Tracking and measuring
effectiveness of BPM
Greg Hyde
Strategic Change & Transformation
Greg.A.Hyde@bigpond.com
23rd August 2012
Topics
A background to measurement
Defining measures
Managing suppliers
Identifying and measuring waste
Measuring customer requirements
Quantifying the value of BPM
Getting started
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Why measure?
“When you can measure what you are speaking about, and express it
in numbers, you know something about it;
But when you cannot express it in numbers, your knowledge is of a
meagre and unsatisfactory kind.
It may be the beginning of knowledge, but you have scarcely, in your
thoughts, advanced to the state of science.”
- Lord Kelvin
3
The measurement spiral
1.
Measure what can easily be measured
=> OK
2.
Disregard that which can't be easily measured, or to give it an
arbitrary value
=> artificial and misleading
3.
Presume that what can't be easily measured, isn't important
=> blindness
4.
To say that what can't be easily measured, doesn't matter
=> Stupidity
- Charles Handy
4
The concept of measurement
“If it matters at all, it is detectable or observable.
If it is detectable, it can be detected as an amount or range of possible
amounts.
If it can be detected as a range of possible amounts, it can be
measured!”
- Douglas Hubbard
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Topics
A background to measurement
Defining measures
Managing suppliers
Identifying and measuring waste
Measuring customer requirements
Quantifying the value of BPM
Getting started
6
Defining measures
Operational measurement
• specific and concrete;
• measurable; and
• useful to both you and your customer
Effective measurement
•
Requires clear operational definitions so that no matter who does the
measuring, the results are consistent
•
Need to explicitly describe
 what to measure, and
 how to measure it
7
Which measures to choose?
Process Steps
Input
Measures
Output
Measures
In-Process Measures
• Input or in-process measures can be lead indicators (if they are shown to
have a relationship with output performance)
• Output measures are lag measures (it is generally too late)
8
Types of measurement data
Binary (yes/no)
Ordered categories
(limited options eg. 1-9)
Ordered categories
(Many options eg. 1 - 100)
Count data
(Limited possibilities < 10)
Count data
(Many possibilities)
Infinite possible values
(eg. Cycle time)
Discrete
‘’Discrete’, but treated as ‘continuous’
Continuous
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Continuous data is about the process
Performance metric
Discrete
Continuous
Time to process
Within SLA – Yes/no
Actual times for each unit
Delivery time
Number late
Actual time deviated from
target
Customer satisfaction
Yes/no questions
Rating 1 - 100
Policies lost due to price
Number lost
Price difference from
competition
Continuous data supports trend analysis over time and enables progressive or
individual comparisons against tolerance limits
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Five deadly measurement sins
Strategic
Minimal correlation to
financial
performance/results
Overemphasis on
internal point of view
Nature
of
mistake
Lack of prioritisation
Measurement level too
broad
Evaluation against
incorrect standard
Tactical
Selection
Collection
Reporting
Lifecycle of performance measurement process
Usage
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“Just measuring your job performance…”
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Topics
A background to measurement
Defining measures
Managing suppliers
Identifying and measuring waste
Measuring customer requirements
Quantifying the value of BPM
Getting started
13
Elements of a supplier relationship
• Share demand forecasts and plans
• Measure and manage performance closely via Service Level Agreements
(SLAs) or ‘partnering agreements’ (for internal suppliers)
• Collaborate on improvements
• Constant and regular communication
• Plan and run joint BCP scenarios
• Service guarantees
14
Service Level Agreement measures
Key features
• Service specification (eg performance objectives, measurement, targets)
• Relationship (eg reporting mechanism, service reviews)
• Development (eg improvement activities, collaboration)
Common mistakes
• Too few or inappropriate measures
• No mutually agreed targets set
• No clear line of responsibility
• No reporting mechanism
• No problem handling/escalation procedures
• Mutual benefits not discussed
• No improvement agenda established
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Topics
A background to measurement
Defining measures
Managing suppliers
Identifying and measuring waste
Measuring customer requirements
Quantifying the value of BPM
Getting started
16
Defining value-added
Value-Added
•
•
•
•
(typically around 1% - 5% of the total process)
Customer willing to pay for
If left out, would the end customer complain? – Yes!
Required changes to the product or service
Must be done right the first time
Business Value Add, Value Maintaining, Value Enabling
•
•
•
•
Includes legal, risk, financial, reporting requirements (internal customer)
If left out, would internal customers complain? - Yes!
Necessary to support value-added steps
Must be done right the first time
Non-Value-Added (Waste)
•
•
•
Customer sees no value and is not required for internal customer
If left out, would internal or end customers complain? - No!
Anything not done right the first time!
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The hidden workforce
Yes
Verify?
Operation
Rework
•
•
•
•
•
•
Product
No
How many process steps?
How many handoffs?
How many decision points?
How many measurement/inspection points?
Where are the bottlenecks?
How many rework loops?
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Types of Waste
Missing Information
Human Potential
Not using our full skills, intellect, ideas,
and capability of our people to solve
issues and run our business
Causes delays due to poorly
designed forms, processes or lost
documents
Over-Processing
Over processing (too complex
specifications or excess handling)
Excessive Motion
Excess Inventory
Any motion that does not add
value, (eg. excess movement of
people around the business)
Any more than the minimum
needed to get the job done
Excessive Transportation
Any non-essential transport or
movement of the product
Waiting
Defects & Rework
Waiting on people to conduct
the next step
Any repair or correction or
rework of an item in the
process, (eg. input errors)
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Waste elimination = Lean
“All we are doing is looking at the timeline from the moment the customer
gives us an order, to the point when we collect the cash.
We are reducing that timeline by removing the non-value-added wastes.”
- Taiichi Ohno (Toyota)
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Topics
A background to measurement
Defining measures
Managing suppliers
Identifying and measuring waste
Measuring customer requirements
Quantifying the value of BPM
Getting started
21
Determining quality
Quality is about consistently conforming to customers’ expectations
Previous experience
Word of mouth
communications
Image of product or
service
Customer’s perceptions
concerning the product
or service
Customer’s expectations
concerning a product or
service
Customer’s own
specification of
quality
Gap 4
The actual product
or service
Gap 2
Management’s
concept of the
product or service
Organisation’s
specification of
quality
Gap 3
Gap 1
A perception-expectation gap model of quality
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Selecting customer specific metrics
Example
Process : Invoicing
Process: Payment Processing
Output 1: Bill sent to customer
Potential output measures
Primary output (product or service): Bills sent to
1 = Product or service
customers
1
Measurement selection
matrix
CTQ 1 Consistent bill delivery
Customer
CTQ 2 Accurate bills
CTQs 2
CTQ 3 Easy to read and understand
2 = Critical to quality
2
Importance Variation
Number of
to
in
errors per
customer
delivery
(1 to 5)
date
bill
3
4
Total cycle Number of
time
customer
complaints
5
9
1
3
1
4
0
9
0
1
3
0
0
0
1
41
15
12
Score
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The strength of the relationship between the potential key output measures and the
customer CTQs are assessed on a scale of 0 (none), 1 (low), 3 (medium) or 9 (high)
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Topics
A background to measurement
Defining measures
Managing suppliers
Identifying and measuring waste
Measuring customer requirements
Quantifying the value of BPM
Getting started
25
Aligned performance measures
Overall
strategic
objectives
Broad strategic
measures
Functional strategic
measures
Composite performance
measures
High strategic
relevance and
aggregation
Market
strategic
objectives
Customer
satisfaction
Generic operations Quality Dependability
performance
measures
Operations
strategic
objectives
Agility
Speed
Financial
strategic
objectives
Resilience
Flexibility
Cost
High
diagnostic
power and
frequency of
measurement
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Supported by a balanced scorecard
A balanced range of measures enables managers to address the
following questions:
• How do we look to our shareholders from a financial perspective?
• How do our external customers see us?
• Which internal processes must we excel at?
• How can we continue to improve and build on capabilities, from a
learning and growth perspective?
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Measuring process performance
Performance
objectives
Typical measures
Quality
•
•
•
Customer satisfaction score
Number of defects per unit
Warranty claims
Dependability
•
•
•
Schedule adherence
% of orders delivered late
% of products in stock
Speed
•
•
•
Customer query time
Order lead time
Cycle time
Flexibility
•
•
•
Machine changeover time
Average batch size
Time to increase activity rate
Cost
•
•
•
Variance against budget
Utilisation of resources
Cost per operation hour
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The sand cone improvement model
Cost reduction relies on a cumulative foundation of improvement in the other
performance objectives
Cost
Flexibility
Speed
Dependability
Quality
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Topics
A background to measurement
Defining measures
Managing suppliers
Identifying and measuring waste
Measuring customer requirements
Quantifying the value of BPM
Getting started
30
Next steps…
1.
Define a decision problem and the relevant uncertainties
2.
Establish what you already know
3.
Compute the value of additional information
4.
Apply the relevant technique to the high-value measurements
5.
Make a decision… and act on it!
“It’s better to be approximately right than to be
precisely wrong.”
- Warren Buffett
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Further reading…
• How to measure anything – Douglas W Hubbard
• Operations and process management (2nd Edition) – Slack, Chambers,
Johnson and Bretts
• Implementing strategic change: Managing processes and interfaces to
develop a highly productive organization - Bevington and Samson
• The cumulative capability 'sand cone' model revisited: A new perspective
for manufacturing strategy - Schroedera, Shaha and Pengb
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