Business Process

Design
MK. MANAJEMEN PROSES BISNIS
Increasingly global competition marketplace
leaves no room for successful companies to
harbor internal inefficiencies.

More demanding customers

The stakes are high, and so is the penalty

for not satisfying the right customers with
the right products and services.

Organizations must align their internal

activities and resources with the external
requirements (internal efficiency and
external effectiveness)

By having Business processes that is

designed appropriately.
 We have to learn how to
Modeling, analyzing, and ultimately designing business processes
 Business Process
 Business as “an organizational entity that deploys
resources to provide customers with desired products
or services.”
 A process specifies the transformation of inputs to
outputs
  Physical, e.g: the transformation of raw materials to a
finished product
 Locational, e.g: the transportation service provided
Transformations by an airline
typically are  Transactional, e.g: banking and transformation of
cash into stocks by a brokerage firm
classified as
 Informational, e.g: the transformation of financial
follows: data into information in the form of financial
statements
“We employ the term business process
to emphasize NOT ONLY focusing on the
analysis and design of manufacturing
processes per se, although they will be
an important subset of the entire set
of business processes that define an
organization”
 We need to look behind the scenes, inside the “black box,” at process types,
process hierarchies, and determinants of process architecture to analyze
and design the transformation process
Process Types
1. Individual processes
– Carried out by a single individual

Make up

2. Vertical or Functional processes

– Contained within one functional unit or department

Make up

3. Horizontal or Cross Functional processes

– Spans several functional units, departments or
companies
Process hierarchy
Process typically can be decomposed
into a number of connected functional
processes or subprocesses, which
consist of a number of individual
processes. Any process can be broken
down into one or more activities that are
comprised of a number of tasks.
Process Architecture
Consist of five main components or elements
Inputs and Outputs Information structure

Process
Flow units Resources
Architecture

The network of
activities and buffers
Inputs and Outputs
 Identify its entry and exit points
 Iputs and outputs can be tangible
(raw materials, cash, and customers)
or intangible (information, energy,
and time)
 The inputs and outputs establish the
interaction between the process and
its environment.
 Give an Example of inputs and
Outputs (tangible / intangible) in
any process !!
Flow Units
 Can be defined as a “transient entity* that proceeds through various
activities and finally exits the process as finished output.”
 The flow unit can be a unit of input (e.g., a customer or raw material), a
unit of one or several intermediate products or components (e.g., the frame
in a bicycle assembly process), or a unit of output (e.g., a serviced customer
or finished product)
 Flow units include materials, orders, files or documents, requests,
customers, patients, products, paper forms, cash, and transactions
Network of
Activities and
Buffers
 through which the flow units or jobs have to pass in
order to be transformed from inputs to outputs.
 identify all relevant activities that define the process
and their precedence relationships
 Activities can be thought of as micro-processes
consisting of a collection of tasks
 One of the most common and straightforward strategies for eliminating
non-value-adding and control activities is the integration of tasks
Resources
 Resources are tangible assets that are necessary to
perform activities within a process.
 Examples of resources include the machinery in a job
shop, the aircraft of an airline, and the faculty at an
educational institution.
 Resources often are divided into two categories:
 capital assets (e.g., real estate, machinery,
equipment, and computer systems) and
 Labor (i.e., the organization’s employees and the
knowledge they possess)
 Resources are utilized rather than consumed
Information
Structure
 The information structure
specifies which information is
required and which is available in
order to make the decisions
necessary for performing the
activities in a process
 What is Business Process?

“A business process is a network of connected activities

and buffers with well-defined boundaries and
precedence relationships, which utilize resources to
transform inputs into outputs for the purpose of
satisfying customer requirements”
 Workflow management
systems
• Control actions taken on
documents moving through a
business process
Workflow • Workflow management
software/systems are used to
Management control who does what to a
specific document
Systems
Using our comprehensive
process definition
• Process = Workflow
 • An efficient process which does not deliver customer value is useless

A well designed process does the right things, right!

More formally…
• BPD is concerned with configuring the process architecture to satisfy customer
desires in an efficient way
– Customers can be both internal and external
• Internal customer requirements must be aligned with the desires of the external
customers in the business strategy

We make a clear distinction between process design and implementation

 23
Linking BPD to overall Business Performance

• Overall business performance?

– Detailed definition is company specific
– Generally, performance must be measured against the stated objectives

Profit maximizing firms Non-profit organizations

Overarching objective is usually to A common objective is survival and
maximize long term shareholder value growth while satisfying customer needs

Maximize revenues and Must use resources efficiently while

minimize costs understanding customer needs

Satisfying customer needs in an efficient way

Well designed business processes

 24
Why are Inefficient Processes Designed?

• They are usually not designed - They just emerge

– Circumstances and the process environment change and
processes are incrementally adapted, but often without
careful analysis of the overall effects
Case Study
Example
 Example 1 – Claims Handling in a
26

Large Insurance Company

• Pilot project – claims handling for replacement of
automobile glass
• Springboard for later, more ambitious redesign efforts
• Set up procedure
1. The CEO appoints an executive sponsor to lead the project
2. Team members are handpicked by the CEO and the sponsor
3. The team creates a flowchart of the existing process
• Under the existing process the client may have to wait 1-2
weeks before being able to replace the damaged auto glass
 Goal – A radical overhaul and improvement of the process
to shorten the client waiting time
 Example 1 27

Flowchart of the existing claims process

Request additional information

Pay

Notify agent
Forward
Give instructions Local claim Claims
Client independent processing
File claim agent center

Request quote

Provide quote Approved

glass
Pay vendor
 Example 1 28

Explanation of existing claims process

1. Client notifies a local agent that she wishes to file a claim. She is given a claims
form and is told to obtain a cost estimate from a local glass vendor.
2. When the claims form is completed the local agent verifies the information and
forwards the claim to a regional processing center.
3. The processing center logs the date and time of the claim’s arrival. The data is
entered into a computer-based system (for record keeping only) by a clerk. The
claim is then placed in a hard copy file and passed on to a claims representative.
4. a) If the claims representative is satisfied with the claim it is passed along to
several others in the processing chain and eventually a check is issued and sent
to the client.
b) If there are problems with the claim the representative mails it back to the
client for necessary corrections.
5. When the client receives the check she can go to the local glass vendor and
replace the glass.
 29
Example 1
New Design Recommended by the Team

Call in claim
Claims
Client processing
center

Notify Pay

Schedule repair
Approved
glass
vendor
 30
Example 1
Procedural changes to the new process

• The Claims representative is given final authority to approve

the claim.
• Long term relationships with a limited number of glass
vendors enables the insurance company to leverage its
purchase power to pre-negotiate low prices.
 Clients no longer have to collect estimates.
 Vendors are certified for quality, price, reliability, etc.
• The Client now contacts the claims representative directly
instead of going via a local agent.
 31
Example 1
Structural changes to the new process

• A new 24 hour hotline enables the client to speak directly to

a claims representative at the regional processing center.
• The claims representative gathers data over the phone, enters
the data into the computer and resolves any issues on the
spot. He tells the client to expect a phone call from a certain
glass vendor to arrange the replacement.
• The claims information is immediately available for
accounting via a LAN system and they can start processing
the check and send it to the vendor.
 Example 1 32

Benefits with the new redesigned process

• The client can have the glass replaced within 24 hours
– As opposed to 10 days
• The client has less work to do
– Only one phone call, no need for a cost estimate
• Problems are handled immediately when the claim is filed
• Problems with lost or mishandled claims virtually disappear
• Fewer people are involved in the process  lower op. costs
• Long term relationships with glass vendors
 Savings of 30-40% on paid claims due to special discounts
 Consolidated monthly payments  lower handling costs
 More consistent and reliable service
• Claims representative feels ownership of the process
 Does a better job