Modeling : a Decision Taking Asset

French version

In any business transformation project, the business analyst must quickly provide crucial information to stakeholders, assisting them in their business decisions, while avoiding disproportionate investment efforts in this exercise. A systematic approach to process modeling achieves this objective, provided that it is not only limited to a simple diagram intended to visualize what is at stake. To be complete, a process model should also include quantitative data.

Although the business case might bring a solid argument about the benefits of transformation, including the process diagram, the financial part is often seen as the ultimate priority. To make an analogy, when you need to choose a model home or a car, you do not limit yourself to their visual representation (the diagram); the financial aspect is a key part of your decision making.

Accordingly, one must quickly identify the following dimensions: the workload, the direct and indirect costs and the volume. This will lead to this very significant information for managers: the annualized costs. In some cases, it could be the monthly cost or the quarterly cost that could be a good narrative too. Quickly providing a first estimate of the total cost of the process, the modeling exercise will be better perceived and appreciated.

To measure adequately, remember that a business process is a repetitive sequence of activities, performed by people or systems connected by communication links and including associations with data objects. An initial trigger and one or many end point if the process splits,  must be clearly identified to properly define the scope of the process. These pieces of information are essential to quickly establish a good measurement. A complex process must be decomposed into sub-processes that are themselves also measurable models. Not surprisingly, if a process does not fit on a page, there is a good chance that you cannot measure it effectively.

Standard process diagram

The process example below, 4.2.3 Order Equipment and Services, illustrates this principle (click to enlarge).

APQC PCF standard descriptions to depict a processs
APQC PCF standard descriptions to depict a processs

You can use the standardized descriptors from the PCF – Process Classification Framework – provided by APQC, which applies to most businesses. The PCF is an excellent starting point to quickly create a diagram that can then be adapted to most operational contexts, when you need to explore and discuss with subject matter experts . In fact, the PCF is a checklist of 1,200 standardized activities that can be used to conduct a first audit of the activities to include in business processes diagram.

We underline again that a process is a repetitive activity that can be quantified, in this case producing and transmitting an order. The calculation unit here is 1 order – a basic unit on which we establish an annual volume.

The total quantification is a process instance repeated several times; just imagine that the first green circle is a token that will cross the process each time that an order will be processed. In this example, there is 2 end points. If 95% of the orders are approved, for 100 tokens, 95 will finish in the top red end event and 5 in the bottom red end event.

Standardized metrics model

Use such a standardized calculation model to quickly estimate the annual cost of this process (click to enlarge).

XLS Spreadsheet illustration

4.2.3 Order Material Initial Benchmark
4.2.3 Order Material Initial Benchmark

Applying this simple calculation model calculation, which takes into account the average wage and the actual availability of resources involved in the process, it is estimated that 45 purchase orders are issued daily through 3 administrative regions – east, west and center – of the company. Generally, the purchaser is seeking for 2 quotes for each good at competing suppliers.

To ensure greater accuracy, in cases where the practice is to request 3 quotes, one should change the measure reflected in the line « Solicit » 1 or more quotes, which would affect the cost execution of the process.

This is precisely the function of the calculation model to quantify as precisely as possible the identified activities.

The allocation of indirect costs is included in the calculation for a felt covering not only labor, but also the company’s operating costs, distributed on staff time. The norm is usually 150%. The process is equivalent to nearly 5 FTE (full time equivalents).

Thus by using a pragmatic approach, you quickly realize that this process of production and shipping vouchers would cost a nearly $800,000 per year to the company.

Of course, these figures must be based on the volume of sales and purchase volumes.

In short, this approach allows you to examine a process and provide rapid first financial data that will initiate a conversation about the different solutions to ease the process of evaluating whether the transformation is a priority.

If you were approached to meet subject matter experts, to clarify a situation and provide an executive summary, you will have invested a minimum of time and present your first investigation at the project board meeting without delay.

Your process model may be more appreciated than a simple diagram, to engage in a real business discussion.

In the next article, we will discuss about the calculation model, including costing and other metrics that can be used to establish the effectiveness of this process.

Reference:

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