Business Process Modeling and Process Management

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.

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.