Business Process Modeling and Process Management

Site: Saylor Academy
Course: BUS303: Strategic Information Technology
Book: Business Process Modeling and Process Management
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Date: Thursday, March 28, 2024, 10:36 AM

Description

A business process is a series of tasks that are repeated in order to produce a measurable output. Pay attention to how the business process has been defined in business literature over the years. Take a moment to write a definition of a business process in your own words.

Learning objectives

  • understand why process management is important
  • be able to explain what a process is and the different types of processes
  • state the difference between process orientation and other organizational principles
  • understand the necessity of process modeling
  • be able to draw simple ePK-diagrams
  • be able to discuss the use software for process modeling
  • be able to name and briefly summarize some methods used for the analysis of processes

The development of process management

To improve and maintain organizational efficiency, there must be a constant willingness for innovation and reorganization. Information and communication technology has become an indispensable aid and medium for efficiency gains. Organizational science and information systems are close partners in this pursuit of efficiency. A focus on process thinking is a feature of the modern organization. As a result, techniques such as Business Process Reengineering (BPR), Business Engineering (BE), Business Modeling (BM) have emerged to support the methods and goals of process management. In this chapter, the fundamental principles and perspectives are conveyed and the state of technology and its practical application are introduced.

Since the beginning of the 1990 , enterprises have put greater emphasis on analysis for optimizing business processes. A clear trend is observed is the shift in attention from a functional orientated organization to an alignment around business processes. In functional orientated organizations, the traditional functional departments such as procurement, production, logistics, finance, IS, marketing and so forth are dominant. Now, there is a new way of thinking: "The endeavour for optimum and profit generating satisfaction of the clients wishes should (...) come from a process orientated organization structure, in which the position and department formation would be conceived considering specific requirements in the course of the process for performance in the organization". The goals are more precisely explained in the following section on the Concepts of Process Management, namely the optimization of the combined work of all functional areas independent of the organizational structure and therefore there it is more common to find an overlapping of functions, areas, and departments.

Business processes are value added activities that produce a strategically valuable output for an organization. Business Process Management is the optimization, automation, as well as specific regulation and improvement of a business process. The tasks of Business Process Management, can be divided into Process Identification, Process Modeling, Process Analysis and Process Management. Process modeling documents the identification of processes in a standardized form, which is usually supported by software. These process models form the basis for process analysis and the adaptation or redesign of a process. Process management should ensure systematic planning, steering, and supervision of the execution of a process. At the same time, the process results will be controlled by the previously established measurement system that used to monitor performance and will be the basis for future. process adjustments.

The general goal of process management is to increase client (customer) satisfaction as well as to improve the efficiency of business processes. Consequently, the firm should gain a productivity increase. Both a client and value added orientation is necessary. A client can be the final consumer of a product or a person within an organization.

Process management can be considered from three organizational perspectives: strategic, operational, and administrative:

  • Strategic management is concerned with creating the general framework in which the business process are executed.
  • Operational management creates the workflow for formalizing and automating business processes and applying information systems, as appropriate, to support process execution.
  • Administrative management, typically the role of the IS unit, is responsible for developing the organizational and information systems infrastructure to support business processes.



Source: Richard T. Watson, https://s3.amazonaws.com/saylordotorg-resources/wwwresources/site/wp-content/uploads/2013/04/InformationSystems.pdf
Creative Commons License This work is licensed under a Creative Commons Attribution 3.0 License.

There are many definitions of a process Lehner et al. (2007), and we will discuss a few of these (see Exhibit 14). The selected examples illustrate that each perspective on a process each emphasizes a particular trait or characteristics of a process. As a result of these different views, there is no single definition.

Exhibit 14: Definitions of a process

Definition
Repeated tasks that arise in the performance of an assignment in different sectors of an enterprise. They are the recurring results of for an individual task with:
  • measurable input
  • measurable added value
  • measurable output
A succession of tasks, activities, and performances for the creation of products or services, which are directly connected with one another and in their sum determines the business management, technical production, technical administration, and financial success of the enterprise
A manual, partly automated, or fully automatic business activity, which is performed following definite rules and leads to a particular goal. A business process creates, in this way, a valuable result for the client.
The content, timing, and natural sequencing of an object necessary to complete a business management function

Most of the definitions have in common that there is measurable information and measurable results, a definite beginning (this means that it has a starting occurrence or initiation) and an end, as well as a demand for value or a contribution for the creation of value. The main features of a process are depicted in Exhibit 15. Process management supervises all aspects of a process from the initial event until its completion. It goes beyond departmental or functional barriers, and sometimes beyond organizational boundaries, to cover the entire process. Process management is an integrated approach to managing processes.


Exhibit 15: The structure of a process


Exhibit 16: Business process example

The classification of processes is another key aspect of process modeling. One can broadly distinguish between material processes (e.g. procuring, producing, storing and financing) and formal processes (e.g. planning, controlling and decision-making). Exhibit 20 lists a few examples of processes often found in enterprises.

A further distinction is whether a process is a main, service or support, and management and leadership process. Main processes are those that  directly create value for an external client. They can be product related (e.g. production, R&D) or client related processes (e.g. order completion, distribution, acquisition). Main processes are sometimes also called core processes, because they are central to the strategic goals of the business. They are the means by which the business creates value. Service processes deliver value to internal clients and support other processes. (e.g. personal recruiting, maintenance, quality, and security). Management and leadership processes act upon main processes. Planning, accounting, and budgeting fit into this category.

Processes can be further subdivided into strong or weak structured processes. Strong structured processes are frequently repeated, structured data, and well documented. They are the day-to-day transactions of an organization. They are well suited to conversion to electronic workflow and document management systems. Weak structured processes are, on the contrary, characterized by low predictability and infrequent repetition and unstructured data. One uses groupware and communication systems to support weak structured processes. 

All over the world, one can observe an economic and societal restructuring. A dynamic business environment and the pressure for firms to increase their competency is forcing enterprise to develop new abilities. Typically, firms adapt to a new environment by following a learning-process to gain efficiency and flexibility. To increase their competitiveness, many enterprises reorganize their systems and structures. They apply one of the many "salvation plans", such as "Business Process Reengineering", "Business Process Design", "Business Process Optimizing", Work Flow Management", "Business Modeling" or "Business Process Oriented Organizational Set-up", just to name of few of them. The choice of methods is good, however careful examination of each of these methods reveals that they all are based on the same central foundation. The focus is on identifying business processes and modeling them. They have a common process orientation.

Process orientation is booming in information systems, and has also become an important basic component in many organizations. Indeed, process thinking has a long tradition in business administration. The innovation in process orientation is in the expanded context and in the use of computer software. Business processes can be analyzed in their entirety throughout the organization, and this analysis is shaped and steered with the support of process modeling software. Process models document the business processes and support their systematic analysis. As a result of this analysis, some processes can be implemented electronically using specialized software, variously know as Work Processing Systems, Workflow Management Systems, and Business Engineering Tools.

Process orientation, as it is understood today, is strongly connected with strategic thinking and organizational development (OD). Porter's value chain, probably the most well known of the general process models, is a highly useful tool for strategic thinking.

Process orientation gained considerable additional attention with the rise of the Business Process Reengineering (BPR). The work on BPR of a few American authors started a worldwide trend, moved the discussion of processes in to the center of much organizational thinking about efficiency. Organization sought to use BPR to achieve reduce the complexity of internal operations and more efficiently achieve organizational goals.

To achieve the promise of BPR of simplifying organizational processes, it is of crucial to have an exact and thorough modeling of the targeted business processes. Process modeling is a methodology that explicitly or implicitly helps an enterprise to:

  • understand the nature of its various processes (business processes, service processes etc.) 
  • recognize the resources necessary for the execution of each process 
  • rearrange the system of processes and resources (i.e. process orientation) 
  • to permanently improve processes 

In general, an improvement in process can be reached through simplifying and standardizing the elements of a process and their relationship to each other. Through an automation of a chain of activity, for example, through new technology and information systems, the efficiency of the processes can often be increased. Also it is often possible to achieve efficiency gains by restructuring single parts of an enterprise. For example, by changing the order of the activities of an internal process or the sequencing of the procedures of a process.

The traditional organization is orientated around functions, hierarchies, competencies, departments, capacities and so forth. This leads in times of market change and competition to a critical disadvantage due to inflexibility, slow adaptation, and a loss of customer focus. Process orientation is a solution to these problems because it pays attention to products, value chains, and process connections. The goal is to ensure the processes are performed efficiently and effectively irrespective of organizational boundaries.


Exhibit 17: Process oriented enterprise

Process orientation is a philosophy of business, it is more than a methodology, and it implies no accepted actions of a single or connected system. However, methods and concepts have been developed, founded on process orientations, that have been widely adopted. As well as BPR, other names for this philosophy of business include Lean Management, Total Quality Management (TQM), and Process Cost Calculation. In the classical hierarchical organization, process management performs operates in parallel and complements the functional structure. A fundamental alteration of the organization's structure is not necessary. Finally, it is important to point out that process orientation should co-exist with other management approaches and management science applications.

A purely verbal description of the sequencing of tasks is not suitable for describing a process because of the level of detail and interaction that must be captured. Graphical methods are clearer for showing the ordering of activities, identifying those that occur in parallel and detailing a task's resource requirements. Graphs are easier to read and convey the overall nature of a process.

Process modeling is a method for enabling an enterprise to document its processes and to recognize the resources required by each process. and to depict or to document them, that is to model them, as activities, events and resources. There is no generally accepted standard for process modeling and it is strongly influenced by the capabilities of the selected tool. In addition process modeling, most of the time, takes place as part of a larger project (e.g. business process reengineering or introducing a workflow system). The higher goals or the larger project usually strongly influences the approach to process modeling.

In practice, organizational problems often trigger process modeling (e.g. a decrease in turnover, a loss of market share, a decrease of the quality of work). It often takes place as a reaction to a critical concern. Because process modeling is time consuming, Ideally, it should be take undertaken without undue pressure for rapid change. Seeking to use process modeling as a quick fix to a critical problem is unlikely to lead to the best outcome because it encourages short cuts in modeling and analysis that are detrimental to a high quality solution.

There are two major approaches of process modeling. The first kind assumes the existing processes must be understood before taking action. The second approach starts with the results that this process should accomplish. It argues that analyzing existing processes will not produce radical change. Hammer and Champy's BPR represents the second school. In reality, a synthesis of these two extremes would likely be most useful.

We now examine Nagl's (1993) four steps for the general order of procedures in process modeling:

  • understand existing processes, their resource requirements, strengths and weakness, and identify any risk factors 
  • define planned processes and describe the current functional processes 
  • determine of the planned use of resources (future state) considering the critical success factors 
  • identify the stages of implementation (actual or current state), including describing the system of resources, use of process as well as the measures taken in different functional areas 

The resulting process model should, among other things, do the following:

  • identify and define processes 
  • support process analysis and make needs for improvement visible 
  • document the change in the order of a process as well as recognizing the effects of such changes 

As already stated, business process modeling is concerned with the portrayal and description of all relevant aspects of a business process in an abstract model with the help of a formal or semi-formal language of description. At the same time, it actively supports the development of the new processes and reorganization of the business. Its goal is to improve organizational efficiency and competitiveness. Process modeling supports these goals in diverse ways, including:

  • Documentation: Business process modeling provides a simplified, but at the same time exact, description of the enterprise. All the elements and sections are described as well as their relationships and connections with one another. It provides the means to analyze emerging problems and to analyze their effects within the process or other related processes. 
  • Organizational analysis and reorganization: The sequencing of each process is analyzed in the course of the process modeling making possible to identify needless or awkward parts of the organization. As a result, parts of the process can be changed and organizational roles modified. As well, redundant tasks can be eliminated. 
  • Planning the use of resources: Because a process model provides an overall view of the enterprise and the exact knowledge of the way that the process functions, it is possible to determine the exact resource requirements of individual organizational units. Available resources can then be better planned and allocated. In addition, possible bottlenecks can be highlighted, so that the enterprise can react appropriately to relieve them. 
  • Process management, monitoring, and directing the course of a process: A process model delivers a business' leadership with an exact picture of the different trends and courses in the business. Input and output, distribution of resources, and the relationship between and in the individual elements of the enterprise are represented. Thus, more precise control of the course of business is possible. The organization should be more able to react in a timely manner to unexpected events. 
  • System and software development: A business process model gives management and analysts the opportunity to simulate proposed new processes before implementation. As a result, problems, possible improvements, and unanticipated outcomes are more likely to be recognized before implementation. It is cheaper and less disruptive to simulate change before making a final decision on the form of a new process. 
  • Creating a foundation for the establishment of a workflow management system: After successful business modeling, installing a workflow management is a possibility. A workflow system completely defines, manages and executes workflow processes through the execution of software whose order of execution is driven by a software representation of the workflow's process logic. Such systems are frequently used for document management. 

The optimization of an organization is only possible if processes are modeled accurately, only then, does exact knowledge of possible improvements or problems become available. Many different elements can play a part in a process, and the more aspects that are recorded, the more exact will be the process model. Each organization needs to determine the appropriate detail for its process model to meet organizational goals.

According to the requirements of the respective organization, the following information needs may be relevant:

  • Activities and structure of the process: This point is essential for modeling, it determines the purpose and structure of the process. It describes what happens and how it is to happen. 
  • Resources: This aspect has to do with the available internal as well as the inflowing external resources of a process. It defines what material is necessary for the correct sequencing of the process and the source of these resources. Data that are essential for the progress of the process are defined. 
  • Costs: An organization has a limited budget, and thus it is essential to have an exact list of the different tasks. Process Modeling can record the cost clearly for each individual process, recognizing where a redistribution or a change of budget is necessary or possible. 
  • Time: As with the cost, time also plays an important role in the schedule of a business. Through including time in process modeling, processes that last too long or create bottlenecks can be recognized and additional resources can be deployed to solve these timing issues. 
  • Exceptional incidents: The normal process is often the practice, though unusual events (e.g. lack of resources, short notice of deadlines changes) disturb process completion. Such disturbances need to be considered when modeling to ensure the process is fulfilled. 
  • Priority and role in the organizational structure: Each process has a definite status in the enterprise. Decision-making can be streamlined by the identification of organizational priorities. For example, if there is a shortage of resources, the decision as to where scarce materials should be delivered first is automatics because it is defined with the businesses processes. 
  • Communication structures: This item describes the internal communications structure of a process as well as its corresponding relationship to other units of the enterprise. For example, it describes what messages are exchanged between processes. 
  • Quality requirements: Quality requirements are included in process modeling to ensure customers' needs are met at the right standard. As well as defined quality requirements for output, quality standards for the process and specific dependencies are also recorded. 
  • Security requirements: With some processes, security factors have to be considered. For example, it might be important to prevent unauthorized access to internal data or minimize the risk of an accident in a manual process. 

The preceding list is not necessarily complete. It shows that processes are very complex and that the information needs for process modeling are dependent on the purpose of the model.

Process modeling can serve multiple needs. The most important among them being:

  • communication with co-workers and partners 
  • establishing a basis for understanding a process and analyzing it 
  • planning of work processes and exceptional situations 
  • implementation of a Workflow systems 
  • training people to use organizational processes 
  • input for software development 
  • a foundation of expertise for information management 

For the systematic description of processes, several different notation formats are available. They vary from informal descriptive techniques (e.g. verbal or text based descriptions, flowcharts), to semi-formal techniques (e.g. ePK-diagrams, BPMN-diagrams, and UML-diagrams), to formal methodologies (e.g. Petri nets). Formal methods are based upon a theoretical foundation, usually based on diagram theory. It is helpful to use a common standard to make communication with others easier.

BPMN (Business Process Modeling Notation) <www.bpmn.org/> is an open standard for modeling, implementing, and performing business processes. It is similar in its notation to the activity diagram of UML (Unified Modeling Language), which is widely used in the software industry. An activity diagram can be complemented with an application or sequence diagram.

ePK (event controlled chain of process) diagrams are also widely used, and appear in ARIS platform and SAP software. Business processes are portrayed as chains of activities that can be connected through events.

Process description languages are typically strongly structured, often tabular or graphically oriented. They often use diagrams or structured language to capture detail. As a result, they are more suited for describing processes than everyday language.

A major advantage of ePK-diagrams is that they are easy to read and are intuitively understood. An important disadvantage is in the limited ability for automatic analysis. A sample ePK diagram is shown in Exhibit 18. As a core element of ARIS, ePK diagrams will be treated when we cover tools for process modeling.


Exhibit 18: Example elements of an ePK diagram

We can describe the business processes within an organization in terms of events and function. Examples of events include an incoming order and sending out of invoice. The total of all possible events in an organization and its environment is defined as the organization's event scope. Functions include or describe a business management chain of activity (e.g. examination of creditworthiness). A function is a time consuming occurrence, which is triggered through a starting event and is completed by an ending event. Sometimes a function is also called a chain of activity, occupation, or operation. Functions can also be broken down or aggregated. An informational object describes the data that are processed by a function (e.g. a customer's record). Connectors describe the different forms of process branching (see Exhibit 19). In Exhibit 17, we see an example of an ePK diagram.


Exhibit 19: Connectors


Exhibit 20: an ePK diagram

Functions and events create an event controlled chain of process, with arrows showing the flow of the process. An incoming event initiates a function and a function when completed, in turn, initiates another event. Connectors can be used to combine parts of a chain. Complex chains can be broken down into layers, with high level layers showing the overall flow and lower layers recording the fine details. There are some common conventions for process modelling, including:

  • Events (e.g. parts missing) initiate functions (procurement). 
  • Parallel of functions should be modeled with logical operators. 
  • A process model should flow from the top to the bottom. 
  • Clear and understandable terms should be used for functions and events. 
  • An organizational unit responsible for the execution of each function should be identified. 

The planning, realization, supervision, and control of processes can supported by software. The spectrum of software support includes simple modeling tools to Workflow Systems, Document Management Systems, EAI-tools (Enterprise Application Integration), Business Rules Engine (which can automatically perform certain defined processes). The supply and demand for process technology is still growing strongly. We discuss a few tools that are mainly used for process modeling and process analysis.

Process modeling software is often similar to CASE-tools (Computer Aided Software Engineering), which were originally created for software design and software development. CASE tools provide some support for process modeling.

Workflow management describes another group of tools, which are well-suited for chain of activity modeling. The tools are frequently used to support group work and are sometimes called groupware. The tools were designed to support office automation, office communication, and office organizational systems, and their development started in the 1980s.

Tools support the systematic definition, storage and analysis of data collected during process analysis and process modelling. In large projects, they are especially useful in coping with handling volumes of data. They promote process understanding and process thinking. However, they don't automatically indicate how to improve a process, that is something for humans to undertake.

A process modeling tool needs to support different views of a process (e.g. understanding a process across functions or departments).Tools should also be able to show processes at different levels of detail and integration. The goal is to have an Enterprise or Information Model. An enterprise model supports definition of:

  • functions 
  • data objects, documents, and data flows 
  • processes 
  • organizational structures (organizational units and organizational set-up, employment structures). 
  • resources and other process features (e.g. cost, resource consumption, length of a run, frequency, volume etc.), 
  • process responsibility (e.g. process owner) 
  • process results 
  • process triggers (events) 

An enterprise model creates the possibility of a range of views of the organization to suit different purposes (e.g. strategic planning or process improvement). Most process modeling tools offer the breadth of functionality to support development of an enterprise model. The centre of a process modeling tool is a description language, which must fulfill certain requirements for it to be useful. The most important features include:

  • Power of expression: A language must be capable of representing all relevant aspects of a process. It must capture all properties and relationships. 
  • Formalization and degree of precision: A description language must be flexible to adapt use to a particular project's goals. If the language is not flexible enough, it loses power of expression and might be unsuitable for some modeling tasks. 
  • Visualization: A modeling language should support multiple organizational views, so that all aspects of the various processes are represented. A graphical representation is very helpful, as one loses the general idea very easily with a plain text description of a system. The ability to change the level of detail in a process model is also useful. One should be able to fade out irrelevant facts for a closer inspection of the fine detail of a process or summarize different processes to gain a high level perspective of a process. 
  • Development support: A process modeling tool, ideally, should also support software development as software is often written to automate processes. 
  • Analysis and validation: In most cases process modeling enables analysis of internal processes and to represent different feasible process structures and sequences. The modeling language must support precise representation of existing and proposed processes and validation for the testing of redesigned processes. 
  • Performance simulation: An analysis of organizational processes often identifies possible improvements in the structure and working of processes. To ensure that the potential changes result in process improvement, it is necessary to test them before implementation. Process simulation is a way of testing a change before making a costly commitment to an organizational process change. Implementation without testing or simulation can have costly consequences if the new process is flawed. 

The usefulness of a modeling tool is also determined by other factors beyond the capability to meet the preceding requirements. A tool must also be easy to use and support the interaction of the team working on the project.

Process models must be constantly updated to reflect organizational change if they are to remain of value. Only the employees that carry out a process, will know if the process has changed or its requirements modified. Ideally, model maintenance is undertaken by employees and not of the modeling specialists. Consequently, process modeling tools should be readily used by employees. Of course, they might need some appropriate training, but this should not be extensive because they are likely to be infrequent users of the tool.

Generally, a process improvement can be reached by simplifying and standardizing the process and its relationships. Automation of an activity chain (e.g. new technology and an information system) can lead to rapid performance increases. Also, restructuring parts of a process (e.g. a change in the internal sequencing of a process) can increase the reduce costs and the time for process execution. Some potential changes include:

  • Automation ( e.g. cessation of manual activity)
  • Information level (e.g. better reporting on the stages of process execution)
  • Process sequence (e.g. changes in the order of a process' steps and elimination of unnecessary steps)
  • Control (e.g. improved monitoring of a process at key steps)
  • Decision support (e.g. improving the information supplied to decision makers typically results in higher decision quality)
  • Regional co-operation (e.g. better coordination among different locations)
  • Coordination (e.g. better coordination between individual tasks and also between two or more processes)
  • Organizational learning (e.g. collecting and transmitting strategically important information to key managers)

Time, cost, and quality play an important role in process improvement. Thus, the individual process objects and activities must be examined to record their duration, quality, and content. The capacity, the consumption, the results, and responsibility of individual processes must also be determined. A variety of data might be collected, including production time, punctuality in meeting deadlines, work capacity, processing time, waiting time, and transport time, postprocessing time, and error rates. Careful and detailed process modeling lays the foundation analysis and redesign. There are a number of process assessment approaches including: 

  • net value analysis
  • cost calculation
  • benchmarking
  • profit value analysis
  • controlling
  • portfolio analysis
  • strengths, weaknesses, opportunities and threats (SWOT) analysis
  • process simulation
  • total quality management
  • six sigma

Benchmarking requires comparison of current process time, cost, and quality with earlier outputs of the organization or with a similar organizations in the same sector and of comparable size. It should methodically evaluate processes and products with their equivalent in the comparison organization. Benchmarking should identify target time, cost, and quality metrics for process redesign based on the best practices of the benchmarked organizations. The central question is: “Why and how are others performing better?”

Often benchmarking projects are carried out with the assistance of a consulting service, which collects and evaluates the necessary data of a group of similar organizations. Participants gain access to their performance data and a comparative analysis of their performance relative to the group average and to the anonymous best or worst results of the group.

Profit value analysis is used to compare alternative processes with respect to established goals. The analysis is organized into six steps:

11. Identify the criteria for assessment (e.g. short production time, high quality, low cost).

12. Determine the weight of each goal (e.g. 25 per cent, 25 per cent, 50 per cent).

13. Assess the alternatives and give each a score for each criterion.

14. Calculate the profit value by applying the weights to each score and summing these.

15. Complete a sensitivity analysis of the profit value to determine how sensitive the findings are to key assumptions.

16.     Rank the alternatives.

Profit value analysis takes into account the importance of different goals. However, the evaluation of each alternative is often subjective because objective measures for each criterion are often lacking. In addition, there is a certain amount of subjectivity in selecting weights.

The purpose of cost calculation is to investigate process costs beyond an organization's boundaries so that the full cost of a product to customers can be determined. Process cost calculation started in the 1980s. Because of a changing business environment, it was necessary to depart from the traditional method. Overhead costs were increasing because of several factors, including manufacturing flexibility, shortened product life cycles, a wider range of products, and variations within products. The goal is to make the cost structure transparent as this often leads to considerable process rationalization and savings. Cost calculation can highlight overheads that are too high and common processes that increase the cost of many other processes.

Process cost calculation is not an alternative to traditional cost accounting calculations. They are complementary. Process cost calculation tries to compensate for some of the shortcomings of the traditional cost calculation system in regards to the basic causes of organizational overheads. Increasing cost transparency should lead to more efficient resource consumption, report accurately the use of capacity, and improve the product cost calculations. The goal is to improve the quality of decision making related to new product introductions and pricing policies.


Exhibit 21: Boundary plan cost calculation compared to process oriented cost calculation.

Process cost calculation should document the cost drivers for each process. These cost drivers can be related to quality, time and efficiency goals that have an impact on organizational costs. Reducing cost drivers can decrease costs and improvement competitiveness. It might not be economical to undertake a complete cost analysis of all tasks, so process cost analysis should concentrate on those areas that are the main financial stress of the business. It should also focus on those areas for which no analysis of the basic cause of overheads has been completed.


Exhibit 22: Process cost calculation

Process cost calculation makes no judgment about the value of a process and only considers the cost side. Therefore, it should be combined with qualitative procedures. For example, a particular process might have a considerable impact on an organization's reputation and this impact would need to be considered when reviewing the overall value of the process related to its costs.

Process management should be an enduring element of an enterprise. Organizations need to continually evaluate about both their larger goals and the fine details of the steps that they take to achieve those goals. Process management provides support across this broad spectrum, as illustrated by Exhibit 10. Process management has become a basic requirement for nearly all organizations because it provides a methodical and systematic set of procedures for continuous improvement. It charts the roadmap to the future for most organizations.

In order for process management to be successful, there must be a person responsible for this task within the organization. Typically, the appointee is called a process manager. In addition, there can be process owners for key organizational processes. Process management occurs in parallel with the traditional functional structure of an organization. Thus, there is no need for a fundamental structural change, but there is a need to introduce new roles and recognize that management of a process often must span functional boundaries because processes span these boundaries.

Process management must support an organization's strategic success factors. Successful process management can create a competitive advantage and provide administrative efficiencies. It can also increase an enterprises’ innovativeness when applied to areas such as research and development.

In general, the success of process management is dependent on the skill of the process analysts, who must be supported by appropriate tools for modelling and analysis. Successful automation of processes is reliant upon a number of systems, such as a workflow system, a process management system, or the quality of the information system in which the processes are embedded.

A five stage model can be applied for introducing business process management. The stages are completed sequentially.

  1. Preliminary study: Those responsible for making the change are identified. A process manager is nominated for each process. The extent of the project should also be established at this stage as it might not be sensible to model all processes in an entire enterprise in one project. 
  2. Process modeling and documentation: All the elements (clients/customer, customer request, output, supplier, request to the suppliers, input, work capacity, etc.) of each process are recorded in a process model. This work is directed by the appropriate process manager. As well, the span and limits of these processes are documented. 
  3. Measuring achievement: Only a measurable process is controllable, so appropriate metrics must be determined for each process. These metrics should be highly objective and easily measured. Once the metrics have been defined, they should be measured for each process. 
  4. Active steering: Active steering (or controlling of a process) means that a process is managed to ensure high customer satisfaction, deviation from the predetermined goals is minimized, and problems are identified quickly and corrective action taken immediately. A sound measurement system will help in recognizing problems promptly and provide data for their rapid resolution. Active steering will increase customer satisfaction and efficiency and lower costs. 
  5. Continuous process improvement: Technological change and a dynamic business environment create the need for continuous process improvement. Organizations should strive to continually raise the quality of processes by reducing errors and required resources for execution. Errors in products and processes should not be tolerated and processes should be monitored constantly to identify opportunities for further improvement and lowering of costs. 

Process management started with the Japanese concept of Lean Management, and now we have a wealth of approaches to process management. Organizations are increasingly combing process management and information systems to increase their efficiency and effectiveness. They realize that they need to redesign their processes first before automating them if they are to gain the greatest benefit from information systems.

Firms adopting process orientation can transform in many ways, including positive changes in:

  • consumer orientation 
  • competence orientation 
  • concentration on creating added value 
  • effectiveness and efficiency 
  • delegation of responsibility and empowerment 
  • support for organizational learning 

Business process management has become a core competency for many organizations and is thus closely related to strategic management. In addition, there is a strong linkage between information systems and process management. On the one hand, information is needed for the performance of processes, and on the other hand, new information is created by processes. Once again, we see evidence of the critical role of information systems in organizational success. Indeed, in today's information intensive economy, process management and information systems are critical partners in organizational success.


Exhibit 23: Steps in process management