This action might not be possible to undo. Are you sure you want to continue?
Workflow and Process Analysis
What You Will Find Out About in This Chapter
Understand the objectives and the role of process analysis Recognise the differences between a functional and a processual view of organisations Use a process map to describe a workflow system Conduct process analysis for different types of businesses and for different purposes Evaluate an existing process from different perspectives Learn about some useful analytical tools
Management Accounting for Change: Process Improvement and Innovation
2.1 INTRODUCTION ............................................................................................................................................. 25 2.2 BUSINESS PROCESSES AND THE ORGANISATION............................................................................... 26 2.2.1 What is a Process? ...................................................................................................................................... 26 2.2.2 The Systemic Context of Processes ........................................................................................................... 26 2.2.3 The Generic Value Chain of Organisations ............................................................................................... 28 2.2.4 Processes, Sub-processes and Activities .................................................................................................... 29 2.2.5 Different Types of Processes...................................................................................................................... 30 2.2.6 Workflow Management, Project Management and Process Analysis ...................................................... 31 2.2.7 Processual vs. Functional View of Organisations...................................................................................... 33 2.3 WHAT IS PROCESS ANALYSIS?.................................................................................................................. 34 2.3.1 Objectives of Process Analysis .................................................................................................................. 35 Objective 1 - Understanding............................................................................................................................ 35 Objective 2 - Monitoring ................................................................................................................................. 36 Objective 3 - Prioritising ................................................................................................................................. 36 Objective 4 - Problem Solving ........................................................................................................................ 36 2.3.2 Step 1 - Identify the Process....................................................................................................................... 36 2.3.3 Step 2 - Charting the Existing Process....................................................................................................... 37 2.3.4 Step 3 - Evaluating the Existing Process.................................................................................................... 40 Value-added Versus Non-value Added Activities .......................................................................................... 41 Performance Appraisal: Efficiency vs. Effectiveness..................................................................................... 44 Evaluation of Value Parameters ...................................................................................................................... 45 2.3.5 Step 4 - Continuous Improvement and Business Process Re-engineering................................................ 49 2.4 SOME USEFUL TOOLS FOR PROCESS ANALYSIS ................................................................................. 51 2.4.1 Root Cause Analysis................................................................................................................................... 51 2.4.2 Fishbone Diagrams ..................................................................................................................................... 51 2.4.3 Statistical Process Control.......................................................................................................................... 53 2.4.4 Pareto Diagrams.......................................................................................................................................... 55 2.5 CONCLUSION.................................................................................................................................................. 57
Chapter 2 Workflows and Process Analysis
In recent years, managers have become increasingly aware of the importance of process analysis. In essence, process analysis is the link between strategic goals and resourcing to achieve those goals. That is, by focusing on business processes, process analysis seeks to realign task performance and resource use so as to realise desired strategic goals and enhanced customer value. The reason for the linkage is that a firm’s processes possess certain attributes that support (or constrain) its ability to meet the customer value parameters of time, quality and cost. These process attributes include (but are not limited to): 1. Responsiveness • Capacity • Flexibility 2. Productivity • Efficiency • Consistency 3. Linkages • Coordination 4. Innovativeness • Product design • Process design 5. Empowerment For example, higher capacity levels may increase responsiveness and reduce leadtime and thus increase the chance of on-time delivery (i.e. the time dimension of customer value). However, on the other hand, unused capacity may be less efficient and lead to higher costs and hence prices (i.e. the cost dimension of customer value). Because of this linkage between process attributes and customer value parameters, processes become the active mechanisms through which change management is pursued. Improvements in process attributes are addressed by setting performance targets for everyday practice (continuous improvement) or by a one-off radical process change (process re-engineering). As such, managers are more likely to implement change initiatives effectively if they can understand both the dimensions and the dynamics of processes. In this chapter we will attempt to answer some key questions concerning workflows and process analysis and therefore gain this understanding of both the dimensions and the dynamics of processes. In particular, this chapter will address such questions as: ♦ ♦ ♦ ♦ What is a process? What are the different types of processes? Why do managers need to conduct process analysis? What are the steps involved in process analysis?
Management Accounting for Change: Process Improvement and Innovation
2.2 BUSINESS PROCESSES AND THE ORGANISATION
Before considering process analysis, it is necessary to gain an understanding of what is meant by a process, the role of processes and the types of processes. 2.2.1 What is a Process? A business process is a group of logically related (interdependent) activities which, when performed, utilise the resources of a business to produce a definite result. What do we mean by “logically related activities”? Brimson (1991) explains the interrelationships between activities in a business process as follows: “The activities are related because a specified event initiates the first activity in the process, which in turns triggers subsequent activities. An output or information flow occurs where two activities interact. The exchange of an output or information flow draws a boundary between different activities within a process and links them in a strong causeand-effect relationship. Activities are defined in terms of the information elements necessary to perform them and to create their output.” (p.47) The definition and importance of “activities” and “outcomes” is further outlined in this chapter. 2.2.2 The Systemic Context of Processes The first step in working with processes is to understand them and the systemic context in which the processes occur. Exhibit 2.1 Systemic Context of an Organisation’s Value System
STRATEGY or MISSION SUPPLIERS
TRANSFORMATION PROCESS Inter-related Activities Consuming Human/Technical Resources Methods & Procedures
g. A supplier can be an internal producer of inputs (e.g. and in some cases. insurance claim process time. insurance companies.Chapter 2 Workflows and Process Analysis Exhibit 2.g. Inputs are acquired from suppliers. number of complaints. all of which will consume resources (or factors of production) such as people.g. The products of a process are the outputs. driver. number of road accidents per year) Customers: Passengers (Customer measures: e. documents. receiving payments.g. average tip per passenger) Outputs: Customers’ arrivals at their destinations (Output measures: e. supplier of raw materials). percentage of customers arriving at correct destinations) 27 .g. driving. car maintenance. Thus inputs act as “triggers” to the process. labour. and computer systems. warranties offered by car manufacturer) Resources: Petrol. subsequent processes) and external customers receive and what the organisation produces (e. number of orders received by taxi station per night. Inputs: Hand signals by customers. This includes a number of activities: e. facilities. customers’ phone calls to taxi stations (Input measures: e. prior process) or an external supplier (e. insurance (Resource measures: e. plant and equipment. frequency of car breakdowns) Transformation process: Transportation of passengers to their destinations. Examples of inputs include sub-components and purchase orders. garage (Supplier measures: e.g. reading road maps or even asking passengers for directions! (Transformation process measures: e.g. the diagram below explains the process of travelling in a taxi. stopping at traffic lights. Outputs are what internal customers (e. The transformation process is made up of a number of inter-related activities. response time. Consider this… Application of the systemic framework By way of example to illustrate the systemic context in which processes are conducted.g.1 shows that inputs are transformed into outputs via the transformation process.g. cost of petrol. and outputs of a process as well as supplier performance and customer values. Inputs are factors other than resources required to perform the process. Another important factor in the systemic context is the feedback system. percentage of “noshow” customers) Suppliers: Service stations. transformation. The provision of feedback is only possible where there are specifications (or measures) of the inputs. car manufacturers. components and final products). number of trips per night.g. These feedback measures are considered in more detail in later Chapters in this book.
and human resource management within accounting firms. while operations and service are more important primary activities for a restaurant). Although the raw materials and the end products might be the same for organisations operating in similar industries.Management Accounting for Change: Process Improvement and Innovation 2. For example. Value chain analysis divides an organisation’s activities into two categories: the primary activities and the support activities. complex process comprising numerous interrelated sub-processes. Primary activities are those activities that involve the physical creation of the product. whether it is a mining corporation. Examples of support activities include technology development in the steel industry. its sale and transfer to the customer and after-sale service. inbound and outbound logistics are more important for a distributor than. is basically a collection of people. an organisation is really one giant. Thus an organisation can be viewed as a system of related activities with the common objective of enhancing value generation and hence competitive advantage.2.2).2 Porter’s Value Chain A value chain is a sequence of activities that creates a good or service in which each step of the sequence should provide attributes (perhaps tangible. The importance of the different types of primary activities depends on the industry an organisation is in (e. These include activities such as operations. the configuration of activities within the value chain and the coordination/optimisation of linkages between 28 . In other words. marketing and sales. equipment and capital which perform activities that provide goods and services to meet customers’ needs in order to achieve its ultimate objective. Exhibit 2. say. perhaps intangible) of the product that the customer values. Support activities.g. Any organisation. on the other hand. a retail company or an accounting firm. The value chain allows us to analyse and assess an organisation’s competitive position. a bank. purchasing high quality materials (“procurement”) can simplify manufacturing and reduce scrap (“operations”). All primary activities and support activities are interrelated (this is sometimes referred to as “linkages” between activities). are activities that support primary activities and each other. This concept is best illustrated by considering Porter’s value chain (see Exhibit 2.3 The Generic Value Chain of Organisations The next general consideration of processes is to consider the value chain of organisations.
At a lower level of granularity. at the highest level of granularity. resulting in competitive advantages or disadvantages. different levels of details). Activities and Tasks: Purchasing Stationery Step 1 Monitor stationery Step 2 Order stationery Step 3 Process receipt Step 4 Administer payments Complete fax order sheet Generate order form Fax order to supplier Set fax machine & transmit Store details Check confirmation slip File fax 29 .Chapter 2 Workflows and Process Analysis activities differ between organisations. such as generating order forms. operations.e. This sub-process can in turn be decomposed into a series of activities. a primary activity can be decomposed into its sub-processes and activities. the analysis can be conducted at varying levels of granularity (i.3.3 Sub-processes. seeks to explore the largest process arrangements associated with the value embedded in the organisation. Exhibit 2. Finally. inbound logistics. 2.4 Processes.2. one of which is “ordering stationery”. procurement.g. and faxing orders to suppliers. Porter’s Value Chain as discussed above. the process of “purchasing stationery” can be divided into a number of steps or sub-processes. each activity (such as “fax order to supplier”) is made up of a number of interrelated tasks. Exhibit 2. Sub-processes and Activities Depending on the scope and purpose of the process analysis being conducted. marketing and sales) can be explored. As can be seen from Exhibit 2.3 illustrates some of the different levels associated with “purchasing stationery”. For example. at an even lower level of granularity. Finally. primary activities of the organisation (e.
and produce products individually or in small batches.4 Operating Process Continuum: Degree of Flexibility Specific Flexible Continuous processes Job Shop. work-in-progress is usually low.g. Chapter 1 in Production and Operations Management. which produce high volume. standardised products. The operations process can in turn be sub-divided into manufacturing operations and service operations.g.2. and service providers such as telecommunication and electricity companies. audits).g. McGrawth Hill. For example. 5 ed. B. production of furniture. the steps in the process are performed in a fixed sequence). Exhibit 2.g. with many job-specific characteristics (e. These are processes with fixed routings (i. As a result. business processes can be classified in a number of other different ways. a mail-order retail bookshop (which performs mainly non-manufacturing operations) may place more emphasis on its marketing and logistics activities. Service operations. These are processes that involve products that are made to order. or non-manufacturing operations. Zeroing in on operations.e. transferring cash or goods. The classification of operational processes into manufacturing and service operations allows us to focus on the unique characteristics and the critical processes of different organisations.. It is further possible to classify operational processes according to their degree of flexibility (see Exhibit 2. usually produce purely intangible outputs (e. they require general-purpose equipment as well as employees with a broad range of skills. and as such. engineering shop and professional services).e. electronics). Flexibility is extremely important in job-shop processes compared to continuous processes. Examples of continuous flow processes can be found in manufacturers of electronics and chemicals.Management Accounting for Change: Process Improvement and Innovation 2.. One of the more common ways is to classify processes as either operational (e. the machines used in continuous production facilities are often specific purpose machines performing the same activities repeatedly. (1995). Planning and scheduling activities becomes more challenging in this environment. At one end. recording the transfer or delivery).3-22 On the other end of the continuum are job-shop/customised processes. with little or no variation. and the flow of production tends to follow a fixed path. customised Adapted from Dilworth. while a computer game manufacturer (which performs mainly manufacturing operations) may allocate more resources to technology development activities.5 Different Types of Processes In addition to classifying processes according to their level of granularity. each job may require a special set of production steps).g. we have continuous flow processes. pp. ship builder. J. 30 . Flexibility for these types of processes is usually less important.4). Manufacturing operations generally involve transforming some tangible inputs into some tangible outputs (e. These processes have flexible routings (i. or delivering a service) or administrative (e. For example.
Material handling. TBE requires versatile plant arrangement and equipment. is often changed before the parts are completed (changes are made as a consequence of engineering change orders (ECOs)). Examples of workflow 31 . Two of TBE’s most important customers are the National Aeronautics and Space Administration (NASA) and US Air Force. J. There are a number of operational processes that fall somewhere in the middle (e. not all processes sit at the extreme ends of the continuum. Because of the wide range of operations that must be performed. For this reason.g.2. TBE produces a variety of complex and high-specification products. Unlike projects.5 Exhibit 2. outside of production hours Job-shop processes High work-in-progress High material handling costs More flexibility Alignment with customer requirements Planning and control more complex Of course. workflow comprises the routine. McGraw-Hill.Chapter 2 Workflows and Process Analysis The characteristics of continuous flow and job-shop/customised operations are summarised in Exhibit 2.5 Continuous Flow Processes Versus Job-Order Processes Continuous flow processes Low work-in-progress Low material handling Less flexibility Single breakdown often stops line Maintenance is geared to preventative. on the other hand. The production process in TBE usually starts with a blue print prepared by TBE’s engineers according to customer specifications. the size of a delicate telescope part produced by TBE must be within a few thousandths of an inch of the desired dimensions. and produces a route sheet to tell the shop what work to do. There is no need for automatic material movement (such as conveyor belts) because the production volume is so low.2 – Example of a job-shop operation Teledyne Brown Engineering (TBE) has a job-shop manufacturing operation that produces low-volume. Mini Case Study 2. th Supplement B in Production & Operations Management. pp. All processes are carefully inspected to ensure high quality products and customer satisfaction. and require a moderate level of flexibility. (1993).. A planner then determines the sequence of operational steps required. a one-tonne block of aluminium) which can increase costs of material handling. The design. Tour of a job shop: Teledyne Brown Engineering Fabrication and Assembly Plant I. Adapted from Dilworth.g. everyday processes performed by organisations. For example. Parts are usually carried by hand. Workflow refers to the movements of work or products between workers within an organisation. unique products for aerospace companies and government agencies. although occasionally a forklift is required if the parts are particularly heavy (e. B. 5 edition. which are usually one-off. is an easier process. estimating costs is often very difficult.6 Workflow Management. Project Management and Process Analysis Process analysis is crucial for both workflow management and project management. television sets which are manufactured in medium-sized batches). Workers must be highly skilled and are trained to operate sophisticated machinery. 32-36 2. however.
The beer production process has four production functions: brewing. Analysing an organisation’s workflow systems (i. Berger wants to increase its production capacity. Berger operates in a growing niche market manufacturing microbrew beer (both specialty beer and standard beer). Mini Case Study 2. In what order should incremental capacity be added? In other words. as well as to manage the actual process of project implementation itself. fermentation. identify parallel activities and critical paths (these are discussed in Chapter 6). monitoring) ♦ With consistently increasing product demand. One-off projects. B. 40(2). list and prioritise important project execution steps. such as business process re-engineering projects. lagering (secondary storage or ageing) and finishing. Herrmann and Davidoff (1999). enhance understanding of the project by all parties involved. and ♦ undertake cause-and-effect analysis 32 . process analysis allows project managers to: ♦ ♦ ♦ ♦ ♦ map the overview of the project. USA. ♦ define key process variables to monitor the progress of the project. “Capacity planning and process analysis in a simulation study of a microbrewery”. inventory control. such as capacity planning. complex project into smaller. In 1998 Berger decided to use a computer simulation package to analyse the current workflows system. lagering or finishing? (Process analysis objective: prioritising) ♦ “What if” analysis: for example. Production and Inventory Management Journal. Workflow can therefore be considered as a sub-set of organisational processes. To manage these projects. and can assist them in making different types of decisions.. are complex processes themselves. or the implementation of a just-in-time system (JIT) or activity-based costing (ABC).Management Accounting for Change: Process Improvement and Innovation include the assembly process in a car manufacturing plant. Berger is a microbrewery in Colorado. should Berger increase its capacity in brewing. more manageable subprocesses. process analysis) improves managers’ understanding of a business’s operations. More specifically. fermentation. and the development of standard operating procedures.e. The modelling process has allowed Berger to answer several strategically important questions: ♦ What is Berger’s maximum production capacity? (Process analysis objective: understanding) ♦ Is there any area in the brewing process that needs improvement? For example. Thus process analysis of workflow systems represents an important step in continuous improvement. 48-52 Project management is another area that involves process analysis. ♦ co-ordinate the project implementation process between different departments. is there any room for cost reduction? (Process analysis objectives: understanding. what will happen if Berger adds another secondary vessel (for lagering) to the production process? (Process analysis objective: problem solving) Adapted from Weston Jr.1 – Process Analysis on a Manufacturing Workflow System H. we need to make use of information gained from workflow analysis (which provides us with an understanding of the existing processes and allows us to identify improvement opportunities). and the application approval process within an insurance company. decompose a large.
The finance function. The procurement process can be decomposed into a series of activities.2. The functional view of organisations is also known as the vertical view of organisation. As can be seen in the table below.7 Processual vs. is responsible for managing the company’s financial resources. A focus on business processes and activities rather than departments and functions is called the processual view (or horizontal view) of organisations.Chapter 2 Workflows and Process Analysis 2. negotiation with suppliers for prices. The conventional view of organisations defines a business by its different business functions or departments. and the inspection of purchased inputs when received. Exhibit 2. Functional View of Organisations The final consideration to discuss before examining process analysis is the different view of organisations that is required. as is apparent from the above discussion of processes and subprocesses. Functional departments help define the major responsibility areas within an organisation. let us consider a typical procurement process.6 A Typical Procurement Process Procurement Process Example Activities Produce requirements schedule Negotiate with suppliers Prepare purchase orders Receive goods Update inventory records Process supplier invoice Inspect goods Contact supplier for replacement Expedite payments Approve payments Pay supplier Functional Areas Purchasing Production X Receiving Quality Finance X X X X X X X X X X 33 . for example. for example. while the production function is responsible for utilising raw materials to produce goods and services for external customers. To illustrate the processual view of organisations. quantities and delivery schedules. engineering. other functional areas. purchasing and production. while some activities are conducted by the purchasing department. However. the provision of products and services and resource allocations are also defined by functional areas and departments. and are the responsibility of. As a result. some other activities in the procurement process are undertaken by. such as finance. preparation of purchase orders. organisational work is often mobilised around and conducted through activities and activity sequences (or processes) that may flow across functional boundaries.
a processual view of the organisation is more appropriate in this situation. however. These stages or activities are all inter-related. Under the conventional functional view of organisations. As you can see . There are essentially four steps (or activities) involved in conducting a typical process analysis procedure: (1) identify the process of interest (2) chart the process (3) evaluate the process and (4) continuously improve or re-engineer the process (see Exhibit 2. It is the task of the management to align the two.3 WHAT IS PROCESS ANALYSIS? With this background on processes.7). little can be gained by improving one activity in a business process without considering other activities. Functional departments help to define the responsibility areas within an organisation . are limited if the finance department is slow to approve payments and to forward cheques to suppliers. monitoring.Management Accounting for Change: Process Improvement and Innovation Now imagine a manager is trying to improve the efficiency of the procurement process as depicted above. with the common objective of achieving UMPPS (understanding. Yet given the interdependencies between activities. For example. does not mean that the functional view of organisations is always inappropriate or altogether useless. prioritising and problem solving). process analysis is really a process in itself! 34 . Clearly. The gains to the organisation. 2. each functional department is considered separately. This. you may be able to convince the purchasing manager to improve the efficiency in preparing and processing invoices by implementing a new computerised invoice processing system.but processes and activities are the sites of action. we can now consider process analysis. however. culturally (in the way work is thought about) and practically (in the way work is conducted). the importance of processes and the different types of processes.
By doing so. then decompose them into activities for detailed analysis and prioritise them for attention. For example. as well as the linkages with resourcing and strategy. it is not always appropriate to assume that managers understand how business operates in their organisations. Evaluate the process Understanding Monitoring Prioritising Problem Solving ♦ ♦ CI & BPR Before we start looking at each of the above steps in more detail. cost. Objective 1 . The rapidly changing business environment often leads to corresponding changes in operations. it becomes easier for managers to understand the interrelationships. it is important to note that these different steps are not always performed in sequence. or after evaluating the process you may realise that another process map needs to be drawn before opportunities for improvement can be identified. quality etc.3.Understanding Process analysis allows managers to decompose an organisation’s operations into processes and activities. if improvement is to be sought in your organisation you may need to determine strategically relevant or critical processes. cross-functional nature of business processes means that departmental managers may not comprehend how their work affects subsequent activities and other functional departments. 2.Chapter 2 Workflows and Process Analysis Exhibit 2.1 Objectives of Process Analysis Defining the objective of process analysis is important in choosing the process and the level of granularity to focus on in the analysis.7 Overview of Process Analysis Identify the Process Objectives: UMPPS Chart the process ♦ value-added vs. and the increasingly complex. Although this may sound intuitive. For example. you may need to chart a generic process before you can recognise a critical activity or sub-process that requires improvement. The four objectives of process analysis (UMPPS) are considered below. nonvalue added activities efficiency/effectiveness value parameters: time. A better understanding of the existing 35 .
Process analysis enables managers to achieve prioritisation through the identification of critical business processes. Statistical process control (SPC) (which is discussed later in this chapter) is an example of a process-monitoring tool. Critical processes or activities may be identified by asking the following questions: ♦ ♦ ♦ ♦ ♦ 36 Which activities add most value in meeting customer expectations? Is the activity wasteful? Does it contribute to strategic objectives? Why do delays occur? Which activities have the most problems? .3. 2. There are various ways to identify and prioritise critical processes for improvement efforts. inefficient/ineffective or where costs of the process are not in line with other processes. we can now examine the 4 steps in process analysis. One way is to use value chain analysis and benchmarking. Objective 4 . and corrective action taken if required.Management Accounting for Change: Process Improvement and Innovation processes encourages managers to challenge the status quo. an analysis of the quality control process can help to pinpoint and eventually solve the problem of increased customer complaints.2 Step 1 . A Pareto diagram (which is discussed later in this chapter) is a useful tool for prioritising process improvement.Monitoring Another important objective of process analysis is monitoring the performance of processes.Prioritising Frequently managers are required to prioritise or rank a number of improvement opportunities. and by suggesting approaches to correct these problems.3). such as cycle time and productivity. By focusing on customer needs. Feedback obtained from process monitoring can also be used as a basis for evaluating managers’ performances. With these objectives in mind. managers can identify areas where the organisation’s performance is less than adequate. Objective 2 .3. Objective 3 . These variables can then be measured and compared with targets or benchmark figures. and the setting of targets and goals for improvement efforts. This form of analysis probes key processes and activities that appear to create comparative advantages or disadvantages.Problem Solving Process analysis can assist problem solving by recognising where and why a problem occurs. For example. and to differentiate between important (value-added) and less important (non-value added) activities. This involves establishing key process attributes..Identify the Process The first stage of process analysis involves identifying the process of interest (usually the critical business process). One of the commonly used tools to assist understanding is process mapping (refer to Section 2. and to devise ways to continuously improve/re-engineer business processes.
Process mapping involves decomposing the process to be analysed into its component activities and arranging them into a logical or sensible sequence. allowing for comparisons and setting goals for improvement. Benchmarking seeks to answer questions such as: ♦ How do we carry out these activities? How companies/divisions carry out the same activities? ♦ Can we do the same? Or better? do the best practice Once a process is selected. for example.Chapter 2 Workflows and Process Analysis ♦ Which activities require the most resources? ♦ Which activities cost the most? If. the best performing division within the organisation). it also has to be simple enough to be understood and used by all parties involved (which often includes a cross-functional team). we need to understand what the existing process looks like.g. Benchmarks can be set for key processes and activities.g. materials handling and production scheduling) will be appropriate.3.3 Step 2 . Benchmarking involves comparing activities to best practices – either externally (e. the next step is usually to chart the existing process. then a focus on those activities with the greatest scope for such improvement (such as machinery set-ups. it is important to bear in mind the objective of your analysis. In this way priorities for improvement can be strategically directed and set. While a process map should produce sufficient detail to identify key process variables and opportunities for improvement. other companies in similar an environment/industry) or internally (e.Charting the Existing Process Before improvements can be suggested and implemented. This can be achieved by drawing a process map. When drawing a process map. reducing cycle time is critical to the business. 37 . 2.
These two activities consume valuable resources (e. labour hours. Journal of Cost Management for the Manufacturing Industry. & Ozan. 38 . P. J. (1989) A process approach to overhead management.8 Simple Process Map: Processing Customer Orders Customers Customer/supplier Note: you do not Document have to follow these notations when drawing process Activity maps Customer orders Orders editing Scanning orders into computer Rejected orders Accepted orders Editing and corrections Communicate with customers Rejected orders Warehouse Customers Diagram Adapted from Kammlade. This map illustrates the activities involved in processing customer orders. Rejected orders have to go through the added activities of “communicate with customers” and “editing and correcting” before being scanned and sent to the warehouse.. it can be seen that the process of receiving customer orders has been complicated by the existence of “rejected orders”. For example. Mehra. G.Management Accounting for Change: Process Improvement and Innovation Exhibit 2. A basic process map can look like a simple flow chart above.g. R.. it does highlight some potential areas for improvement. T.5-10 There are various types of process maps. Although this is a very basic process map. pp.
which shows the activities involved in replenishing raw materials. For example.Chapter 2 Workflows and Process Analysis phone calls to customers) yet they can be considered as non-value added (the concept of non-value added activities is discussed in Section 2.9 Cross-Functional Process Map: Replenishing Raw Materials Production planning Production Raw Materials Warehouse Expedite raw materials Raw materials requisition Maintain storage database Purchasing Prepare purchase order Receiving Store copy of purchase order Receive raw materials Quality Control Quality inspection Finance Store copy of purchase order Process payments to vendor Vendor Such a process map highlights the need to sometimes conduct interviews with representatives from all relevant departments in order to gather sufficient information 39 . Sometimes it is desirable to use a process map to illustrate how the process flows through different functional departments. Exhibit 2. production planning. Thus further investigation is required to ascertain the reasons for these procedures (e.g.3. This type of process map is demonstrated in Exhibit 2. will be passed on to the raw material warehouse to allow raw materials expedition. The horizontal rows indicate the functional departments involved in performing the activities.4). which is conducted by the production department. nonstandardised or complicated order forms) and ways of reducing or eliminating them.9.
10 below. 40 .Management Accounting for Change: Process Improvement and Innovation for process mapping. we can evaluate the existing process.g. Process evaluation is multi-dimensional: this means that a process can be evaluated in a number of ways as can be seen from Exhibit 2.10 Multi-Dimensional Process Evaluation These different dimensions of process evaluation will be discussed in the next sections. quality).Evaluating the Existing Process Once we have mapped out the process. • efficiency/effectiveness appraisal and • value analysis (identification of value-added and non-value added activities).8 Number of cases S rie e s1 S rie e s2 0 .2 1 0 .3. it may be necessary to consider questions such as: ♦ What activities are performed by the department? ♦ Where does work come from (e.4 0 . cost. including • the assessment of important value parameters (e. A im F e in P ce n al e d g ro ss 1 .4 Step 3 .g. time. another department)? ♦ Where does work go from this department after the relevant activities are performed? 2.2 0 1 In rn l sta co p ts te a ff m lain Exhibit 2.6 S rie e s3 S rie e s4 0 . In doing so.
some writers focus on an external customer (marketing) perspective. compliance activities. The distinction between “value added” and "non-value added. scheduling production Value parameters VA Performance appraisal Grey NVA Non-value added activities: e. others consider both external customer and internal process perspectives. expediting When defining "value adding". and are therefore waste. would in the long run reduce the product’s service to the customer. leading to price premiums or customer loyalty. waiting. however. “value-added activities are those in the manufacturing process which add to customer satisfaction with the product. mixing ingredients.11). A non-value added activity presents an opportunity for cost reduction without reducing the product’s service potential to the customer. Kaplan & Young (1997) argue: A value-added activity is an activity that if eliminated. Atkinson. Banker. For example.g. The distinction between the two is simply one of whether the activity directly adds to meeting the customer’s expectation of what the product will do.” Under Morrow’s approach value-added is focused on customer value. inventory storage.Chapter 2 Workflows and Process Analysis Value-added Versus Non-value Added Activities Activities performed by an organisation can be classified into value-added activities and non-value added activities (see Exhibit 2. assembling t Grey areas: e.g.g. Non-valueadded activities are those that do not. 41 . may not be quite as simple as it first appears. Any activity that cannot be classified as value-added is a nonvalued-added activity. according to Morrow (1992). In a similar vein. Exhibit 2. An activity or cost is value added if it results in higher customer satisfaction with the product or service.11 Activities/value Analysis Value-added activities: e.
For example.g. also create value for the business. and if it is eliminated. the finished product’s service potential will not be affected. materials handling (moving products around do not make them more valuable) and waiting (for obvious reasons!).173). or are essential to the functioning of the business… Non-valueadded activities do not add value to a product or service from their customer’s perspective or for the business and. therefore can be eliminated without detriment to either. Hansen & Mowen (1995. since the finished product will remain the same whether the inspection was carried out or not (this is assuming that the “defects” of these raw materials will not be carried over to the final product). mixing ingredients during biscuit production. p. For example. regardless of the definition you use. Other activities are typically classified as non-value added. Many activities are clearly valueadded. Classification. A good example is the inspection of incoming raw materials. however. Similarly. other writers consider both external and internal perspectives which defining value added and non-value added activities. Inventory storage is not “absolutely essential” to most businesses (e. machine breakdowns. This activity does not enhance customer value. or failure in the supply chain. Other activities that are often classified as non-value added include rework (not necessary). but only the quality of the product. in doing so. Langfield-Smith. perhaps due to ambitious delivery promises. Biscuits will not taste the same if the ingredients are not mixed together. Consider the following activities: 42 . the company can adopt a Just-inTime inventory system). is not always easy. Thorne & Hilton (1998) state: Value-added activities provide essential value to the customer. Another example is inventory storage. assembling components of a PC and preparing an audit report. and an audit is not complete without a written audit report. For example. But how do we determine what is essential to remain in business? Morrow identifies some administrative type functions as having a main responsibility. These writers include reference to the notion of “essential to the functioning of the business” or “essential to remain in business”. but also carrying out ‘negative’ activities that arise ‘in a reactive way in response to problems’ (p.Management Accounting for Change: Process Improvement and Innovation On the other hand. This department may also reschedule production and expedite in response to problems that arise. Inspection of incoming raw materials is not an essential activity to the business either – the business can continue to operate even if this activity is eliminated. a computer will not be functional if some parts are missing. All these activities add something that is valuable to the customer and. the main responsibility of the production-scheduling department may be “planning production”. Let us now consider some specific examples. Activities often fall into a “grey area”.853) state Value-added activities are necessary activities – activities that are necessary to remain in business…Non-value-added activities are unnecessary – all activities other than those that are absolutely essential to remain in business. Customers do not value inspection.
What about production rescheduling? Re-scheduling could be the result of changing customer demands and raw materials availability. will have detrimental effects on the product’s service potential in the long run. Another debatable activity is production scheduling. selection or even elimination (see Section 2. in which case. Customers do not care how much time and how many resources are consumed in the inspection process. Product scheduling is usually considered non-value added. we will adopt a definition of “value-added” that is similar to Atkinson et al’s.Chapter 2 Workflows and Process Analysis ♦ Billing customers. Consider this… What About Other Stakeholders? The definition of a value-added activity we adopted in the previous paragraphs defines “value” from the customer’s point of view. but what about other stakeholders in the company? Will activities be classified differently if we consider shareholders/owners.3. represents the opportunity for reduction or elimination. and ♦ Inspection of finished products Is billing customers a value-added activity? Your answer is likely to vary according the definition of value-added you choose. Yet finished goods inspection adds value indirectly by ensuring that no defective products will be shipped to the customers. Preparing annual reports. it can be argued that production rescheduling adds customer value by increasing operational flexibility. A third example of a “grey area” is finished goods inspection. For our purposes. billing is value-added. and Buying corporate gifts for suppliers and associates It is important to note that activity improvements are not only restricted to non-value added activities. that is. 43 . but may actually degrade product potential perceived by customers. Value-added activities may also be improved via activity sharing. and consequently. According to Hansen and Mowen (1995). Sponsoring charity events. employees and the community? Consider the following activities: ♦ ♦ ♦ ♦ Taking afternoon tea breaks in the office. ♦ Production scheduling. A non-value added activity does not add value to final product. yet it remains a crucial aspect of many manufacturers. reduction. and that if eliminated. suppliers. Finished goods inspection is not required if we can get the product right during the production process. and may result in the product not being delivered to the customer on time. reworking a product which initially fails to meet specifications will increase cycle time. the activity carried out to determine the access of products to different processes. thus: A value-added activity is an activity that adds something of value to customers. A business cannot survive without some form of billing activity – it is certainly a necessary activity to remain in business! Yet billing does not affect the product’s service potential to external customers in any way.5). the sequence of sub-processes and how much to produce. For example.
goal attainment) (see Exhibit 2. Effectiveness A second dimension to process evaluation is to appraise the efficiency and effectiveness of the existing processes and activities. The objective of increased efficiency is to reduce the amount of waste (e.g. on the other hand. or how many metal sheets one kilogram of alloy metal can produce. is measured by the degree of goal attainment.g. and is determined by activity design (e. low waste).12 Performance Appraisal Value parameters Efficiency Activities and value analysis Effectiveness Efficiency High Waste Effectiveness High attainment Low Waste Low attainment Resource Objective: Low waste Goal Objective: High attainment Efficiency is measured by resource usage . and metal scrap). the amount of resources being consumed relative to the quantity of outputs produced by a process (the yield or productivity of a process). on the other hand. A pizza delivery driver may be highly efficient in making 10 deliveries per hour.12). For example. But what is efficiency and effectiveness? Efficiency is the ability of activities or processes to use the fewest possible resources to meet customer needs and is usually determined by both the design of the processes or activities. you can measure the number of pizza delivery trips a driver makes per night. machine breakdowns.g. refers to the ability of a process or activity to meet customer needs. Exhibit 2. and how they operate (e. idle labour hours. Effectiveness.that is. yet the delivery process may not be 44 .Management Accounting for Change: Process Improvement and Innovation Performance Appraisal: Efficiency vs. Effectiveness. the units of CD players produced per machine hour.
This. by redesigning the processes or products). other “secondary” process value parameters (that is. innovativeness and empowerment. linkages.13 Effectiveness and Efficiency Measures Effectiveness Customer satisfaction rating/complaints Percentage of sub-components accepted by the subsequent process Percentage of on-time deliveries Percentage of problems-free deliveries Number of returned goods Efficiency Material yield and productivity Manufacturing cycle time Machine set-up times Number of invoices processed per hour Chargeable hours per employee Often more resources are required to achieve a higher level of goal attainment.g. For example. One of the goals of continuous improvement or re-engineering is therefore to simultaneously increase the efficiency and effectiveness of processes (e. Similarly. while some nonvalue added activities might be performed in a highly efficient/effective manner. This raises the question: why would organisations seek to perform non-value added activities efficiently? While non-value added activities do not contribute to customer value. Exhibit 2. process attributes) are also crucial in supporting and monitoring improvement efforts.Chapter 2 Workflows and Process Analysis effective if the goal of customer satisfaction is not achieved (e. however. may reduce the number of deliveries per hour. it may not be possible to eliminate these activities in the short run. including (but not limited to) responsiveness. higher productivity may be translated into lower costs for the production process. if the driver abuses customers who do not tip. productivity. better linkages between departments can improve cycle time and in doing so. It is important to distinguish the concepts of efficiency/effectiveness from value adding. ensure on-time delivery of products/services to customers. 45 . the company can at least lower the amount of resources consumed by these activities while seeking ways to eliminate them. Evaluation of Value Parameters The third dimension to process evaluation is to assess the customer value parameters of time. higher customer satisfaction may be attained by the driver spending time checking the list of food items to be delivered against the order sheet to ensure correct deliveries. resulting in a trade-off between efficiency and effectiveness. Again using the pizza delivery example. or if ordered items are often missing).13 lists some common examples of effectiveness and efficiency measures. cost and quality. In addition to these “primary” process value parameters of time. Exhibit 12. cost and quality. Thus appropriate measures for effectiveness will include customer satisfaction ratings and the number of problem-free deliveries.g. Some value-added activities may be inefficient/ineffective. By increasing the efficiency of these activities. and hence lower costs for the customers.
cost. only processing time adds value to the final product. One of the most common measures of time is cycle time (CT). That is: MCE = Processing time/(Processing time + waiting time + moving time + inspection time) 46 . the length of time it takes to manufacture a product or the time required to deliver goods from the warehouse to the retailer. Further. Thus a useful measure when evaluating the process is Manufacturing Cycle Efficiency (MCE). duration (how long?) and timeliness (when?). quality Process value parameters: Time. Manufacturing cycle time (MCT) is a specific measure of cycle time. an understanding of the amount of time it takes to perform each activity helps managers to recognise any bottlenecks that may exist in the process.14 Linking Process Attributes and Value Parameters Customer value parameters: Time. as well as to identify the critical paths in project management (the concepts of “bottlenecks” and “critical paths” are discussed in Chapter 5 and Chapter 6 respectively). and ♦ inspection time (the time spent ensuring that the intermediate and final products meet required quality standards). parts and components into finished product). which is a ratio of processing time to MCT. as well as reducing product costs. Examples of CT include the development time it takes to bring a new product to the market. CT is the amount of time required to perform a “cycle” of activities or a process. Time as a value parameter has been receiving increasing attention from managers. Of these four elements. quality Process attributes: Responsiveness Productivity Linkages Innovativeness Empowerment Time Time has two dimensions. sub-components and work in process moving between processes). cost. This is not surprising as reduction in process time can increase the company’s responsiveness and flexibility. ♦ waiting time (the time spent by raw materials. and is the sum of four elements: ♦ processing time (the time actually spent in converting raw materials. sub-components and work in process waiting between processes).Management Accounting for Change: Process Improvement and Innovation Exhibit 2. ♦ moving time (the time spent by raw materials.
Chapter 2 Workflows and Process Analysis The closer the ratio of MCE is to 1. the smaller the non-value added component of MCT. Costs associated with non-value added activities are called non-value added costs and should be eliminated. timing or timeliness. Continuous improvement of the manufacturing process can therefore be achieved by reducing MCT and improving the MCE at the same time. When is an activity performed? When are resources acquired/consumed? Timing is particularly important in managing justin-time systems. and improvement can be achieved if the same process can be carried out with lower levels of resource consumption. Apart from the amount of time consumed. Cost Cost is another value parameter for obvious reasons: most organisations are under continuous pressure to reduce the costs of goods and services provided to customers.15 illustrates a process map that has incorporated the time dimension. Costs represent the amount of resources consumed in a process. A common timing measure is the number of on-time deliveries. scrap costs). The techniques involved in allocating costs to different activities are discussed in Chapter 7. Measurement of process costs can be incorporated in a process map in a similar manner to Exhibit 2. as they represent costs that customers are not willing to pay for (e.15 (simply by replacing the amount of time it takes to perform an activity by the costs associated with performing that activity). Measurement of cycle time can be incorporated in a process map by simply listing the time it takes for each activity – Exhibit 2. Costs associated with value-added activities are value-added costs and should be reduced if possible. Accurate costing of activities enables managers to identify areas where cost reduction is possible. 47 . there is a second dimension to time management. namely.g. rework costs.
Increased consistency (reduced variability) enhances productivity. in terms of product specification and availability.g. Responsiveness As customers seek greater customisation of products. Productivity Productivity is closely related to the concept of efficiency (discussed earlier). Process variability increases time. While it may sound like a simple concept. processes need to be configured so that they can flexibly and efficiently cope with changing patterns of demand. This may require investment in flexible manufacturing systems. cost and complexity relating to non-value adding activities such as planning and coordination.Management Accounting for Change: Process Improvement and Innovation Exhibit 2. computer aided design and manufacturing (CAD/CAM) and multi-skilled employees. At this stage. time). how to improve productivity without adversely affecting quality remains a difficult task. and that quality should not be compromised when improving the other value parameters (e. cost. production 48 .15 Cycle Time and a Simplified Process Map for a Retailer’s Credit Card Approval Process Customers fill in application forms Customers send in forms via mail (2 days) Moving time Forms accumulated to wait for approval (1 day) Waiting time Initial approval by finance officer (1 day) Some applications are checked by senior officer (1 day) Processing time Inspection time Data entry to computer system (1 day) Moving time Send confirmation letters to customers (2 days) Moving time Quality A more detailed discussion of quality is presented in Chapter 4. you need to know that continuous improvement of product quality can be seen as a value-added activity.
to design products that can meet customer value better).5 Step 4 . Both value-added and non-value added activities may be eliminated. and are best illustrated by a process map – all activities within a process are interdependent (that is why we need to adopt a processual view of organisations).3. Productivity will be much higher and the process map will also look a lot simpler! Linkages Linkages refer to the interdependencies between activities. Work done in one part of the organisation is often related to work done in other areas.e. 2. as customers usually do not see the value of an improvement in isolation from the process as a whole. Activity elimination aims to save organisational resources by eliminating activities. and an improvement in quality or time in one activity may be wasted if preceding activities continue to produce poor quality or adhere to the existing timetable. however it is more important to eliminate non-value added activities as they are activities that cause organisations to incur unnecessary costs.Continuous Improvement and Business Process Re-engineering The final (and arguably the most value-adding) step in process analysis is to utilise the insights we have gained and information gathered from the previous steps to achieve continuous improvement (CI) and business process re-engineering (BPR) (as discussed in Chapter 1). For example. and therefore on the process as a whole. and in doing so. Activity sharing makes use of economies of scale by 49 . leading to the identification and implementation of improvement initiatives. which in turn is critical to the long-term success of the organization. Innovativeness relates not only to products (i. the improvement goal may not be achieved. activity selection. Activity reduction refers to the reduction of the resources consumed by an activity. Queuing (a non-value activity!) and waiting time (a non-value added component of cycle time!) will be shorter because there is less variability – the employee will not need to fill in different forms. Process analysis is a tool that enhances understanding and so supports empowerment. call a supervisor for approvals or perform anything other than standard procedures.Chapter 2 Workflows and Process Analysis scheduling. activity reduction or activity sharing. Hence. we must recognise the linkages between activities: a change in the way work is done in one functional area may have an adverse or no impact on work in other areas. monitoring and machine set-ups. co-ordination between departments is crucial. but also to the processes. Thus when considering improvement efforts. delegating decision rights to employees at all levels) is the key to innovativeness. imagine how much easier life would be for the bank employee on a counter that is “cash deposit only”. Empowerment and Innovativeness Employee empowerment (that is. The existence of linkages means that we must implement performance measures that have a global rather than local focus. As a result. reduce resource usage. Activity selection means choosing an activity with the lowest cost that matches the chosen strategy (all other things being equal). a reduction in the cost of one activity may increase costs in other activities. Further. Activity-based improvement efforts can be achieved by activity elimination. This can be achieved through Activity Management.
Thus by re-designing and standardising the order forms this non-value added activity is eliminated (activity elimination).8. eliminate incoming material inspections Activity selection: e.3 – Re-engineering Customer Order Processing To further illustrate the use of these four methods. One of the activities involved in this process is “orders editing”. and in doing so reduced the non-value added activities of “communicating with customers” and “editing and corrections” significantly (activity reduction). Examples of these four methods of process improvement are presented in Exhibit 2.g.g. These improvements can be accomplished via changes to product design (e.4. orders for different kinds of products) to be scanned simultaneously (activity selection/activity sharing). let us take another look at the activities involved in customer orders processing depicted in the process map in Exhibit 2. Having recognised this.g. Exhibit 2. A root cause analysis reveals that the reason for this activity is the design of the order forms.g. new customers) and as a result incoming orders must be sorted and “edited” before they can be recognised by the computer.Management Accounting for Change: Process Improvement and Innovation choosing or designing an activity that permits sharing between different products. changing the way machines are set-up). transformation process Activity elimination: e. VIP customers. designing products to allow the sharing of sub-components) or process design (e. reduce setup time through employee training Activity sharing: e.g. it was revealed that the catalogues and order forms sent to customers are often outdated. and assisted by the use of root cause analysis (see 2.16. Further. design products with common parts Mini Case Study 2. The format of the order forms varies between customers with different status (e. which is required before customer orders can be scanned by the computer.e.g. 50 . choose an automatic rather than manual drilling process Activity reduction: e. resulting in customers ordering products that no longer exist.1). the company managed to cut more than 80% of rejected orders. and allows different kinds of orders (i.g. Further savings in resources were achieved by the acquisition of new computer software that increases the speed of processing.16 Examples of Process Improvement Product Design Process Design: consider inputs. after an interview with staff responsible for handling reject orders.
2. this may be driven by the adequacy of the supplier selection process. not the cause of the high material handling costs. In turn. not the root cause. more fuel-efficient forklift. which often lead to an uneven distribution of colours on the candles. however. the number of forklift trips required. and complexities with moulding. the entire production process can be improved. The costs of this activity – material handling – obviously relate to the demand of this activity. is an output measure and therefore represents the consequence of the activity. which manufactures a variety of novelty candles of all shapes and colours. the number of forklift moves required may be significantly reduced. the company has only treated the symptoms. Consider Forest Creature. Why? Because the finished candles are often defective. or even eliminated (after all. Mini Case Study 2. A root cause is the most fundamental reason why something happens. Main potential causes of this problem or effect are then added as the major “ribs” of the fish. In a fishbone diagram.Chapter 2 Workflows and Process Analysis 2.4. Root cause analysis relates to the identification of the reasons for activity costs.4. The quality of supplies may also be the root cause for another related activity. The more commonly used 51 . The company spends a lot of time and company resources on the inspection of semi-finished product.4 – Root Cause Analysis: a Detective Story Sometimes finding the root cause of an activity requires a bit of detective work. But why do impurities exist? It may be that the company needs to negotiate with its suppliers to ensure a more stringent input control. Fishbone diagrams are also known as cause-and-effect diagrams or Ishikawa diagrams. Thus even though the company may increase the efficiency of materials handling by acquiring a higher capacity. Consider the example of a manufacturing company who regularly uses forklifts to move raw materials from one part of the production plant to another. namely. 2. The most important question to ask in a root cause analysis is why? Why is the activity carried out this way? Why do we have to spend so much time and resources moving raw materials around? Why do we need to perform this activity at all? A root cause for material handling could be plant layout. namely Fishbone diagrams. Why are these candles defective? It seems that the root cause of the defects is the impurities in the wax. a candle maker. This factor. the horizontal line (the “spine” of the fish) represents the primary problem to be solved (or the primary effect). rework required after defects are discovered. By re-organising the plant. materials handling is a non-value added activity and therefore does not contribute to the final product’s service potential). By improving the quality of the supplies.2 Fishbone Diagrams Root cause analysis can be assisted by another useful problem-solving tool. after their Japanese originator Kaoru Ishikawa. that is. Thus the “true root cause” for finished goods inspection may be the quality of supplies.1 Root Cause Analysis Root cause analysis is also known as driver analysis.4 SOME USEFUL TOOLS FOR PROCESS ANALYSIS The following sections discuss several useful analytical tools that can be applied to process analysis (as well as a range of managerial situations).
quality. which illustrates the possible causes of finding spoilt milk in the fridge. you can add other ribs such as tools. environment. and opportunities to improve the efficiency and effectiveness of processes. smaller “bones” are attached to each of the ribs to identify possible causes of the ribs/main causes. a fishbone diagram allows us to identify the reasons for poor performance of processes. and defeat the purpose of fishbone diagrams (the usual number of ribs is between 4 to 6). and money. Sometimes other categories of potential causes are more appropriate (e. cost. but too many ribs will make the diagram hard to read. method and manpower/labour (the “four Ms”). consistency) – it depends on the problem/effect you are interested in. The number of categories are not restricted to four either.Management Accounting for Change: Process Improvement and Innovation “ribs” are machinery. An example of a fishbone diagram is provided in Exhibit 2. 52 .g. Finally. A fishbone diagram is a very useful problem-solving tool. time.17. In process analysis. material.
which is an SPC chart for a paper clip manufacturing process. So how do we decide whether the fluctuations observed in a process are common or uncommon variations? A useful tool is a SPC chart. machine breakdowns). Assignable causes are special causes that lead to large fluctuations in the process (e.3 Statistical Process Control Statistical process control (SPC) is a technique that relies on the use of statistical analysis and control charts to understand. a total of 13 samples). Consider the example in Exhibit 2. which is the result of assignable causes. there are always some natural fluctuations within a process (e.e. 53 . employees being interrupted by occasional phone calls). The company makes 13 production runs per day.18. A process is said to be stable or in-control if it is subject only to common variations. The other type of fluctuation is uncommon variation.18. while a process that is subject to both common and uncommon variations is unstable or out-of-control. Common variations are caused by purely random disturbances.Chapter 2 Workflows and Process Analysis Exhibit 2. and the average number of paper clips per box in each sample is plotted in the chart in Exhibit 2.g.4.17 Fishbone Diagram for Spoilt Milk in the Fridge Machinery fridge door not shut properly fridge not cold enough Method contemination: drinking mik straight from carton milk not put back to the fridge after use X Spoilt milk in the fridge milk past expiry date no one bothered to replace spoilt milk lack of training on milk storage & personal hygiene Material Labour 2. or how well trained the workers. The idea behind SPC is that most processes are subject to fluctuations or variations. SPC can be very complex: usually you need someone with a high level of statistical knowledge to implement it. There are generally two types of variations: common variations and uncommon variations. No matter how precise the machines. monitor and reduce variability in a process. The roles of management accountants are to understand the concept of SPC and to use it as a tool to improve processes.g. and a manager is interested in the variability of the number of paper clips contained in each box of paper clips. A sample (of 10 boxes) is selected from every production run (i.
19 is stable and in-control. Thus if the process is in control.3%. the average number of paper clips per box for the 13 samples. According to mathematical statistical calculations. the process depicted in Exhibit 2. it will be very rare indeed to see an observation lie outside the control limits. the number of paper clips recorded in sample 9 is just outside the UCL.18 shows a “run” of 6 consecutive points above the centre line (from samples 8 to 13).Management Accounting for Change: Process Improvement and Innovation Exhibit 2. on average. SPC charts are also useful for identifying patterns of variations. in this case. as all values recorded are within the control limits. or that operator fatigue starts to have an effect after the 7th production run. 1 The “centre line” (c) is the mean of all observations (i. if one standard deviation is 10. while stable. it does not mean that the process cannot be improved. This may indicate that the machines need adjustment after 8 production runs. For example. then UCL=152 + (10 x 3) = 182 paper clips). However.18 Statistical Process Control Chart for Paper Clips Manufacturing Process: Unstable Process UCL = 182 Average no. by shifting the centre line. is only 0. This is a signal that management should investigate and reduce or eliminate the special cause for this variation. of paper clips per box c = 152 LCL = 122 2 4 3 5 6 7 8 9 10 11 12 13 Sample no. The lower control limit (LCL) is three standard deviations below the centre line (thus LCL in our example is 152 – (3 x 10) = 122 paper clips).e.g. or reducing overall variability). Exhibit 2. the chance that a box of paper clips contains more than 182 paper clips (UCL). c = 152 paper clips).18 is out-of-control: the cause for the variation in sample 9 is likely to be something other than a natural occurrence.18. The upper control limit (UCL) is set at three standard variations above the centre line (e. or less than 122 paper clips (LCL).g. 54 . This means that the process depicted in Exhibit 2. In contrast. As can be seen from Exhibit 2. however this will involve a fundamental change of the process itself (e.
“inadequate training” in our example). 1 Exhibit 2. Pareto diagrams allow managers to prioritise improvements by focusing on the problem that occurs most frequently (i.20 lists the major staff concerns with the animal feeding process in a local zoo. resulting in a y-scale that goes from zero to 85).4. and that the majority of problems in process management can be traced to only a few parts of the process. A line graph is then added to indicate the cumulative percentage represented by each category (of staff concerns). Note that in order to accommodate the “percentage line”. 85 staff complaints are recorded. the y-axis in Exhibit 2.20 has a scale that goes up to the total number of observations (in our example. managers can re-draw a post-improvement Pareto chart to identify and focus on a “new” main concern. For example Exhibit 2. A Pareto diagram is basically a graphical representation of this concept where a bar chart is used to plot the causes of a problem according to the frequency of their occurrences.Chapter 2 Workflows and Process Analysis UCL = 182 Average no. 55 .4 Pareto Diagrams Pareto analysis (sometimes known as the 80/20 rule) is named after the 19th century Italian economist Vilfredo Pareto who noted that 20% of the population controlled approximately 80% of its wealth. Once the improvement efforts have been implemented. of paper clips per box c = 152 LCL = 122 2 4 3 5 6 7 8 9 10 11 12 13 Sample no.e. This concept is applied by management researchers to suggest that a small number of causes are responsible for a large percentage of quality problems in an organisation.19 Statistical Process Control Chart for a Paper Clip Manufacturing Process: Stable Process 2.
listing a range of possible causes of the lengthy waiting time. in particular. During a brainstorming session the team leaders of the phone operators come up with a Fishbone diagram. The survey results are then plotted on a Pareto diagram.Management Accounting for Change: Process Improvement and Innovation Animal Feeding Process 100 80 90 70 80 70 60 50 Cumulative % 60 50 40 40 30 30 20 20 10 Problem areas Inadequate training Lack of internal transportation Lack of safety equipment Scheduling Too much paperwork Other Total No.5 – The Combined Use of Fishbone Diagrams. of complaints 34 20 15 9 5 2 85 Number of cases Cumulative % 40 64 82 92 98 100 10 0 Lack of internal transportation Lack of safety equipment Scheduling Too much paperwork Other Inadequate training 0 Staff concerns/Problem areas Exhibit 2. which indicates that the two most frequently quoted concerns by phone operators are “telephone call rush” and “slow system response time”. These possible causes are put together as a survey and sent to each of ZIP’s 40 phone operators. One of the team leaders attending the discussion session suggests that variability may be a root cause. Many customers have been complaining about the long wait before their phone calls are answered. which seems to be increasing over the last 6 months.20 Pareto Diagram: Problems with Animal-Feeding Process in a Local Zoo Mini Case Study 2. The SPC chart clearly demonstrates that the process is out-of-control: the number of phone calls received is 56 . a statistical process control chart is used to analyse the number of phone calls over the previous 3 months. As a result. SPC Charts and Pareto Diagrams The Zebra Internet Provider (ZIP) has decided to improve the performance of its customer services division. ZIP’s main concern is the response time. the critical process of answering customers’ queries over the phone.
The phone call rush in turn slows down the accounts query system. action plans are drawn up to (1) improve the billing system and (2) rather than billing all customers at the end of each month. process analysis highlights the concept of linkages/interdependencies. well above the 3-standard deviation upper control limit. causing further delays.Chapter 2 Workflows and Process Analysis unusually large at the end of each month. this may create a whole new set of problems. so the process starts again! 2. However. but also in other management scenarios discussed in subsequent chapters.5 CONCLUSION Process analysis is an essential tool in understanding and monitoring the performance of a business’s operations. Theory of Constraints (TOC) and performance evaluation). as customers are billed on the 27th day of each month. Accordingly. This chapter has also introduced several important decision-making tools. which are applicable not only in process analysis. in order to prioritise improvement efforts as well as solving problems. Further investigation notes that most of these end-of-month phone calls are queries on invoices. 57 . reduce variability by billing customers at different times. which is a key theme throughout the subsequent topics (such as project planning. Even more importantly.
environmental inspections. the cocoa beans are dried and inspected. 1. we typically use three blending techniques: dry mix (for stronger milk chocolate).1 Are the following value-added or non-value added activities? Explain. inspection. improves quality and flavour and retains the natural goodness. Activity 3: Roasting.cocoapro. signature flavour chocolate. Harvesting pods by hand at the peak of ripeness. Mars. 2. cleaning." Once mixed. 3.Management Accounting for Change: Process Improvement and Innovation 2. winnowing (removing the hulls) and milling (grinding) are also key steps in creating a high quality chocolate. combined with proper fermentation.com on 21/8/02.2 Mars chocolates are made based on the following process as reported at www. Activity 1: Harvesting cocoa pods. Incorporated experts test and taste samples to ensure a consistently flavourful chocolate. selecting only the best quality beans for Mars. Compliance costs (e. Activity 4: Mixing. By varying the proportion of ingredients and mixing methods. Training seminars on “workplace discrimination and harassment” in an accounting firm. we create the rich complexity of the food we call "chocolate. Dry-cleaning carpets in a car hire company. Activity 2: Drying. Incorporated. 4. Incorporated. and blending After fermentation. white crumb (for a milder milky flavour) and oven crumb (for a caramelised flavour). winnowing. Throughout the process. audits).g. removing cocoa beans and fermentation The cocoa plant is still grown and harvested much as it was centuries ago. milling and screening Carefully roasting the beans to just the right temperature for just the right time helps to retain the natural goodness. refining and tempering Today at Mars. the 58 . In addition to roasting. Monthly safety inspection in a production plant. 2. Then they are cleaned thoroughly and a variety of cocoa beans are blended to create high quality.
2. Identify two non-value added activities in the process. quality inspection is no longer necessary and products requiring rework has been reduced by half. 2. Argus Pet Food has recently conducted a process analysis. and 3 hours of set-up time. After a careful study of the manufacturing process and the acquisition of an improved assembling machine. 2.5 59 . The labour cost for Three Hands is $15 per hour. the chocolate is formed into your favourite Mars. studying for final exams.e. Draw a process map.Chapter 2 Workflows and Process Analysis ingredients are refined and tempered to ensure a good gloss and create that silky smooth texture. activity elimination. travelling to university. (b) (c) Required: For each of the companies described above: 1. After a re-engineering study Three Hands can now produce the same size batch of candleholders with only 300 kg of alloy metal.3 Choose an everyday process that you are familiar with (e. Draw a process map. selection or sharing). Ltd produces electric fans. Twister Co. 60 hours of labour time.000) to ensure that the final product meets customer specifications. What are the non-value added costs before the cost reduction initiatives? 2. Incorporated brands.g. Finally. and 2 hours of set-up time. and the cost of alloy metal is $10 per kg. each month 50 hours of direct labour hours were spent reworking defective products. The company used to employ two quality inspectors (with annual salary of $35. Identify the important value parameters associated with this process.000 per month to run). 2. Using a traditional manufacturing technique. What is the root cause of each of these non-value added activities? 3. manufactures metal candleholders. Identify the type of improvement (i. Identify non-value added activities in the chocolate making process. cooking dinner). In addition. Required: 1. Subsequent cost-savings will come from the scrapping of two packaging machines (each costs $5. 2. 100 hours of labour time. reduction. Three Hands can produce a batch of five hundred White Gothic candleholders using 500 kg of alloy metal. Required: 1. which resulted in the adoption of the same kind of packaging technique for the company’s large variety of pet foods. Machine set-ups cost $20 per hour.4 Consider the following situations: (a) Three Hands Co.
in the last year 200. to ensure it functions well. The sorting process requires four sorting operatives. The annual cost of testing the engines is $10.000. When each engine is completed. You have progressed through the preliminary interview rounds. to 10. The assembly operatives find that the cylinders and pistons do not always match perfectly. The company guarantees customer satisfaction by replacing any defective engine found in customers' vehicles within one year of purchase. These engines are sold to motor vehicle plants in both domestic and export markets. Some experienced operatives are sometimes able to judge a match between cylinders and pistons by sight. The specified tolerance for the gap between the cylinder walls and the piston is very tight.000. The outside diameter of the piston must nearly match the inside diameter of the cylinder.000 each.000 engines 60 . This sorting and matching process is quite time consuming.7 cm. A major part of the process is to assemble pistons into the engine cylinders. In addition. Generals Engine Company (GEC) The Generals Engine Company assembles engines for cars and light commercial vehicles. only one engine was returned defective from motor vehicle plants. In order to facilitate assembly the pistons are sorted into diameter categories that differ by only fractions of centimetres. six assembly operatives (on annual salary of $35.000.000 (this excludes the cost of rework and assembly operatives’ salaries). the annual running cost of the assemble plant is estimated at $250. The actual assembling of the engines take 50% of the total time spent by the assembly operatives. The annual rent of the space used for sorting and matching is $15. but in most cases the process is very much like a jigsaw puzzle where different pieces are tried before a correctly fitting piston is found. When an engine fails. The annual estimated cost of disassembling and reassembling is $45. There are ten different categories ranging from 10. to ensure smooth engine operation with no damage to the cylinder walls. cylinders are not exactly the same. Of the rebuilt engines about 25% must again be disassembled and rebuilt to eliminate defects at an average annual cost of $5. who are paid annual salaries of $30. Because of the subtle variations in both cylinders and pistons.000 is charged to sorting. it is disassembled and then reassembled.Management Accounting for Change: Process Improvement and Innovation Having completed your Accounting degree you have applied for a position as a management consultant with the Boston Consulting Group.000 of which $9. but is necessary in order to build engines that maintain their compression. About 5% of the engines fail this test. out of the last 5000 engines shipped. Generals' management is proud of the customer satisfaction and product quality ratings achieved. Also. and in the final interview the Partner interviewing you gives you the case presented below. Statistics reveal that.000 each) physically match pistons with cylinders to get a proper fit.5 cm. Furthermore. it is tested by running the engine for one hour. Generals believe that the engine rebuilding process is cost-effective compared with scrapping the engine.
and d in the above table (try to identify at least 2 activities for each). c.Chapter 2 Workflows and Process Analysis were sold. Prepare a cost report that lists annual value-added costs. 6. non-value added costs and total cost of the assemble process. For an organisation with which you are familiar (perhaps you are a frequent customer) identify activities which you believe match a. Explain why you believe your choices match these characteristics. activity d) exist? 2. the annual shipping bill is $20.8 Your friend Gary is the owner of Hyperion’s Vineyard in the Margaret River region. and Young 1997. p. Concerned and distressed. On the average. 4. and only 360 have been returned defective from customers. Classify the activities in this process into value-added and non-value added activities. 3. What are the possible root causes of each of these non-value added activities? 3. To what uses can this process flow map be put? 2. 4. 5. Explain why highlighting non-value added costs is important. Kaplan. Draw a process flow map for GEC.e. b.000. Grape production dropped significantly last year. 3.10 Required: 1. 2. How can the process be reengineered? 2. 2.7 Suggest two effectiveness measures and two efficiency measures for each of the following processes: 1.000 and the average replacement cost for the last five years is $50. Airline reservation University examination supervision Meals-on-wheels delivery Tutorials/lectures Cooking a barbecue Bar tending 2. 5. Required: 1. Banker.6 Activities are sometimes classified according to the following matrix: Activity Efficient Inefficient characteristics A b Value-added c d Non-value added Adapted from Atkinson. Why do you think the non-value added and inefficient activities (i. Gary 61 .
of occurrences 10 22 2 .9 Phil and Josh run a small business making picket and other timber fences. After some serious thought. Together you and Gary have identified the following items as possible reasons for the decrease in grape production: ♦ ♦ ♦ ♦ ♦ ♦ ♦ ♦ ♦ ♦ ♦ Wrong varieties of grapes were planted Heavy rainfall during the year Inadequately trained workers Inappropriate fertilisers used Grapes theft Workers disputes Native Titles disputes Diseases in vineyards Poor selection of seeds Grapes harvested too early Declining soil quality Required: 1. and the benefits associated with using such a decision-making tool. Gary also operates the Hyperion Winery. Explain to Gary what a Fishbone Diagram is. Lately. they have had a reduction in their volume of clientele and wonder what the causes were. which has been performing poorly as well. 2.10 In addition to his vineyard. they came up with the following list: • Failure to return calls of prospective clients asking for quotes • Failure to turn up at the agreed time at the prospective clients address when getting specifications for quotes • Failure to collect correct and sufficient data from prospective clients when preparing quotes • Lack of references for jobs completed when giving quotes • Late submission of quotes • Material unavailability • Lack of co-ordination with supplier of materials • Late ordering of materials Required: Prepare a fishbone diagram based on the above information 2. Prepare a fishbone diagram based on the above information. An investigation team reported a total of 50 incidents of equipment failure in one month: Reasons for production interruption Breakdown of static fermenters Problems with refrigeration circulation system Leakage in storage tanks 62 No. The problem seems to lie in the constant production interruption due to equipment failures. 2.Management Accounting for Change: Process Improvement and Innovation has contacted you for advice.
of occurrences 10 0 1 3 5 13 3 Required: 1. only 35 cases of production interruptions were recorded: Reasons for production interruption Breakdown of static fermenters Problems with refrigeration circulation system Leakage in storage tanks Unstable temperature in the insulated barrels Problems with filtration system Adjustments required in the bottling line Others No. 2. Prepare a pre-improvement and a post-improvement Pareto chart. Explain to Gary the concept of a Pareto chart. How does a Pareto chart support continuous improvement? 2. 63 .11 Toyota Australia’s customer service team reported the frequency of accidents relating to the use of their forklifts by clients:* Cause Tip-over Contact with other forklift Falling load Riding on Forks Fall of dock Maintenance Breakdown No of occurrences 38 28 22 18 11 9 7 After this report.Chapter 2 Workflows and Process Analysis Unstable temperature in the insulated barrels Problems with filtration system Adjustments required in the bottling line Others 1 5 7 3 After this report. a number of improvements were made and in the following month. a number of improvements were made and in the following year there were only 59 cases of forklift tipover.
Material is based on information provided by Toyota at www.Management Accounting for Change: Process Improvement and Innovation Cause Tip-over Contact with other forklift Falling load Riding on Forks Fall of dock Maintenance Breakdown 0 20 2 18 3 9 7 *. Is the bottling activity in control or out-of-control? Why? What advice would you offer to Gary? 64 . Data of wine used for each of 5 wine bottles for 10 samples are shown below. and some wine is wasted in the filling process.12 Once again Gary has asked you for help. 2. He wants to use a statistical process control chart to monitor the variability of the volume of wine used to fill his 750 ml Cabernet Merlot wine bottles.com. Some bottles are overfilled. 2. Sample 1 760 770 760 750 680 744 6 750 740 730 770 750 748 2 720 730 750 760 740 740 7 770 770 780 800 760 776 3 680 650 750 600 690 674 8 680 690 720 710 760 712 4 910 850 920 900 880 892 9 770 740 750 760 750 754 5 740 750 760 700 720 734 10 750 750 750 770 720 748 Average (ml) Sample Average (ml) Required: 1. and the standard deviation of a sample of five is 59 ml.toyota. Gary has decided to set the control limits UCL (LCL) as 2 standard deviations above (below) the centre line. Plot the statistical process control chart based on the above data.au on 18/8/02. Required: Prepare pre-improvement and post-improvement Pareto charts. Gary has calculated the mean volume of wine used to fill a bottle to be 752 ml.
Explain why you circled these points.13 10 9 8 7 UCL 6 5 4 3 2 LCL 1 0 1 2 3 4 5 6 7 8 9 10 11 12 13 Required: Circle the points that are out of control.Chapter 2 Workflows and Process Analysis 2. 65 .
This action might not be possible to undo. Are you sure you want to continue?
We've moved you to where you read on your other device.
Get the full title to continue listening from where you left off, or restart the preview.