Business Process Management session 3
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This document provides an overview of process costing. It defines key terms like process, events, gateways and functions. It discusses process decomposition and modeling. It explains how to calculate costs by capturing information like effort, rework and wait times for each step. Cost attributes include material, personnel, operational and overhead costs. The document provides steps to calculate process costs such as creating an activity list, capturing RASCI information, and comparing costs per step to SLAs. It emphasizes keeping processes simple and calculating costs to identify improvements that reduce time and costs.
Business Process Management session 3
- 1. BUSINESS PROCESS MANAGEMENT SESSION 3 – PROCESS COSTING <V1.0>
- 2. 1/21/2013 2 Contents • Recap of Session 2 • Process Modelling • Process Costing • Lets have some fun
- 3. 1/21/2013 3 Recap of Session 2
- 4. 1/21/2013 4 Process Decomp • Process Decomposition is the break up of a process to activity level • Every project should have a Process Decomp • Process Decomp helps at later stages when improvisation has to be implemented • Process Decomp keeps a running score of all the processes under a function
- 5. 1/21/2013 5 Flow Objects • Flow objects define the behavior of the Name process • Flow Objects are • Activities – are the actions that are carried out Activity as part of business Name • Event – are the process triggering objects that affect the flow of the process and have a cause and a result Event • Gateways – are the controlling objects that diverge or converge the flow Name Gateway
- 6. 1/21/2013 6 Artifacts • Artifacts are • Group – to put similar activities under a Group group • Annotations – are used to proved additional text information Text Annotation • Data Objects – are used to show how data is required or produced at each step
- 7. 1/21/2013 7 What is an Event • An Event is something that happens during the course of a business process and affects its execution Event • An Event has a CAUSE and an IMPACT • All activities are triggered by an Event. for example purchase order received. This is an Event
- 8. 1/21/2013 8 Connection Objects • Connections are used to connect two or more objects in a process • Connection Objects are Sequence • Sequence Lines – to show in which Flow order the activities are performed • Associations – are used to associate a Association role, text, artifact to a flow object • Message Lines – represents how message flows between the objects Message Flow
- 9. 1/21/2013 9 What is an Function • Functions indicate the tasks or activities that are carried out in the business process. Function • Functions have inputs (material or information) and outputs (different material or information) and usually utilize resources. Thus, they are carried out by either people or systems. • Functions should not convey unambiguous information to the reader; it should be specific and convey the right information. The usage of short forms such as ent. instead of enter should be avoided.
- 10. 1/21/2013 10 OR Operator OR Following a Function OR Preceding a Function Single Input – Multiple Output Multiple Input – Single Output OR Decision OR Trigger One or many possible paths will be Any one Event, or combination of Events, followed will as a result of the decision trigger the Function
- 11. 1/21/2013 11 XOR Operator XOR Following a Function XOR Preceding a Function Single Input – Multiple Output Multiple Input – Single Output XOR Decision XOR Trigger One, but only one, of the possible paths One, but only one, of the possible Events will will be followed be the trigger
- 12. 1/21/2013 12 AND Operator AND Following a Function AND Preceding a Function Single Input – Multiple Output Multiple Input – Single Output AND Branch AND Branch Trigger Process flow splits into two or more All Events must occur in order to trigger Parallel the paths following Function
- 13. 1/21/2013 13
- 14. 1/21/2013 14 Important thing to remember Change is DIFFICULT to accept Account for CHANGE MANAGEMENT This helps to reduce resistance to any change
- 15. 1/21/2013 15 Process Modelling
- 16. 1/21/2013 16 Why Process Modeling • Communication between people • Training and Learning • Persuasion and selling • Analysis of business situation • Compliance management • Knowledge management
- 17. 1/21/2013 17 Process Activity Questions • How do we do it • Why do we do it • What is the output • How many outputs • How long does it take • Where does the output go • Who reviews it and when • Who performs each activity • What generates the process/tasks • What are the KPI’s • Who are the customers of the process • Who are the suppliers of the process • What decision are made in executing the process • How are exceptions handled • What is the nature or frequency of errors / problems
- 18. 1/21/2013 18 Why Simulate Business Model • Advantages of simulation Persuasion and Selling over testing in the real Simulating results of world: proposed solution Cause and Effect • Speed Simulation • Low cost • No disturbance of current Verification and operations Validation Are we doing the right thing Are we doing it right
- 19. 1/21/2013 19 Types of Simulations Visual Depiction Using process flows during simulation and validation of logic Numeric Simulation Process Management Cycle Time Capacity Analysis What If analysis
- 20. 1/21/2013 20 Process Modeling Techniques • Individual Interviews – gathering information from the actors of process steps • Facilitated Sessions – gathering information from a group • Top Down – documenting processes from a Process level • Bottom Up – documenting processes from Activity level
- 21. 1/21/2013 21 Understand the BUSINESS NEED
- 22. 1/21/2013 22 Process Metrics • What do we measure • Time – value, cycle, waiting, productive , non productive • Volume – transactions per day, per hour • Costs – fixed, variable • Equipment used – cost • Value add – • Real value • Business value • Non value like time wasted on cigarette / tea breaks
- 24. 1/21/2013 24 DON’T COMPLICATE PROCESSES
- 25. 1/21/2013 25 Order Fulfillment VSM
- 26. 1/21/2013 26 Process Costing
- 27. 1/21/2013 27 Why Costs • Everything boils down to How Much Does It Cost US An improved process should cost LESS and execution should be FASTER Calculate costs using the following information • Duration of a process step • Cost incurred at the step • Compared to AS-IS processes, TO-BE processes are expected to bring improvisation in • Time • Costs Improvements can be identified using analyzing TIME/COST .
- 28. 1/21/2013 28 Factors Affecting Process Costs • Process Time • How long does a process take from a resource capacity point of view • Process Costs • What costs accrue during the execution of a process or of entire process chains aiming at the creation of products or services • Resource Requirements • How many resources are required for performing the relevant processes • What is the degree of utilization of available resources
- 29. 1/21/2013 29 Cost Determining Attributes • Processing Time – • Minimum, Average and Max processing time Orientation Time – • Minimum and Average orientation Time Wait Time – • Minimum and Average wait Time Frequency – • Daily / Weekly / Monthly / Annual
- 30. 1/21/2013 30 Costs Attributes • Min, Average and Max Total Costs • Min, Average and Max Material Costs • Costs related directly associated with processing and use of material Min, Average and Max Personnel Costs Min, Average and Max Operational Costs Min, Average and Max Overheads These are costs not directly allocated to an account Min, Average and Max Depreciation / Maintenance Costs Min, Average and Max Interest Costs
- 31. 1/21/2013 31 Steps To Calculate Process Cost • Create a Level 5 Activity List • Capture information – Manual / Automatic step • Capture the RASCI for the step • Capture information like • Effort • Rework • Wait time between two steps Calculate Effort + Cost for every step Create Cost – Effort Matrix Compare Costs per step with SLA
- 32. 1/21/2013 32 Process Costing Process Costs Raw Material Directly Direct Material traceable to the process Labor and Overheads Conversion Costs directly traceable to the process • Calculate DM per unit Steps • Calculate Conversion Costs per unit 1. Analyze flow of physical units • DM + CC = Total Cost Per Unit 2. Calculate unit costs • COGS = Total Cost Per Unit x Units 3. Determine Total Cost to Account Sold
- 33. 1/21/2013 33 Keep your processes SIMPLE
- 34. 1/21/2013 34 Lets have some fun
- 35. 1/21/2013 35 Business Functions In Manufacturing Let’s list down the various departments in a Factory Production Finance Purchase / HR Procurement Accounts – AP / AR Sales Marketing After Sales R&D Shipping Warehousing Distribution Operations
- 36. 1/21/2013 36 Calculate the OPTIMUM Production Schedule Explain WHY your approach is the right one
- 37. 1/21/2013 37 Lets See The Scheduleunit Cost per of RM = 65 Time Taken Stock Recd RM to produce from Prev Week 1 Needed EACH unit Function Day 1 SETUP TIME F Time A 00:00:0 15 0 15 12 20 0 C 0 0 T 120 O Cash R 0 7 0 14 10 10000 60 Y Fixed Costs 11000 30 F L WIP Stock 0 O 10 0 40 O R Sales Price Calculate the Optimum per unit of production process to Produce Market FG = 180 20 Units with least wait times Demand
- 38. 1/21/2013 38 Lets Schedule Labor Set 9:00 9:30 - 10:00 10:30 11:00 - 11:30 12:00 12:30 13:30 14:00 14:30 15:00 15:30 16:0 16:30 – - 10:00 – – 11:30 - - - - - - – – 0– 17:00 up 9:30 10:30 11:00 12:00 12:30 13:30 14:00 14:30 15:00 15:30 16:00 16:3 Tim 0 e 15 120 60 30
- 39. 1/21/2013 39 Please contact: Session 4 ARIS - Introduction Naval Vithalani [email protected] Thank You