process performance measurement

8/7/2019 Process Performance Measurement

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Process Performance Measurement



Importance and benefits of Performance measurement

³Measurements are key. If you cannotmeasure it, you cannot control it. If you cannot control it, you cannot

manage it. If you cannot manage it,you cannot improve it.´

No business should invest time andresources to improve a process if they

did not know what they have tomeasure to improve




When you can measure what you arespeaking about and express it innumbers, you know something about it.

µYou cannot manage what you cannotmeasure¶.




Should be able an answer the followingtwo questions:

1. Is the current performance of thebusiness process better than it wasyesterday?

2. To what degree are the to-be valuesfulfilled?



Performance measurement

Universally used to assess how well someone orsomething has done against set objectives or peers.What Are Performance Measures? Performance measures quantitatively tell us something

important about our products, services, and theprocesses that produce them. They are a tool to help

us understand, manage, and improve what ourorganizations do. Performance measures let us know: how well we are doing if we are meeting our goals if our customers are satisfied if our processes are in statistical control

if and where improvements are necessary They provide us with the information necessary to

make intelligent decisions about what we do.



Performance measurement

A performance measure is composed of a number anda unit of measure. The number gives us a magnitude(how much) and the unit gives the number a meaning(what).

Performance measures are always tied to a goal or anobjective (the target).

Performance measures can be represented by single

dimensional units like hours, meters, nanoseconds,dollars, number of reports, number of errors, length of time to complete a process, etc.

They can show the variation in a process or deviation

from design specifications. Single-dimensional units of measure usually represent very basic and fundamentalmeasures of some process or product.



What is a Metric?

A metric is nothing more than a standard measure toassess your performance in a particular area.

Metrics are at the heart of a good, customer-focusedprocess management system and any programdirected at continuous improvement. The focus on

customers and performance standards show up in theform of metrics that assess your ability to meet yourcustomers' needs and business objectives.

Overall purpose of understanding metrics is so that amanager can attribute a value to improving or

changing a process as part of process performancemanagement

Effective metrics are generally referred to as keyperformance indicator or KPI



Key Performance Indicator (KPI)

A KPI is a measure reflecting how an organization is doing in aspecific aspect of its performance. KPI or Key Success Indicators (KSI), help an organization

define and measure progress toward organizational goals. A KPI is one representation of a critical success factor

(CSF)²a key activity needed to achieve a given strategicobjective.

Organizations that measure performance identify the handfulof critical success factors that comprise every strategicobjectives

Examples The percentage of income the organization derives from

international markets.

The number of customer complaints about orders filled incorrectly The amount of aid that is granted to different entities. Graduation rates of its students Percentage of customer calls answered in the first minute Number of clients assisted during the year



KPI 12 characteristic



Key Process Performance Definitions

All processes have a metric or measurement associated with the work oroutput of the process that is performed. These metrics are based on thefollowing dimensions:

Time²is a measurement of process duration Cycle Time²measures the time it takes from the start of a process to the

completion of that process in terms of output

Cost²is a measure of the monetary value associated with a process Resource cost²is a measurement of the monetary value associated with

resources (human or non-human) required to complete a process Opportunity cost²it the value that is lost from the process by not the resultant

output of the process (sales order is lost due to error²quality metric)

Capacity²this an amount or volume of a feasible output associatedwith a process (no. of transactions associated with a process) Usually a revenue connotation associated with a process Also have a throughput connotation associated with a process

Quality²is usually expressed as a percentage of actual to optimal ormaximum in process terms and can take many forms Satisfaction²is a measurement of customer satisfaction which is usually

associated with a service level expectation on the part of customer Variation²this is a measurement of the amount, extent, rate or degree of

change and is generally expressed as the difference between the actual andtarget or expected result

Error or Defect²is an example of variation in the measurement of errorsassociated the output of a process



Efficiency and Effectiveness

Effectiveness: A process characteristic indicatingthe degree to which the process output (work product)conforms to requirements. (Are we doing the rightthings?)

Efficiency: A process characteristic indicating the

degree to which the process produces the requiredoutput at minimum resource cost. (Are we doing thingsright?

These measurements are generally a function of one ormore of the four fundamental metrics:

Time

Cost

Capacity

Quality



Value added versus non-value added

Value added²a process is values addedeither when it is required to generate theoutput required by the customer of theprocess or when customer is willing to payfor the process or activity that generateoutput or to maintain quality andconsistency of the component resources oroutput or to provide continuity or transportdepending on circumstances. Simply an

activity is value added if it enhancescustomer experience even when it does notcontribute directly to the specific service



Monitoring & Controlling Operations

It is important to measure a process but itis even more important to continuallymeasure, monitor and control theprocesses in order to achieve the desired

results

As business changes, the desiredperformance of the process also changes

Process changes cannot be determinedwithout process and the performance of the

process are monitored and controlled to theneeds to the customer requirements



Alignment of Business Processand Enterprise Performance

Time dimensions Delivery Performance, request Date Order Fulfillment Lead Time Product Development Lead Time

Quality Dimensions Product Launch Variance

Forecast Accuracy Cost Dimensions

Sales cost Manufacturing Cost Logistics Cost Inventory Days of Supply

Capacity Dimensions Customer Dollars Per Order (Wallet Share) Customer Growth Rate Market Share



Examples

Some examples of cross functionalprocesses that drive enterpriselevel metrics are:

Order to cash

Procure to Pay

Campaign to quote

Plan to fulfill

Manufacturing to distribution

Issue to resolution



What to Measure?

Best way to understand what to measure ina process is first to understand the desiredresults

The information required for measuring thefollowing dimension can be obtained as

follows: Time²from entire process²that is from supplier

to customer Cost²based on the resources needed to perform

the process itself Capacity²from output information of the process Quality²can be obtained at both the input and

output of the process as well as the overallprocess when it comes to service level satisfaction



Measurement Methods

Two very common methods for measuring aprocess

Manual²collecting data by hand and eitherdrawing it on paper or entering into a

spreadsheet or modeling tool Automated²sophisticated software such as

business process management suits orenterprise software modeling tools that is:

Value stream mapping Activity based costing

Statistical methods



Value Stream

All the activities required to fulfill customerrequirements from order to delivery

A value stream is simply all the things done to create avalue for the customer

VSM is a method of creating a ³one page picture´ of allthe processes that occur in company, from the time acustomer places an order for a product, until thecustomer has received that product in their facility.

VSM goal is to depict material and information flowsacross and throughout all Value adding processesrequired to produce and ship the product to the

customer. VSM document all the processes used to produce and

ship a product both value adding and non-value adding(Waste) processes.



Value Stream Mapping

Value stream mapping is a Lean process-mappingmethod for understanding the sequence of activitiesused to produce a product.

Starts with a current state map describing the currentservice to customers

Continues with a future state map, which shows how theprocess will look in the future with waste reduction andprocess improvements

Is ³a high-level look at the company¶s flow of goods orservices from customer to customer´

Contains 7-10 steps

Captures metrics such as cycle times, defect rates, waittimes, headcount, inventory levels, changeover times,etc



Use Value Stream Mapping When:

You need to locate the bottleneck in aprocess

You want to identify opportunities for

future improvement efforts You have a limited time to document a

process and find problem areas



Detailed Process Map:

Identifies the major output, and outputswithin a process

Identifies and classifies process inputs

Provides a very detailed look at a process

Follow the sequence of events for each input

Use Detailed Process Mapping When:

You already know the bottleneck in a process

You want to find waste at the micro-level You have time to take a very in-depth look at

a particular process



Value stream Mapping

A technique used to identify and stripwasteful steps out of a company's flowof information and materials. The endgoal of the technique is to make the

company "lean," meaning free of wasted effort. Toyota is generallygiven credit for the development of lean production techniques, which

have been adapted and added to bysucceeding generations of managersand consultants.



Value Stream Mapping

The value stream map (sometimes also known as the "Learning toSee"map or "Cartoon") has emerged as a very popular and clear way to

illustrate the current and future state of a process. The method maps all the physical and information flows necessary to

deliver what the customer requires. It is called a value stream map becauseit depicts the value-adding activities necessary to produce what thecustomer requires, in the sequence in which they happen. The value streammap differs from the process map in that it shows both the physical and

information flows on one diagram, thus enabling you to see what thesituation is and why this is the case. Value stream mapping is quick to learn because it uses simple boxes to

indicate stages, and other obvious symbols such as trucks, factories, andkanban cards. Typical symbols are shown in one of the content objects inthis Knowledge Stream.

VSM are very clear and can be used for planning and participationmeetings, from shop floor to top management. As a reference tool they can

be placed on boards in meeting areas, and ideas can be added by Post-itstickers. Progress can be chartered.

The process involves identifying the value streams, creating the currentstate map, analysis of the current state map and creation of the futurestate map.

It is possible to map the value stream for the whole supply chain, includingsuppliers and customers. However, as a starting point for makingimprovements it is advisable to consider your organization and theboundaries of authority the team has for making change.



Difference between Value and Waste

Value²In its broadest sense, value is adding to theproduct something which the customer wants or needs.In paper mill example, value steps are those that givethe paper the desired dimensions, color, composition,etc.

Waste²is any step that does not add value. The mostcommonly cited forms of waste are: movement of the product, equipment or employees

unnecessarily;

maintaining an inventory of raw materials or products waiting tobe worked upon;

making more parts or products than there is customer demandfor;

processing a component more than the customer actually needsor expects;

quality checks; or the subsequent reprocessing of defects.



7 categories of "Muda" (waste)

Waste is anythingwhich does not addvalue to a productor service, in any

office ormanufacturingactivity, eg: sittingin storage, being

moved around,queuing awaitingprocessing, beinginspected, etc.



7 categories of "Muda" (Waste)

Transport: Movement of materials is a waste. Minimize theamount of movement by arranging processes in closeproximity to each other.

Inventory: Too little inventory can lose sales, too muchinventory can hide problems. Aim for "Just in Time" (JIT)manufacturing to expose problems to be eliminated andreduce cost.

Motion: Remove unnecessary motion of the operations andimprove the ergonomics of the workplace.

Waiting: Minimize waiting time and maximize "value adding"time. Aim for a smooth flow.

Overproduction: Always aim to make exactly what thecustomer orders, just in time, to the correct quality standard

OverProcessing: Use machines which are of an appropriatecapacity and capable of achieving the required qualitystandard.

Defects: Reducing the number of defects directly reducesthe amount of waste. Aim for zero defects.



The New Wastes

In addition to Ohno's original seven wastes,seven "new" wastes have been added to thelist:

The Waste of Untapped Human Potential

The Waste of Inappropriate Systems

Wasted Energy and Water

Wasted Materials

S

ervice and OfficeW

astes Waste of Customer Time

Waste of Defecting Customers



Activity-Based Costing (ABC)

A methodology that measures the costand performance of activities,resources and cost objects.

ABC assigns costs to activities using

multiple cost drivers, then allocatescosts to products based on eachproduct¶s use of these activities.

Using multiple activities as costdrivers, it reduces the risk of distortionand provides accurate costinformation.



Activity-based Costing (ABC)

In an ABC system, the total cost of a product equalsthe cost of the raw materials plus the sum of the costof all value adding activities to produce it.

In other words, the ABC method models the usage of the organization resources by the activitiesperformed and links the cost of these activities tooutputs, such as products, customers, and services.

Each product requires a number of activities such asdesign, engineering, purchasing, production andquality control. Each activity consumes resources of different categories such as the working time of themanager.

Cost drivers are often measures of the activitiesperformed such as number of units produced, laborhours, hours of equipment time, number of ordersreceived.



Activity-based Costing (ABC)

In traditional cost accounting systems,direct materials and labor are the onlycosts that can be traced directly to theproduct.

By using the ABC system, activitiescan be classified as value-added andnon-value-added activities.

In order to improve the performanceof the system, non-value-added canbe eliminated.



Statistical Methods S

cience of collecting, analyzing, presenting and interpreting data Axiom All work occurs in system of interconnected processes Variation exists in all processes Variation may occur in at least two forms:

Random²natural variation due to the nature of the process, maybe reduced bit not eliminated

Systematic²variation due to some consistent cause that can be

addressed and eliminated Variability is what drives errors rate or inefficiency Understanding what reduces the variability will help improve the

process

used to understand and then reduce or eliminate variability inprocesses for improvement

focuses on data (the X¶s [input] which drive the Y [output]

determine which processes are primarily responsible for drivingthe X¶s then focus on those processes for improvement

When to use: High rate of error Inconsistency of outputs



Simulation

Enactment or representation of the behavior or characteristics of onesystem through the use of another system In essence a process is modeled in software with all the parameters

associated with a process entered into software Cycle time parameter for each activity:

In-queue time (before work begins) Work delay time (from start of resource involvement until start of work) Work time (from beginning of work to production of output

Out-queue time (from output production to release of output Cost Parameters are:

Labor (total staffing costs allocated by headcount The resources associated with each activity The cost of each resource

Material Direct cost²material consumed each time an activity is performed

Overhead (administrative costs allocated as a percent of labor)

Indirect costs²allocated to activities requiring resources that are incurredover an interval of time

Other considerations with respect to the parameters are: How many times the process runs per interval (X times/hour/day) Decision points in process ( example²60/40 split between Path A & Path B



Simulation

Modeling & simulation provide an experimentallab to do the process reengineering effortsbefore the actual implementation

It is not a substitute for the actual field work

nor it is a perfect method of determining thefuture state process

Major benefit:

It will automatically calculates the benefits of the

process improvement via the Time, Cost, Capacityand Quality dimensions to help to build a data drivenbusiness case for processimprovement/reengineering



Consideration for Success

Most important part of any BPM effortis the soft skills needed to manage thepeople impacted by the businessprocess change

Competency matching Roles and responsibilities

Organizational structure

Empowerment with accountability Performance measures and objectives

Personal growth opportunities



Critical Success Factors

Focus on

PEOPLE as much as possible Education²ensure that everyone knows the entire process

and not just ³their´ part of it Everyone has the same understanding of what a process is Everyone understands why process is important People who design and approve the activities are the same

people who do the activities Attempt to ³Over Communicate´ the goals and objectives

(performance metrics) of the process Assign a Process Manager who is someone with

accountability and authority for the end to end performanceof the process, helps create the new process and lives withthe result who: Manages process performance Ensure the process is documented and reflects actual practice Defines performance measures and targets Monitors process performance Takes action to address process performance

process performance measurement

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