Tracking and measuring effectiveness of BPM
Greg HydeStrategic Change & [email protected]
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
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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
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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
Topics
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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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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
In-Process Measures
Process Steps
InputMeasures
Output Measures
Which measures to choose?
• 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
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Binary (yes/no)
Types of measurement data
Discrete ‘’Discrete’, but treated as ‘continuous’ Continuous
Ordered categories(limited options eg. 1-9)
Count data(Limited possibilities < 10)
Ordered categories(Many options eg. 1 - 100)
Infinite possible values (eg. Cycle time)
Count data (Many possibilities)
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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
Five deadly measurement sins
Lifecycle of performance measurement process
Tactical
Strategic
Selection Collection Reporting Usage
Minimal correlation to financial
performance/results
Overemphasis on internal point of view
Lack of prioritisation
Measurement level too broad
Evaluation against incorrect standard
Nature of mistake
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“Just measuring your job performance…”
Topics
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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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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
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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
Topics
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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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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!
Operation Verify? Product
Rework No
Yes
The hidden workforce
• 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
Excess InventoryAny more than the minimum needed to get the job done
Excessive TransportationAny non-essential transport or
movement of the product
Defects & ReworkAny repair or correction or
rework of an item in the process, (eg. input errors)
Over-ProcessingOver processing (too complex
specifications or excess handling)
Missing InformationCauses delays due to poorly
designed forms, processes or lost documents
Excessive MotionAny motion that does not add
value, (eg. excess movement of people around the business)
WaitingWaiting on people to conduct
the next step
Human PotentialNot using our full skills, intellect, ideas,
and capability of our people to solve issues and run our business
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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)
Topics
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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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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
qualityThe actual product
or service
Organisation’s specification of
quality
Management’s concept of the
product or service
Gap 4
Gap 3
Gap 2
Gap 1
A perception-expectation gap model of quality
Process: Payment ProcessingPrimary output (product or service): Bills sent to customers
Example
Selecting customer specific metrics
1 2 3 4
Importance to
customer
(1 to 5)
Variation in
deliverydate
Number of errors per
bill
Total cycle time
Number of customer
complaints
CTQ 1 Consistent bill delivery 5 9 1 3 1
CTQ 2 Accurate bills 4 9 1
CTQ 3 Easy to read and understand 3 1
Score 45 41 15 12
Customer CTQs
Potential output measures
Measurement selection
matrix
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)
0
0
0
00
Process : InvoicingOutput : Bill sent to customer = Product or service
1
1
2
2
= Critical to quality
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Topics
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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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Aligned performance measures
Overall strategic
objectives
Market strategic
objectives
Operations strategic
objectives
Financial strategic
objectives
ResilienceAgilityCustomer satisfaction
Quality Dependability Speed Flexibility Cost
Broad strategic measures
Functional strategic measures
Composite performance measures
Generic operations performance measures
High strategic relevance and aggregation
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
Quality
Dependability
Speed
Flexibility
Cost
Topics
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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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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