Description
Business Process Performance Measurement
Business Process Performance Measurement
Why measure?
• Check position
– Measures as a means of establishing position – Measures as a means of comparing position (benchmarking) – Measures to monitor progress
• Communicate position
– Measures as a means of communicating performance – Measuring because you have to: regulatory communication
• Compel progress
– Measures as a means of motivation – Measures as a means of communicating priorities – Measures as a basis of reward
Measuring Business Processes 2
Performance Measurement Myths?
• What gets measured, gets done. • If you don?t measure results, you can?t tell success from failure. • If you can?t see success, you can?t reward it. • If you can?t reward success, you are probably rewarding failure. • If you can?t see success, you can?t learn from it. • If you can?t recognise failure, you can?t correct it. • If you can demonstrate results, you can win public support.
Measuring Business Processes
3
Cost of Performance Measurement
• Every measurement activity incurs costs to both implement and maintain. • Without the knowledge of the exact circumstances under which a measurement system either will or will not improve the performance, it is difficult to genuinely justify the additional cost of implementing a measurement system.
Measuring Business Processes
4
Functional versus Process Measures
• Functional measures Usually derived from the financial statements and on traditional ways of measuring the efficiency of work within a department. • Process measures Derive from general measures of customer satisfaction with the outputs of a process.
These measures are used to work backward to measure how each department might contribute to customer satisfaction.
5
Measuring Business Processes
Functional versus Process Measures (contd.)
• They overlap as long as departmental goals overlap with the customer goals, such as departmental efficiency and productivity versus production of products/services quickly and cheaply. • They conflict when a functional measure slows or disrupts the overall speed or efficiency of process to maximise some departmental-oriented goal.
Measuring Business Processes
6
Comparison of Functional & Process Measures
Department or function Sales department Typical departmental measures ? Cost of sales ? Revenue ? Cost of inventory ? Cost of materials ? Cost of labour ? Percent of bad debt ? Mean labour budget ? Gross revenue ? Cost of sales ? Customer growth
Measuring Business Processes
Typical process measures ? Timeliness & accuracy of orders ? Order processing cost ? Timely order shipment ? Timely order scheduling ? Invoice processing cost ? Timely cheque prep. ? % of on-time delivery ? % of rejects
7
Production department
Finance department
External organizational measures
Need for Process Measurement
The purpose of process measurement is to: • ensure progress in improving its performance • prevent process problems and errors • work with facts, not opinions • set performance standards (benchmarks) • recognise success.
Measuring Business Processes
8
Process Metrics
• Measures used for measuring process performance are called process metrics.
Measuring Business Processes
9
Role of Process Metrics
• Business objectives are often couched in phrases like “being the best” or “delivering world-class customer service”. Moving towards these aims is only possible if the company uses measures to compare against its own baseline position, or against competition. • Metrics are important within process management since only through these can we establish whether the hoped improvements have been achieved, and monitor how future improvements occur through time. • Metrics are also important because of their high visibility with process users and managers.
Measuring Business Processes
10
Ensuring Success with Metrics
• For each metric, an owner needs to be held accountable for the metric?s performance. • To be effective, each metric must have a target or goal associated with it. • Each metric should have one or more initiatives associated with it that significantly increase the probability of meeting or exceeding the target.
Measuring Business Processes
11
Recommendations for Using Metrics
• Involve as many constituents as possible early in the metric development process. • Select only few metrics for final use. • Use SMART technique for evaluating each metric. • Assign an owner for each metric, who is accountable for metric performance. • For each metric, assign a target. • For each metric, develop at least one initiative that is explicitly designed to significantly increase the probability of successfully meeting or exceeding the target. • Be sure to validate each metric to ensure that it is producing the desired results.
Measuring Business Processes 12
Different Types of Process Metrics
• Organisational performance metrics
– Turnover, profitability, market share, customer satisfaction
• Process performance metrics
– Lead-time, process profitability
• Critical success factors (CSFs)
– Customer service index, employee satisfaction
• Defect based metrics
– Customer complaints; cases processed late (than the scheduled time)
• Integrated metrics
– Balanced scorecard
Measuring Business Processes 13
Techniques for Selecting Metrics
• • • • • • • • • Analyse corporate objectives. Review existing reports. Individual interviews. Map business processes. Key performance indicators (KPI) definition sessions. Group interviews. Map information. Strategy maps. Surveys.
Measuring Business Processes
14
Collecting SMART Metrics
• Metrics must be: S pecific M easurable A ctionable R elevant T imely
Measuring Business Processes
15
Advantage of Using SMART Metrics
• • • Using SMART metrics avoids the following types of problems: Developing metrics for which accurate or complete data cannot be collected. Developing metrics that measure the right thing, but cause people to act in a way contrary to the best interest of the business to simply “make their numbers”. Developing too many metrics to create excessive overhead and red tape. Developing metrics that are complex and difficult to explain to others.
•
Measuring Business Processes
16
Customers? „Value? Criteria
Quality x Service Value = ------------------------------Cost x Cycle Time
.
Measuring Business Processes
17
Value Criteria Examples
Quality
? Meeting ? ? ? ?
Service
Cost
? Design & Engineering ? Quality assurance ? Distribution ? Materials ? Inventory ? Conversion ? Administration
Cycle Time
? Time-to-market - Concept-todelivery - Order-todelivery ? Lead time - Design - Engineering - Delivery - Conversion
? Customer support customer ? Product service/ requirements support Fitness for use Elimination of ? Flexibility to meet customer waste demand Continuous ? Flexibility to improvement meet market Process integrity change minimum variances
Measuring Business Processes
18
„Value for Money? Framework for Process Performance
Activities Input
(Resources)
Output
(Products/ Services)
Outcome
(Impact)
Economy Relation (Cost)
Efficiency Relation (Throughput)
Effectiveness Relation (Value addition)
Measuring Business Processes
19
Performance Measurement of Public Services
• Value for Money
– Economic acquisition of resources and their efficient utilisation in the realisation of the purposes of the organisation with the simultaneous achievement of economy, efficiency, and effectiveness.
• Measuring outputs versus measuring outcomes
– An output is a measure of efficiency, whereas an outcome is a measure of the quality/effectiveness. – „Outputs? do not guarantee „outcomes?.
Measuring Business Processes
20
Programme and Policy Outcomes
• Programme outcome
– Effectiveness of specific programme in achieving desired outcomes. – Sarva shiksha abhiyan: effectiveness in bringing 100% literacy.
• Policy outcome
– Effectiveness of broader policies in achieving fundamental goals. – SC/ST reservation policy: effectiveness in bringing employment to people in SC/ST category (without degrading the performance at a particular job level).
Measuring Business Processes 21
Measuring Process Performance
1. Think about what is currently being measured. 2. Does the current approach gives the information that is needed? 3. Do you have the following:
– clear „top-down? requirements: measurable improvement goals; specific process outputs; numerical targets and milestones? – customer-related measures: to clarify requirements; to receive ongoing feedback? – process performance measures which are: focused on key points; clear, simple and relevant?
Measuring Business Processes
22
Measuring Process Performance
(contd.)
– measures of „bottom-up? achievements: focused on work teams; compared to targets; visible to team members?
Top down requirements „bottom up? achievements
PROCESS METRICS
???
CUSTOMER MEASURES
Measuring Business Processes
23
Integrated Metrics Using Balanced Scorecard
• Balanced scorecard (BSC) can translate a process vision and strategy into specific objectives. • The BSC emphasises that a company should monitor a number of key performance indicators (KPIs) that collectively tell the senior management how the organisation is doing.
Measuring Business Processes
24
Integrated Metrics Using Balanced Scorecard (contd.)
• The BSC is structured in four main areas:
– Customer concerns. These include time (lead time, time to quote, etc.), quality, performance, service and cost. – Internal business processes. These KPIs focus on measures of internal processes that have greatest impact on customer satisfaction: cycle time, quality, employee skills and productivity. – Financial measures. These KPIs focus on revenue growth, cash flow, and profitability. – Learning and growth. Innovation, measured by change in value through time (employee value, shareholder value, % and value of sales from products less than x years old).
Measuring Business Processes
25
Strategy and Balanced Scorecard
• Balanced scorecard (BCS), when properly connected to a strategy, is a very powerful tool for communicating strategy.
• BCS as a hierarchy: Financial Return On Investment
Customer
Process Innovation
Value preposition
Unique processes/activities Continuing innovation
Measuring Business Processes
26
Strategy and Balanced Score Card
Financial Perspective
Vision
Customer Perspective
Strategy
Internal Process Perspective
Learning & Growth Perspective
Measuring Business Processes 27
Measuring & Planning Using BSC
Vision Perspectives Strategic Aims? Critical Success Factors
Performance Indicators
Action Plan
Measuring Business Processes
28
Performance Metric Example -Purchase
• Pre-ordering
– PR-to-PO Conversion Time
• Post-ordering
– Cost of Purchasing Ordering – On-time Delivery Index – Rejection Level Index
• Vendor Related
– Vendor Relationship Profile – Vendor Development Index – Vendor On-time Payment Index
Measuring Business Processes
29
Performance Metric Example -Inventory & Stores
• Days Spares Held
(Average spares inventory / cost of spares consumed per day)
• Days Raw Material Held • Days Stores Held • Non-Moving Inventory Index
(Non-moving inventory value / average inventory value)
Measuring Business Processes
30
Performance Metric Example -Human Resource Development
• • • • • • Functionwise Manpower Distribution Employee Turnover Ratio Training Days per Employee Training Investment per Employee Productivity per Employee Suggestions per Employee
Measuring Business Processes
31
doc_830996371.pptx
Business Process Performance Measurement
Business Process Performance Measurement
Why measure?
• Check position
– Measures as a means of establishing position – Measures as a means of comparing position (benchmarking) – Measures to monitor progress
• Communicate position
– Measures as a means of communicating performance – Measuring because you have to: regulatory communication
• Compel progress
– Measures as a means of motivation – Measures as a means of communicating priorities – Measures as a basis of reward
Measuring Business Processes 2
Performance Measurement Myths?
• What gets measured, gets done. • If you don?t measure results, you can?t tell success from failure. • If you can?t see success, you can?t reward it. • If you can?t reward success, you are probably rewarding failure. • If you can?t see success, you can?t learn from it. • If you can?t recognise failure, you can?t correct it. • If you can demonstrate results, you can win public support.
Measuring Business Processes
3
Cost of Performance Measurement
• Every measurement activity incurs costs to both implement and maintain. • Without the knowledge of the exact circumstances under which a measurement system either will or will not improve the performance, it is difficult to genuinely justify the additional cost of implementing a measurement system.
Measuring Business Processes
4
Functional versus Process Measures
• Functional measures Usually derived from the financial statements and on traditional ways of measuring the efficiency of work within a department. • Process measures Derive from general measures of customer satisfaction with the outputs of a process.
These measures are used to work backward to measure how each department might contribute to customer satisfaction.
5
Measuring Business Processes
Functional versus Process Measures (contd.)
• They overlap as long as departmental goals overlap with the customer goals, such as departmental efficiency and productivity versus production of products/services quickly and cheaply. • They conflict when a functional measure slows or disrupts the overall speed or efficiency of process to maximise some departmental-oriented goal.
Measuring Business Processes
6
Comparison of Functional & Process Measures
Department or function Sales department Typical departmental measures ? Cost of sales ? Revenue ? Cost of inventory ? Cost of materials ? Cost of labour ? Percent of bad debt ? Mean labour budget ? Gross revenue ? Cost of sales ? Customer growth
Measuring Business Processes
Typical process measures ? Timeliness & accuracy of orders ? Order processing cost ? Timely order shipment ? Timely order scheduling ? Invoice processing cost ? Timely cheque prep. ? % of on-time delivery ? % of rejects
7
Production department
Finance department
External organizational measures
Need for Process Measurement
The purpose of process measurement is to: • ensure progress in improving its performance • prevent process problems and errors • work with facts, not opinions • set performance standards (benchmarks) • recognise success.
Measuring Business Processes
8
Process Metrics
• Measures used for measuring process performance are called process metrics.
Measuring Business Processes
9
Role of Process Metrics
• Business objectives are often couched in phrases like “being the best” or “delivering world-class customer service”. Moving towards these aims is only possible if the company uses measures to compare against its own baseline position, or against competition. • Metrics are important within process management since only through these can we establish whether the hoped improvements have been achieved, and monitor how future improvements occur through time. • Metrics are also important because of their high visibility with process users and managers.
Measuring Business Processes
10
Ensuring Success with Metrics
• For each metric, an owner needs to be held accountable for the metric?s performance. • To be effective, each metric must have a target or goal associated with it. • Each metric should have one or more initiatives associated with it that significantly increase the probability of meeting or exceeding the target.
Measuring Business Processes
11
Recommendations for Using Metrics
• Involve as many constituents as possible early in the metric development process. • Select only few metrics for final use. • Use SMART technique for evaluating each metric. • Assign an owner for each metric, who is accountable for metric performance. • For each metric, assign a target. • For each metric, develop at least one initiative that is explicitly designed to significantly increase the probability of successfully meeting or exceeding the target. • Be sure to validate each metric to ensure that it is producing the desired results.
Measuring Business Processes 12
Different Types of Process Metrics
• Organisational performance metrics
– Turnover, profitability, market share, customer satisfaction
• Process performance metrics
– Lead-time, process profitability
• Critical success factors (CSFs)
– Customer service index, employee satisfaction
• Defect based metrics
– Customer complaints; cases processed late (than the scheduled time)
• Integrated metrics
– Balanced scorecard
Measuring Business Processes 13
Techniques for Selecting Metrics
• • • • • • • • • Analyse corporate objectives. Review existing reports. Individual interviews. Map business processes. Key performance indicators (KPI) definition sessions. Group interviews. Map information. Strategy maps. Surveys.
Measuring Business Processes
14
Collecting SMART Metrics
• Metrics must be: S pecific M easurable A ctionable R elevant T imely
Measuring Business Processes
15
Advantage of Using SMART Metrics
• • • Using SMART metrics avoids the following types of problems: Developing metrics for which accurate or complete data cannot be collected. Developing metrics that measure the right thing, but cause people to act in a way contrary to the best interest of the business to simply “make their numbers”. Developing too many metrics to create excessive overhead and red tape. Developing metrics that are complex and difficult to explain to others.
•
Measuring Business Processes
16
Customers? „Value? Criteria
Quality x Service Value = ------------------------------Cost x Cycle Time
.
Measuring Business Processes
17
Value Criteria Examples
Quality
? Meeting ? ? ? ?
Service
Cost
? Design & Engineering ? Quality assurance ? Distribution ? Materials ? Inventory ? Conversion ? Administration
Cycle Time
? Time-to-market - Concept-todelivery - Order-todelivery ? Lead time - Design - Engineering - Delivery - Conversion
? Customer support customer ? Product service/ requirements support Fitness for use Elimination of ? Flexibility to meet customer waste demand Continuous ? Flexibility to improvement meet market Process integrity change minimum variances
Measuring Business Processes
18
„Value for Money? Framework for Process Performance
Activities Input
(Resources)
Output
(Products/ Services)
Outcome
(Impact)
Economy Relation (Cost)
Efficiency Relation (Throughput)
Effectiveness Relation (Value addition)
Measuring Business Processes
19
Performance Measurement of Public Services
• Value for Money
– Economic acquisition of resources and their efficient utilisation in the realisation of the purposes of the organisation with the simultaneous achievement of economy, efficiency, and effectiveness.
• Measuring outputs versus measuring outcomes
– An output is a measure of efficiency, whereas an outcome is a measure of the quality/effectiveness. – „Outputs? do not guarantee „outcomes?.
Measuring Business Processes
20
Programme and Policy Outcomes
• Programme outcome
– Effectiveness of specific programme in achieving desired outcomes. – Sarva shiksha abhiyan: effectiveness in bringing 100% literacy.
• Policy outcome
– Effectiveness of broader policies in achieving fundamental goals. – SC/ST reservation policy: effectiveness in bringing employment to people in SC/ST category (without degrading the performance at a particular job level).
Measuring Business Processes 21
Measuring Process Performance
1. Think about what is currently being measured. 2. Does the current approach gives the information that is needed? 3. Do you have the following:
– clear „top-down? requirements: measurable improvement goals; specific process outputs; numerical targets and milestones? – customer-related measures: to clarify requirements; to receive ongoing feedback? – process performance measures which are: focused on key points; clear, simple and relevant?
Measuring Business Processes
22
Measuring Process Performance
(contd.)
– measures of „bottom-up? achievements: focused on work teams; compared to targets; visible to team members?
Top down requirements „bottom up? achievements
PROCESS METRICS
???
CUSTOMER MEASURES
Measuring Business Processes
23
Integrated Metrics Using Balanced Scorecard
• Balanced scorecard (BSC) can translate a process vision and strategy into specific objectives. • The BSC emphasises that a company should monitor a number of key performance indicators (KPIs) that collectively tell the senior management how the organisation is doing.
Measuring Business Processes
24
Integrated Metrics Using Balanced Scorecard (contd.)
• The BSC is structured in four main areas:
– Customer concerns. These include time (lead time, time to quote, etc.), quality, performance, service and cost. – Internal business processes. These KPIs focus on measures of internal processes that have greatest impact on customer satisfaction: cycle time, quality, employee skills and productivity. – Financial measures. These KPIs focus on revenue growth, cash flow, and profitability. – Learning and growth. Innovation, measured by change in value through time (employee value, shareholder value, % and value of sales from products less than x years old).
Measuring Business Processes
25
Strategy and Balanced Scorecard
• Balanced scorecard (BCS), when properly connected to a strategy, is a very powerful tool for communicating strategy.
• BCS as a hierarchy: Financial Return On Investment
Customer
Process Innovation
Value preposition
Unique processes/activities Continuing innovation
Measuring Business Processes
26
Strategy and Balanced Score Card
Financial Perspective
Vision
Customer Perspective
Strategy
Internal Process Perspective
Learning & Growth Perspective
Measuring Business Processes 27
Measuring & Planning Using BSC
Vision Perspectives Strategic Aims? Critical Success Factors
Performance Indicators
Action Plan
Measuring Business Processes
28
Performance Metric Example -Purchase
• Pre-ordering
– PR-to-PO Conversion Time
• Post-ordering
– Cost of Purchasing Ordering – On-time Delivery Index – Rejection Level Index
• Vendor Related
– Vendor Relationship Profile – Vendor Development Index – Vendor On-time Payment Index
Measuring Business Processes
29
Performance Metric Example -Inventory & Stores
• Days Spares Held
(Average spares inventory / cost of spares consumed per day)
• Days Raw Material Held • Days Stores Held • Non-Moving Inventory Index
(Non-moving inventory value / average inventory value)
Measuring Business Processes
30
Performance Metric Example -Human Resource Development
• • • • • • Functionwise Manpower Distribution Employee Turnover Ratio Training Days per Employee Training Investment per Employee Productivity per Employee Suggestions per Employee
Measuring Business Processes
31
doc_830996371.pptx