors:

Existing staffing - Numbers of staff by function, location, grade, experience, qualification,

resources remuneration
- Existing rate of staff loss ("natural wastage")
- Overall standard of training and specific training standards in key roles
- Assessment of key "intangibles" - e.g. morale, business culture

Changes - What changes to the organisation of the business are included in the strategy
required to (e.g. change of location, new locations, new products)?
resources
- What incremental human resources are required?
- How should they be sourced? (alternatives include employment, outsourcing,
joint ventures etc.)
Physical Resources
The category of physical resources covers wide range of operational resources concerned with the
physical capability to deliver a strategy. These include:

Production - Location of existing production facilities; capacity; investment and maintenance

facilities requirements
- Current production processes - quality; method & organisation
- Extent to which production requirements of the strategy can be delivered by
existing facilities

Marketing - Marketing management process

facilities
- Distribution channels

Information - IT systems
technology
- Integration with customers and suppliers
Intangible Resources

It is easy to ignore the intangible resources of a business when assessing how to deliver a strategy -
but they can be crucial. Intangibles include:

Goodwill - The difference between the value of the tangible assets of the business and the
actual value of the business (what someone would be prepared to pay for it)

Reputation - Does the business have a track record of delivering on its strategic objectives? If
so, this could help gather the necessary support from employees and suppliers

Brands - Strong brands are often the key factor in whether a growth strategy is a success
or failure

Intellectual - Key commercial rights protected by patents and trademarks may be an

Property important factor in the strategy.
Systems

Production or Technical system: These are concerned with the

accomplishment of the basic tasks of the organisation (production of goods and
services etc.)

Supportive system: These are the systems which obtains the inputs and
dispose of the outputs of the production subsystem. They also maintain the
relationship between the organisation as a whole and the external environment.

Maintenance system: These are concerned with the relative stability or

predictability of the organisation. They provide for the roles, the rules, and the
rewards applicable to those who work in the organisation.

Adaptive systems: These systems help the organisation and business process
to deal with what the organisation might become. They del with the issues of
change in the environment, e.g. as in marketing, research development etc.

Managerial systems: These comprise the controlling and coordinating

activities of the total system. They deal with the coordination of substructures,
resolution of conflicts and coordination of external requirements of the
organisation resources. An important managerial susb system is the authority
structure which describes the way the system is organised for the purpose of
decision making and decision taking.

Auditing system: These are the system to find the facts regarding the business
process, e.g. the auditing of quality systems.

Source: David Barnes (2001), Understanding Business: Process, Bell and Bain
Ltd, Glasgow.

Design system:

Process Design encompasses both the identification of existing processes and

the design of "to-be" processes. Areas of focus include: representation of the
process flow, the actors within it, alerts & notifications, escalations, Standard
Operating Procedures, Service Level Agreements, and task hand-over
mechanisms.

Good design reduces the number of problems over the lifetime of the process.
Whether or not existing processes are considered, the aim of this step is to
ensure that a correct and efficient theoretical design is prepared.

The proposed improvement could be in human to human, human to system, and

system to system workflows, and might target regulatory, market, or competitive
challenges faced by the businesses.

Modelling system:

Modeling takes the theoretical design and introduces combinations of variables,

for instance, changes in the cost of materials or increased rent, that determine
how the process might operate under different circumstances.
It also involves running "what-if analysis" on the processes: "What if I have 75%
of resources to do the same task?" "What if I want to do the same job for 80% of
the current cost?"

Execution system:

One of the ways to automate processes is to develop or purchase an application

that executes the required steps of the process; however, in practice, these
applications rarely execute all the steps of the process accurately or completely.
Another approach is to use a combination of software and human intervention;
however this approach is more complex, making the documentation process
difficult.

As a response to these problems, software has been developed that enables the
full business process (as developed in the process design activity) to be defined
in a computer language which can be directly executed by the computer. The
system will either use services in connected applications to perform business
operations (e.g. calculating a repayment plan for a loan) or, when a step is too
complex to automate, will ask for human input. Compared to either of the
previous approaches, directly executing a process definition can be more
straightforward and therefore easier to improve. However, automating a process
definition requires flexible and comprehensive infrastructure, which typically
rules out implementing these systems in a legacy IT environment.

Business rules have been used by systems to provide definitions for governing
behavior, and a business rule engine can be used to drive process execution and
resolution.

Monitoring system:

Monitoring encompasses the tracking of individual processes, so that information

on their state can be easily seen, and statistics on the performance of one or
more processes can be provided. An example of the tracking is being able to
determine the state of a customer order (e.g. ordered arrived, awaiting delivery,
invoice paid) so that problems in its operation can be identified and corrected.

In addition, this information can be used to work with customers and suppliers to
improve their connected processes. Examples of the statistics are the generation
of measures on how quickly a customer order is processed or how many orders
were processed in the last month. These measures tend to fit into three
categories: cycle time, defect rate and productivity.

The degree of monitoring depends on what information the business wants to

evaluate and analyze and how business wants it to be monitored, in real-time or
ad-hoc. Here, business activity monitoring (BAM) extends and expands the
monitoring tools in generally provided by BPMS.

Process mining is a collection of methods and tools related to process

monitoring. The aim of process mining is to analyze event logs extracted through
process monitoring and to compare them with an 'a priori' process model.
Process mining allows process analysts to detect discrepancies between the
actual process execution and the a priori model as well as to analyze
bottlenecks.
Optimization systems:

Process optimization includes: retrieving process performance information from

modeling or monitoring phase; identifying the potential or actual bottlenecks and
the potential opportunities for cost savings or other improvements; and then,
applying those enhancements in the design of the process. Overall, this creates
greater business value.

Quality Management system:

Conclusion:

Whilst the steps can be viewed as a cycle, economic or time constraints are
likely to limit the process to one or more iterations.

In addition, organizations often start a BPM project or program with the objective
to optimize an area which has been identified as an area for improvement.

In financial sector, BPM is critical to make sure the system delivers a quality
service while maintaining regulatory compliance.[2]

Currently, the international standards for the task have only limited to the
application for IT sectors and ISO/IEC 15944 covers the operational aspects of
the business. However, some corporations with the culture of best practices do
use standard operating procedures to regulate their operational process [3]
An interesting article to understand how tools support the business process and
management.

Define Your BPM Strategy Before Selecting a Tool

By: Sandra Lusk, PMP

Monday September 29, 2008

With the wide range of available tools on the market today together with the
large number of white papers, articles and books on BPM, determining the
correct solution for your organization can be daunting. With so much emphasis
on the effectiveness of BPM tools for improving productivity, streamlining the
value chain and gaining competitive edge, it’s easy to get caught up in all the
hype and end up with a much more sophisticated and expensive solution than
the business really needs. On the other hand, fear of making a selection that
may result in a failure to meet strategic goals or achieve adequate return on
investment can cause delays in making the decision to adopt a BPM tool and, by
omission, result in the same problems. A well thought out, phased approach for
selecting and implementing a BPM tool can reduce these risks. Even if the
decision is to buy a full end-to-end solution in the beginning, there can be good
reasons not to implement all components at once or at least not in all areas of
the business together.

The term ‘BPM tools” is commonly used to refer to those that are used to model
business activities in an executable format to create an automated application of
business rules to drive workflow complete with interactive forms, and notification
capabilities. Another term, ‘BPA tools’ is a term that applies to tools that perform
in depth analysis of business process performance and the impact of potential
changes to its structure through a variety of methods including reporting, KPIs
and simulation capabilities. In this article, ‘BPM tools’ is primarily used to
describe both types.

BPM tools and suites offer functionality ranging from basic diagramming to
varying degrees of analysis, execution and business rules management.
However, just because there are tools out there that can ‘do everything’ doesn’t
mean it is the right solution for the organization. Just as new application software
should not be acquired without a clear understanding of the business problem
being addressed including defined requirements, the same is true when
purchasing BPM software. Pricing varies dramatically from a few hundred dollars
to half a million dollars or more, so a comprehensive plan for what the tool will
and will not be used for together with a realistic budget will narrow the search
considerably. To provide an alternative to large upfront investments, it has
become more common for vendors to offer both purchase and subscription
pricing models. In the subscription scenario, the software and data is hosted by
the tool vendor. In some cases the hosted site may even be a third-party
provider. Subscription pricing allows organizations to experience the benefits of
a full function tool without significant upfront software and infrastructure costs.
However, it can introduce security and compliance risks as corporate data is
passed between the internal applications environment and the hosted
procedures and business rules site.

Identifying the requirements for the correct tool will depend on the BPM strategy
adopted. One strategy may be to include documenting as-is and to-be process
models as a standard project deliverable. These models are used for developing
business requirements and test scenarios and become part of the project
documentation. They are not deployed as part of the system and user manuals
nor are they maintained as the day-to-day processes evolve and change. In
some cases, they may be used as a starting point for future similar projects but
the reality is that they will likely never be looked at again. In this scenario, the
required functionality would be process diagramming and a means to capture
basic information about each artifact such as a description and the business role
performing the work. The objective is to provide sufficient detail in a format that
can be disseminated across the project team. Another approach is to maintain
process documentation as part of a continuous improvement strategy which
would include regular updates to any process impacted by strategic and
operational decisions or by changes to existing application functionality and
allow execution of what-if scenarios. This documentation can be used as the
baseline as-is process model when starting a new project eliminating significant
work from the beginning of the project. The to-be process model delivered by the
project becomes the new official as-is process documentation at the completion
of the project. The required functionality in this scenario would be process
diagramming, detailed process documentation and simulation capabilities. For a
fully integrated end-to-end BPM strategy, the required functionality would
include everything from process diagramming to automated execution within the
production systems environment. This would also include a business rules engine
either as a native component of the BPM suite or a separate but integrated tool.
In this scenario, business processes and business rules are viewed as valuable
business assets which are deployed and managed in a controlled, secure
environment.

One step in defining the BPM strategy is to identify and define the key business
processes that support the business value chain. The current maturity level of
each should then be assessed and the required level appropriate to support the
organization’s business strategy identified. The results of this analysis will help
determine the required BPM strategy to meet organizational objectives and
define the tool requirements. Ideally, as outlined in The Process Audit by Michael
Hammer published in the April 2007 edition of the Harvard Business Review, this
evaluation should be performed together with an evaluation of the maturity of
the Enterprise.

Process Maturity models vary in the number of levels and the complexity of
each. The targeted levels should be defined by the organization based on its
business objectives, available resources and type of product or services offered.
Following is an example of how tool requirements might map to maturity levels.
When evaluating tools, consider the possibility that the first one selected may
become disposable. This may be a valid choice if the BPM strategy is vague or
incomplete or if there are anticipated changes to the business over time
possibly due to market influences or economic conditions. In these cases,
starting with a free or lower cost tool may also fit the initial need. Some vendors
are now offering free modeling tools in the hopes that their BPM suite will be
selected when the organization is ready to move to the next level. It is, however,
important to understand the limitation of these tools. While it may be desirable
to select a single tool, don’t sacrifice functionality if you don’t have to. Consider
vendor partnerships that provide opportunities to begin with a diagramming and
process analysis tool and then move to a process/business rules execution tool
later. This may, in fact, result in getting the best of both types. Most tools today
support BPMN and provide standard export/import capabilities to allow models
and artifacts created in one to be used by another. No matter what the choice of
tool, the important thing to remember is that there must be a clear vision of
what the tool will be used for and how it will help support the overall business
objectives.

Sandra Lusk has twenty-five years experience in system and process design and
development working with utility, transportation, logistics, insurance and
banking organizations in the US, Canada, Australia, New Zealand and Wales, UK.
She taught business and computer classes at Algonquin College in Ontario and at
the Saskatchewan Institute of Applied Science and Technology. As a Senior
Business Process Management Consultant, her responsibilities included
development of a BPM Governance, training, mentoring and support of business
improvement initiatives. A graduate in Computer Science from the University of
Regina, she is a certified Project Management Professional (PMP). Currently
President of the Association for Business Process Management Professionals,
Portland Chapter, she is also a key contributor to and Maintenance Committee
Chair for the ABPMP BPM Common Body of Knowledge.

http://www.bpminstitute.org/articles/article/article/define-your-bpm-strategy-
before-selecting-a-tool.html

Tools supporting Business process:

Measurement tools:

Quality management tools and methodologies used in

Six Sigma

Six Sigma makes use of a great number of established quality management

methods that are also used outside of Six Sigma. The following table shows an
overview of the main methods used.

5 Whys Failure mode and effects analysis

Analysis of variance General linear model

ANOVA Gauge R&R Histograms

Axiomatic design Homoscedasticity

Business Process Mapping Pareto chart

Catapult exercise on variability Pick chart

Cause & effects diagram (also known as Process capability

fishbone or Ishikawa diagram)
Regression analysis
Chi-square test of independence and fits
Root cause analysis
Control chart
Run charts
Correlation
SIPOC analysis (Suppliers, Inputs,
Cost-benefit analysis Process, Outputs, Customers)

CTQ tree Stratification

Quantitative marketing research Taguchi methods

through use of Enterprise Feedback
Management (EFM) systems Thought process map

Design of experiments TRIZ

Business Process Mapping refers to activities involved in defining exactly what a business
entity does, who is responsible, to what standard a process should be completed and how the
success of a business process can be determined. Once this is done, there can be no
uncertainty as to the requirements of every internal business process. A business process
illustration is produced. The first step in gaining control over an organization is to know and
understand the basic processes (Deming, 1982; Juran, 1988; Taylor, 1911).

ISO 9001 requires a business entity to follow a process approach when managing its
business, and to this end creating business process maps will assist. The entity can then work
towards ensuring its processes are effective (the right process is followed the first time), and
efficient (continually improved to ensure processes use the least amount of resources).

The control chart, also known as the Shewhart chart or process-behaviour chart, in
statistical process control is a tool used to determine whether a manufacturing or business
process is in a state of statistical control or not.

However in the early stages of use the inclusion of these items may confuse inexperienced
chart interpreters.
Cost benefit analysis - is a term that refers both to:

• a formal discipline used to help appraise, or assess, the case for a project or proposal,
which itself is a process known as project appraisal; and
• an informal approach to making decisions of any kind.

Under both definitions the process involves, whether explicitly or implicitly, weighing the
total expected costs against the total expected benefits of one or more actions in order to
choose the best or most profitable option. The formal process is often referred to as either
CBA (Cost-Benefit Analysis) or BCA (Benefit-Cost Analysis).

Quantitative marketing research is the application of quantitative research techniques to

the field of marketing. It has roots in both the positivist view of the world, and the modern
marketing viewpoint that marketing is an interactive process in which both the buyer and
seller reach a satisfying agreement on the "four Ps" of marketing: Product, Price, Place
(location) and Promotion.

As a social research method, it typically involves the construction of questionnaires and

scales. People who respond (respondents) are asked to complete the survey. Marketers use
the information so obtained to understand the needs of individuals in the marketplace, and to
create strategies and marketing plans.

A failure modes and effects analysis (FMEA) is a procedure for analysis of potential failure
modes within a system for classification by severity or determination of the effect of failures
on the system. It is widely used in manufacturing industries in various phases of the product
life cycle and is now increasingly finding use in the service industry. Failure causes are any
errors or defects in process, design, or item, especially those that affect the customer, and can
be potential or actual. Effects analysis refers to studying the consequences of those failures.

In statistics, a histogram is a graphical display of tabulated frequencies, shown as bars. It

shows what proportion of cases fall into each of several categories. The categories are usually
specified as non-overlapping intervals of some variable. The categories (bars) must be
adjacent. The intervals (or bands) should ideally be of the same size [1].
Histograms are used to plot density. The total area of a histogram always equals 1. If the
length of the intervals on the x-axis are all 1, then a histogram is identical to a relative
frequency plot.

The word histogram is derived from the Greek histos 'anything set upright' (as the masts of a
ship, the bar of a loom, or the vertical bars of a histogram); and gramma 'drawing, record,
writing'. The histogram is one of the seven basic tools of quality control, which also include
the Pareto chart, check sheet, control chart, cause-and-effect diagram, flowchart, and scatter
diagram. A generalization of the histogram is kernel smoothing techniques. This will
construct a very smooth probability density function from the supplied data.

Taguchi methods are statistical methods developed by Genichi Taguchi to improve the
quality of manufactured goods, and more recently also applied to biotechnology,[1] marketing
and advertising. Taguchi methods are considered controversial among some traditional
Western statisticians, but others accept many of his concepts as being useful additions to the
body of knowledge.

Taguchi's principal contributions to statistics are:

1. Taguchi loss function;

2. The philosophy of off-line quality control; and
3. Innovations in the design of experiments.

Tools for measurement:

Benchmarking:

Self assessment:

Cost Analysis:

Tools for Improvement:

Process Flowcharting: Enusures a full understanding of the inputs and flow

process

In statistics, a histogram is a graphical display of tabulated frequencies,

shown as bars. It shows what proportion of cases fall into each of several
categories. The categories are usually specified as non-overlapping
intervals of some variable. The categories (bars) must be adjacent. The
intervals (or bands) should ideally be of the same size [1].

The word histogram is derived from the Greek histos 'anything set upright'
(as the masts of a ship, the bar of a loom, or the vertical bars of a
histogram); and gramma 'drawing, record, writing'. The histogram is one
of the seven basic tools of quality control, which also include the Pareto
chart, check sheet, control chart, cause-and-effect diagram, flowchart,
and scatter diagram. A generalization of the histogram is kernel
smoothing techniques. This will construct a very smooth probability
density function from the supplied data.