Return on Investment (ROI)

February 29, 2012

Most discussion around return on investment, or ROI , center around measuring an opportunity or investment to get a sense of how profitable the endeavor could be to attempt. While there is no one easy formula for ROI, as the very idea of ‘return’ can be subjective, most basic measurements will include the profit potential minus the cost or expenses of the activity and some form of time.

For example, to measure the ROI of an investment, a financial planner may take the potential profit of an investment (interest) and measure it over time to get a rate of return. This gives the planner a method to measure different investment options the determine one that best suits his needs.

Or to illustrate the breadth of an ROI calculation, assume a homeowner wants to buy a larger lawnmower to reduce the amount of time it takes to mow the lawn. The homeowner will have to look at the costs of purchasing the mower, calculate the time it would take to mow the lawn today with his old mower, and the time the new mower will save. Then he could compare the reduction in time versus the costs of the new mower, to help justify the purchase.

In both examples though, each has a target, or result that is a key component of measuring ROI for each case. The investment banker is looking for total profit over time. The home owner is looking for time savings. Each has different calculations, but both share the same process of coming to a decision on an action by determining the return on investment.

Process improvement is both a driver of ROI calculation and a result of ROI efforts. The very thought today of improving a process is the acknowledgement that we have something to gain, time, profit, lowering costs, etc.. that we need to improve by taking some kind of action. To decide on that action to improve a process, we will calculate some kind of ROI to determine an optimal path to improvement. Lets look at one method to finding ROI in a publication “Calculating ROI for process improvement” by Collin O’neill,

O’Neill suggests there are three steps to arriving at an ROI target in process improvement;

  • Step 1: Identify opportunities where process improvement can be effectively measured and quantified.
  • Step 2: Devise coherent, plausible formulas for calculating a cost savings for each process improvement opportunity.
  • Step 3: Reduce those calculations to a number that becomes the bottom-line ROI for a process improvement effort over time.

So as you can easily gather from his steps, his understanding of arriving to ROI is to simply define the opportunity and measures of cost and profit and some form of time in there to calculate against. It can be as complicated as your situation needs it to be to make a decision or evaluate an opportunity.

Some things are difficult to quantify, or measure directly especially with a ROI that looks like a simple cost benefit analysis. How to you justify a new suit, carpeting the office, taking a client to a football game, or buying a puppy? Those activities don’t have an apparent measure of profit like previous examples, but they do have a cost and they do have benefits that make them worth doing. The very fact that they have benefits, which are difficult to measure, is sometimes an excuse as to why many time, ROI isn’t bothered with. But if you press the subject, you can devise some ways to justify about anything in some fashion with a well-crafted ROI, finding related measurements if you want to look deep enough.

This is the hidden danger with some ROI calculations. They are one sided, not always looking at the risk associated with an improvement, or an tertiary consequence that may unfold. ROI can easily be manipulated to arrive at desired outcomes, so it is important when using an ROI calculation to justify a project or endeavor, to pay attention to the measurement of assumed cost and potential profit and build into the model some factors for risk and risk avoidance.
SUBMITTED BY : JOEY BECK

“Calculating ROI for process improvement” by Collin O’neill, http://www.ibm.com/developerworks/rational/library/edge/09/mar09/oneill/index.html , 15 MAR 2009.

“Return on Investment” http://www.investopedia.com/terms/r/returnoninvestment.asp#axzz1no0wJDqL

“Calculating ROI to Realize Project Value” by Chris Schwieghardt, http://www.isixsigma.com/operations/finance/calculating-roi-realize-project-value/ 27 MAR 2010.

“How to Calculate ROI” http://www.marketingmo.com/how-to-articles/marketing-metrics/how-to-calculate-roi/ MAR 2009.

Payback Analysis

February 29, 2012

The payback analysis method is the simplest financial method to comprehend. Payback analysis refers to the period of time required for an investment to payback the original investment. The primitive formula for calculating Payback Analysis is the cost of the project divided by annual cash inflows. The result is referred to as the “payback period”. The payback analysis considers only these two things: cost and income. The payback period is found when the total cumulative income exceeds the total project outcomes. If there a project has varying outcomes then the method is modified to summate all of the outcomes and this number is used. Most companies want to invest in projects and opportunities that quickly pay for themselves. Payback analysis is usually used to compare multiple projects to help determine the best project to choose for implementation. Using this method the project with the smallest payback period is the best investment. Drilling to the project to most quickly repay itself lessens the likelihood that market conditions, the economy, interest rates and other variables will affect the project. Because it allows for an investment to be recouped on a shorter period allowing this money to be reinvested in other projects. Payback Analysis is usually measured in years. However, it is often used with respect to energy efficiency technologies, maintenance, upgrades or other changes. For example if this method is applied to light bulbs the period might be operating hours. In this case the return on investment might be considered as reduced operating costs.

An example of calculating a payback analysis could be the case of a widget which costs $250,000 to build and is expected to generate $50,000 a year. The payback period would be calculate to 5 years. Compare that to a second project with a cost of $300,000 and generating $100,000 a year. This payback period would be calculated to be 3 years. So the $300,000 project, while having more initial investment, would be the best project to undertake.

The payback analysis method has two serious flaws. The first flaw is that it ignores any benefits after the payback period. For example if first project above, for $250,000, had a yearly return of $1,000,000 and the second project above, for $300,000, had a yearly return of $100,000 the risk of two extra project years might be offset by the difference in reward. However, the payback analysis method does not take this into consideration and could not help to make this decision. For this reason it is generally suggested that this method only be used to compare similar investments.

The second flaw that this method has is that it doesn’t take into account the time value of money. The time value of money is stated as a dollar received today is worth more than a dollar received tomorrow. The reason for this is generally interest. When interest is owed then the payback period is actually elongated. A company could sell grants which would cause them to incur the effect of interest up front. Or it could be the case could be a case where a company has to borrow money to complete the project thus incurring the effect of interest during the repayment period. This interest is not considered in the payback analysis method even though paying it back will cause the payback period to be longer.

Because of these two issues it is recommended that the payback analysis method not be used in isolation. Economist will generally prefer to use “net present value” method or the “internal rate of return” method. It is also recommended that if this method is used then it be used in conjunction with other methods to overcome it’s built in limitations.

References

http://en.wikipedia.org/wiki/Payback_period

http://www.investopedia.com/terms/p/paybackperiod.asp

http://www2.ds.psu.edu/AcademicAffairs/Classes/IST260W/topic0D/topic_0119_04.html

http://www.toolkit.com/small_business_guide/sbg.aspx?nid=P06_6530

http://www.toolkit.com/pops.aspx?pageID=P98_06_6510_01

http://www.toolkit.com/small_business_guide/sbg.aspx?nid=P06_6510

Submitted by Jason Wergin

When you think of processes, what are some things that come to mind? A process could be used in the production of a film, developing chemical compounds, the steps to making a sandwich. A process is the order in which steps are taken to reach an end result. When developing a process, all of us work differently to get to the end result. Some people work better with writing out steps and having them listed in chronological order. While others work better with charts and diagrams that give them a visual aid to work through the process. In the business world, a business process model notation is described as a graphical standard for creating flow chart-like diagrams that are readily understandable by all business stakeholders including business analysts, technical developers, and business managers. (1) By having this flow chart it allows everyone to become engaged with the process and how it operates. It’s important to model with a business process model notation for many reasons:

· BPMN is an internationally accepted process modeling standard.

· BPMN is independent of any process modeling methodology.

· BPMN creates a standardized bridge which reduces the gap between business processes and their implementation.

· BPMN enables you to model processes in a unified and standardized way so that everyone in an organization can understand each other. (2)

With these reasons, it’s clear why utilizing BPMN is an important function of an organization. BPNM models can break down into several different components. As an organization, you would want your graphical representation of your organizational processes to include these three basic types:

  • Private (internal) business processes

These are internal to a specific organization and are the types of processes that have been generally called workflow or BPM processes. If swim lanes are used then a private business process will be contained within a single Pool. The Sequence Flow of the Process is therefore contained within the Pool and cannot cross the boundaries of the Pool. Message Flow can cross the Pool boundary to show the interactions that exist between separate private business processes.

  • Abstract (public) processes

This represents the interactions between a private business process and another process or participant, only those activities are included in the abstract process. All other “internal” activities of the private business process are not shown in the abstract process. Thus, the abstract process shows to the outside world the sequence of messages that are required to interact with that business process. Abstract processes are contained within a Pool and can be modeled separately or within a larger BPMN Diagram to show the Message Flow between the abstract process activities and other entities.

  • Collaboration (global) processes

Depicts the interactions between two or more business entities. These interactions are defined as a sequence of activities that represent the message exchange patterns between the entities involved. Collaboration processes may be contained within a Pool and the different participant business interactions are shown as Lanes within the Pool. In this situation, each Lane would represent two participants and a direction of travel between them. They may also be shown as two or more Abstract Processes interacting through Message Flow.(3)

The three basic sub-models listed above can be simplified and shown in a BPMN flow chart. Communication across departments (message flow) is an abstract component of almost any business process because all processes can’t be completed in silos. This model shown below exemplifies the way a BPMN flow chart will run and what it will contain. A BPMN flow chart will consist of an event, an activity, a gateway, and a connection. All of this will culminate into a flow. If this event happens, then go to this; if not then go to that, and so on and so forth.

In this example for a credit card application, you can see how the starting event is recording the information, checking the information, going through the studies and then approving or denying the applicant a line of credit.

BPMN’s can be used in many events; to describe the process of the event and getting to the end result. They are very useful because everyone involved in the process will have a better understanding of how a particular process works. For those who don’t like to shift through the jargon and mayhem of words and are visual learners, BPMN is a great way to get the message or information across effectively.

References:

1. http://www.altova.com/umodel/business-process-modeling.html

2. http://www.bizagi.com/index.php?option=com_content&view=article&id=95&Itemid=107&lang=en

3. http://www.bpmi.org/downloads/BPMN-V1.0.pdf

Tamara Cunningham Johnson

As I began to research Business Process Modeling Notation, I quickly come to realize that it is widely used among the company that I am employed with. It was extremely interesting to find out how the business process modeling is used to streamline a process and understand what each symbol represents. I discovered that Business Process Modeling Notation is a standardized graphical notation for drawing business processes in a workflow. (2) The primary goal of Business Process Modeling Notation is to provide a notation that is a standard, and that can be easily understood by all business users. This includes the business analysts, who create the initial drafts of the processes, the technical developers responsible for implementing the technology that will perform those processes, and the business people who will manage and monitor those processes. Business process modeling notation creates a standardized bridge for the gap between the business process design and process implementation. Currently, there are scores of process modeling tools and methods.
A business process can be defined as the self-contained, logical order of activities that are executed for the transformation of a business object with the goal of accomplishing a given task; as key business processes are typically valuable corporate assets. Process modeling can be used to define analyses, improve and even automate these tasks, all of which support the business process management process. Effective process modeling makes use of a common naming convention and methodology, shows the integration of processes with systems, organizations and data, and supports process walkthroughs for validation. The notations of a business diagram are: Flow objects Events, activities, gateways connecting objects Sequence flow and message flow. These categories enable creation of simple business process diagrams. Business Process Diagrams also permit making new types of flow object or artifact, to make the diagram more understandable.
An Event is represented with a circle and denotes something that happens compared with an activity, which is something that is done. Icons within the circle denote the type of event. Events are also classified as Catching and Throwing. (1) Catching an incoming message, often a web service description language starts a process and throwing a completion message will end the process. Start event acts as a process trigger; indicated by a single narrow border, and can only be catch, so is shown with an open outline icon. (3) End event represents the result of a process; indicated by a single thick or bold border, and can only throw, so is shown with a solid icon. Intermediate event represents something that happens between the start and end events and is indicated by a double border that can Throw or Catch using solid or open icons as appropriate. For example, a task could flow to an event that throws a message across to another pool, where the following event waits to catch the response before continuing.
(3) An activity is represented with a rounded-corner rectangle and describes the kind of work which must be done. A task represents a single unit of work that is not or cannot be broken down to a further level of business process detail without diagramming the steps in a procedure, which is not the purpose of business process model notation. A sub-process is used to hide or reveal additional levels of business process detail. When collapsed, a sub-process is indicated by a plus sign against the bottom line of the rectangle, but when expanded, the rounded rectangle expands to show all flow objects, connecting objects, and artifacts. It has its own self-contained start and end events. Sequence flows from the parent process must not cross the boundary. Transaction forms a sub-process in which all contained activities must be treated as a whole. They must all be completed to meet an objective, and if any one of them fails, they must all be undone. Transactions are differentiated from expanded sub-processes by being surrounded by a double border. A gateway is represented with a diamond shape and determines forking and merging of paths, depending on the conditions expressed.
Sequence Flow is represented with a solid line and arrowhead, and shows in which order the activities are performed. The sequence flow may also have a symbol at its beginning; a small diamond indicates one of a number of conditional flows from an activity, while a diagonal slash indicates the default flow from a decision or activity with conditional flows. Message Flows are represented with a dashed line, an open circle at the start, and an open arrowhead at the end. It tells us what messages flow across organizational boundaries. A message flow can never be used to connect activities or events within the same pool. An Association is represented with a dotted line, and is used to associate an artifact or text to a Flow Object.
After understanding more about what the symbols represent, I actually fell a little more in tune with what the each department is trying to accomplish. If I had not been given this assignment, or taken this class, I would have not acknowledged this part of the business.

Jonathan Eric Sims

Works Cited:
1.http://help.sap.com/saphelp_nw72/helpdata/en/76/9856e633464052a47270ea6c49640a/ content.htm 2. http://www.omg.org/bpmn/Documents/6AD5D16960.BPMN_and_BPM.pdf 3. http://wiki.bizagi.com/en/index.php?title=BPMN

Jonathan Eric Sims

UML Simplified

February 28, 2012

What is Unified Modeling Language (UML)

UML (Unified Modeling Language) is a modeling language that was initially designed in the 1990s by a combination of the modeling approaches of James Rumbaugh, Grady Booch, and Ivar Jacobson. The three were together referred to as the Three Amigos.

The Unified Modeling Language is mainly used to help software developers mentally visualize and organize software systems. In essence, UML is to a software program what a blue print is to a building. It (UML) specifically defines the function, input and output of each software module. This clarifies the tasks as well as allows for bugs to be found and fixed in a shorter period of time.

Programming languages like Java and C # build the apps and websites that run on our computers, by using code that is written and intended to be read only by a computer. But UML belongs to a different class of languages that is used behind the scenes to explain the design and context necessary to build the apps. UML is not to be read by the computer but by the developers. The primary goal is to communicate the design concepts to the developers and the clients. Programming languages like Java and C # translate the words and symbols into ones and zeros to be read by the computers only.

Why Unified Modeling Language (UML)

There are several reasons why a developer should use the Unified Modeling Language (UML) – to develop an application. The first and foremost reason is to improve software quality. In the past, most software applications would be coded by programmers in close proximity to each other working on a team at the same location. However, with increased globalization and outsourcing, many companies have developers living not only in remote national locations but international as well. This has increased the need to improve communication tools with high levels of precision. Another powerful feature that can be found in UML is automatic documentation.

When a large program is being designed by a team of developers, the modules cannot simply be lumped together. They must be assembled in a way that will allow then to function in a scalable, stable and flexible manner while also handling the most complex processes during stressful conditions. UML creates this type of necessary organization.

Greater demands have been placed on software developers to create software programs that work flawlessly. While also assisting in the initial development of the software, UML is also necessary for the maintenance of the program. The structure of an application is often known as its architecture, and the architecture must be defined in a way which allows the maintenance programmer to easily find bugs and fix them. Because many problems may not show up until long after development has been completed and the software implemented, the programmer needs to be able to find and fix the issues as quickly as possible.

The structure of an application is also beneficial because it allows the code to be reused and even updated or replaced. During the design time, it is fairly easy to structure a program based on a group of self contained modules. Thus, allowing an business to eventually create a large library of models, with each model serving as a representation for an implementation that is stored within a repository. If a developer should need a specific functionality, they can take the module from the repository. During the process of coding, the developer can select the necessary code and place it within the application. This will allow for shorter coding timelines.

Conclusion

The Unified Modeling Language (UML) is a necessary tool for any software developer in the design, implementation and maintenance of large software projects. This will give rise to improved communication in our global community, increased productivity, simplification of repairs and maintenance and help developers to achieve the ultimate goal of increased software quality.

Author: Arletha Jones

Works Cited:

http://www.ehow.com/info_12175206_differences-between-uml-other-languages.html

http://en.wikipedia.org/wiki/Unified_Modeling_Language

http://www.essentialstrategies.com/publications/modeling/uml.htm

http://www-01.ibm.com/software/rational/uml/

It seems logical that an article about business process modeling would start out with defining what exactly business process modeling actually is. In doing the research for this posting it became clear that there are a few basic definitions that one needs beforehand to establish a baseline for the rest of the article.

Most obviously is a quick description of what a business process actually is: “a set of interrelated tasks linked to an activity that spans functional boundaries” (Virdell). Additionally is the concept of the of a business model which “describes the rationale of how an organization creates, delivers, and captures value” (Osterwalder, Pigneur). Both of these definitions seem simple but it is worth noting that there is an inherent focus on the interrelatedness of various tasks performed within in a business. Processes deal with activities that span multiple people, departments and even organizations; they make up the strategy and methodology of a how a business executes its business model. Processes themselves can be categorized even further based on what role they play in the company but that is beyond the scope of this article.

With that out of the way it is on to business process modeling or BPM for short. At a high level the BPM concept is actually pretty simple and straightforward, it is merely the pictorial representation of how business processes actually work. It aims to provide a visual diagram of the flow of various tasks and activities. BPM has existed for quite some time but the more modern definition stems from work done in the field of systems engineering in the 1960s which was extended for use with business processes. (Williams) The concept gained popularity in the 1990s with the rise of business process reengineering and the rapid integration of IT in business. (Davenport, Short)

As an enterprise grows in size its operations can become quite complex, to the point where few in the business really understand the details of how the business runs. The goal of BPM is to allow a business to see what its processes actually are, where bottlenecks exist, and how they can be improved. To aid in the goal of transparency there are actually multiple models within BPM, namely the “as-is” model and the “to-be” which define the current state of a process and the desired state of process respectively. Utilizing both of these models allows an organization to analyze their processes and test changes or improvements in a controlled manner. (BPM FAQ)

In general a business process model includes these key components (Businessballs):

• The desired outcome of the process

• The start and end points of the process

• The activities that are performed to reach the end point

• The order in which activities take place

• The people who perform the activities

• Exchanges between various actors

Many tools exist to facilitate the creation of business process models, dating as far back as the late 19th century, and many are quite common in many fields of engineering and project management. Flow charts, block diagrams, PERT diagrams, and Gantt charts are some of the traditional tools used over the years. More recent additions to the toolbox include Business Process Model and Notation (BPMN) and the Unified Modeling Language (UML). BMPN defines a standard for creating business process diagrams while UML is a general-purpose language that provides methods such as use case diagrams and activity diagrams to define interactions and activities within a process. (BPMN)(UML)

An example of a business process diagram can be seen at the following URL:http://www.businessballs.com/freepdfmaterials/business_process-model-diagram-example.pdf

Intuitively it seems obvious that a company needs to know what its processes are and lay them out in black and white; knowing this information is key to understanding where the business is and for making future plans. (Buzzle) It also helps employees understand what their roles are within an organization and where they fit into the business model. Too many companies seem to have a culture where the staff doesn’t feel invested in success because they don’t see themselves as vital to the strategy which can only have a negative affect overall. BPM is just the tip of the iceberg when it comes to getting a handle on operations. Several topics worth exploring more include business process reengineering and business process management.

Author: Robin MartinezDate: 2/25/2012

Works Cited:

“BPM FAQ.” Business Process Modeling Forum.http://www.bpmodeling.com/faq/(accessed Jul 8, 2011).
“Business Process Model and Notation.” Object Management Group.http://www.bpmn.org/(accessed Feb 25, 2012).
“Business Process Modelling.” Businessballs. 2009. http://www.businessballs.com/business-process-modelling.htm(accessed Feb 25, 2012).

Davenport, Thomas H. and Short, James E. “The New Industrial Engineering: Information Technology and Business Process Redesign.” MIT Sloan Management Review 31, no. 4 (1990): 11-27.
Khilawala, Rashida. “Business Process Modeling.” Buzzle. 26 Sep 2011.http://www.buzzle.com/articles/business-process-modeling.html(accessed Feb 25, 2011). Osterwalder, Alexander and Yves Pigneur. Business Model Generation: A Handbook for Visionaries, Game Changers, and Challengers.: Wiley. 2010. “UML Resource Page.” Object Management Group.http://www.uml.org/(accessed Feb 24, 2012). Virdell, Margie S. “Business Processes and Workflow in the Web Services World.” IBM. 1 Jan 2003.http://www.ibm.com/developerworks/webservices/library/ws-work/index.html(accessed Feb 25, 2012).

ROI Return on Investment

February 22, 2012

ROI=Return on Investment

How much am I paying to go to graduate school? Is the price that I am paying worth it for me? What is going to be my return on investment? What is Return on Investment? Return on Investment, or ROI is defined by Investopedia as:

A performance measure used to evaluate the efficiency of an investment or to compare the efficiency of a number of different investments. To calculate ROI, the benefit (return) of an investment is divided by the cost of the investment; the result is expressed as a percentage or a ratio.

The return on investment formula:

ROI= (Gain from Investment-Cost of Investment)

Cost of Investment

Looking at this model, let me answer my first question. I am paying approximately $20,000 for graduate school. I currently have a job where I make a livable salary, but don’t have extra money for vacation and investments. Is the $20,000 worth it for me and my family? The assumption is, yes! However, how am I going to measure the investment? I don’t know how much I will gain monetarily from graduate school, however, as K. Mani Chandy, chairman of the engineering school at the California Institute of Technology, states in an article in the NY Times, my ROI is intellectual happiness and not money.

What does all this mean and will I get a positive or negative return on my investment? It is probably easier to apply the equation of Quality developed by Edwards Deming. Dr. Deming wrote that the quality of something, in my case, the IEM program at UAB, is equal to the Results of the Work Efforts/Total Costs. He focused on the work effort as being of much more importance than the cost. Quality or RETURN tends to INCREASE and the costs will fall over time. If I focus on the cost of graduate school, and not on the work or results of the work, then my quality or return will diminish. Dr. Deming’s statistical analysis is used in many corporations across the world, but not as much in the US. He is revered in Japan and unknown in the US and as a result, many products from Japan have a lower cost and higher quality than the same product produced in the US.

Quality=Results of the Work Effort

Total Costs

Looking at the topic of Return on Investment and Quality as a way to measure success or failure in a given environment, it appears the Dr. Deming’s statistical analysis will work better in the long run. Brian Rabon is teaching a class entitled Business Process Engineering…or rather, RE-Engineering. Adopting a different and somewhat unique view of ROI should benefit me in the long run. If you listen to Brian, he spends a lot of time focusing in on his quality of work. Because of that initial Results of his work efforts divided by his total costs, his quality has increased, his costs have decreased and the results are more business, 45 days of skiing set aside for 2012, more money and closer to achieving his goal of selling his business for a significant amount in a few years. If he had ONLY focused on the ROI model, he may have lost some quality and ultimately lost all of his return on his investment.

This blog is about ROI, but research has led me to focus on the Deming philosophy of quality.

Robert S. Hanson

http://www.investopedia.com/terms/r/returnoninvestment.asp#axzz1ljMbgdLT

http://wdww.nytimes.com/2011/07/24/education/edlife/edl-24roi-t.html?_r=1&pagewanted=all

http://en.wikipedia.org/wiki/W._Edwards_Deming

Brian Rabon—August, 2011 and January, 2012

Business Process Re-Engineering

Let’s just quickly define business process: Business Process is a collection of activities designed to produce a specific output for a particular market or a customer. The emphasis is on how work is done within a company/industry. There is a specific a process is completed and it is broken down by activities over time. There is a beginning, an end and a clear scope of inputs, outputs and a structure for action. (1)

Whatever the goal is for your company/industry, a process must exist to achieve the effectiveness or efficiency of an organization. There are many business processes; management process, operational process and supporting processes. If you have ever worked for a large corporation then it should be understood that processes exist and must exist for a less painful transition from one project to another and the fine line of balancing the domestic market and an international market. Large corporations not only require processes and re-engineering they insist on it, or at least the once that stay in business a long time and are willing to make the changes needed. (2)

In the late 1990’s, Business Process Re-Engineering (BPR) was criticized because it advocated that old systems be discarded and replaced with new more efficient and innovative process. BPR has also been criticized because the focus is on implementation of new technologies and not improving the business process. The biggest complaint about BPR is its association with downsizing and cost-cutting with little regard for quality and long term business objective. There have been others who have defended BPR by stating that is t it was not intended as a way to simply slash labor costs, but to streamline work processes, remove bureaucratic procedures and increase efficiency. (3)

BPR starts with a vision or an idea. However, ideas come from three sources- they can be copied from other companies (benchmarking), bought from and IT or a consulting company or they can be original ideas. Benchmarking however does not allow for a competitive advantage and neither buying an idea due to the cost of the solution. Original idea seems to be the way for a solution but that also has its drawbacks as it is often looked at as downsizing. (3)

There are advantages to the BPR: large companies which take advantage of BPR by setting up new companies with new staff, new policies and new methods to the parent company. The “Re-start” per say allows companies to continue operating without the complication of organizational change. BPR can create many challenges and many advantages when an implementation is successful. (3,4). A study conducted in 1997 indicated that eighty percent of organizations that implemented BPR were satisfied with the results. When successfully implemented, BPR can give a company a competitive advantage and affect performance. Companies implementing BPR challenge employees to perform different tasks hence to understand the entire business. This not only empowers the employee to perform at a higher level and giving them more autonomy and holds the employee more accountable for their actions. BPR forces companies and employees to communicate, collaborate with people with different skills sets. (4,5)

BRP is about rethinking and redesigning organizational process in order to improve the performance; this includes cost, quality and service.

Dan Prabhu

Works Cited.

http://www.sparxsystems.com/downloads/whitepapers/The_Business_Process_Model.pdf

http://en.wikipedia.org/wiki/Business_process#Importance_of_the_Process_Chain

http://www.usq.edu.au/extrafiles/business/journals/HRMJournal/AJMOBarticles/OD-TQM-BPR.pdf

http://www.businessballs.com/business-process-modelling.htm

O’Neill, P. 1997, ‘Business Process Re-engineering: Application and Success in Australia’,

Department of Management Working Paper Series, Working Paper no. 43/97, Monash

University, Clayton

The Business Process Re-engineering Movement has recieved a lot of discussion in the last couple of decades. Let’s first define what a movement is, secondly what motivated this movement, and finally how history repeats itself and yet is not always the same. Draw your own conclusion after reading this blog and let me know what you think about the realities of a movement in the workplace that seeks change.

Movements carry out, resist, or undo change.(1) The term movement has certain negatives and positives associated with it. Whether this term is negative or positive is of course based on what the movement is and what the percieved objectives are relative to the individual or group. Movements evolve because there is a need for change. In the case of those businesses that embark upon Business Process Re-engineering the main driver is that there is a need to reduce cost; with competitive pressure, poor customer satisfaction and poor quality of products and services being the other main factors. These top four factors are the root cause of why organizations leadership choose to take on the challenge of a business process re-engineering. (2) These do not seem like concerns that an employee would naturally have. This movement was and will probably always be based on the concerns of leadership.

Unfortunately all too often what happens in a business process re-engnineering effort changes are made to increase profit by levying more responsibility on fewer workers. From what I have experienced the workers that remain, after a reduction in a workforce, have mixed emotions. They are pleased that they didn’t lose their job, and yet they are not pleased that they remain in the same environment with the threat of another “re-engineering effort” on the horizon. This threat is out of their control; when deemed necessary by leadership another so called “re-engineering effort will occur. If it is perceived that leadership initiates re-engineering as a method to increase profit margin at the expense of the employee, workers are not going to embrace it. Who can blame them? This is a basic principle of self preservation, to resist. In order for re-engineering to work there must be little to no resistance to change on behalf of those doing the work. Resistance to change within the organization was cited six times more often than any other as the number one obstacle to successful implementation of business process re-engineering.(2)

In today’s work environment change is desired by some leadership and avoided as much as possible by employees. Do you see a problem? This problem has been going on; Business Process Re-engineering was labeled by some as a movement but it has not been effective for the most part. Actually this movement is nothing new. Back in 1920 re-engineering was was labeled in the business world of that day as “Methods and Procedures Analysis”. (3) In this decade (1920’s), America became the wealthiest country in the world with no obvious rival. In the good times everybody seemed to have a reasonably well paid job and everybody seemed to have a lot of spare cash to spend.(4) As a result of good fortune, in contrast to today’s employee, workers seemed to be willing to embrace the business movement of that time wholeheartedly. More than likely it was embraced back then because there was no fear of lack of money.

In today’s economy the word change is only embraced by those that are struggling. Those that are not struggling hope the struggles don’t come their way and who can blame them. This is called human nature and it will always overrule when it comes to the flight or fight. Those that are not struggling are taking flight and avoiding a Business Process Re-engineering Movement. Most humans seem to see a problem and hope it goes away. Most company’s want change to increase profit and the employees hope that leadership will not involve them in the process. In retrospect no change plan was ever published which showed a due date for change. What do you think?

By Cedric Matthews

References

(1) Wikipedia – Social movement

http://en.wikipedia.org/wiki/Social_movement

(2) 327 Organizations Share Lessons Learned in business process design

http://www.prosci.com/bpr-benchmarking.htm

(3) The Roots Of Business Process Reengineering

http://www.strassmann.com/pubs/reeng/roots.html

(4) America in the 1920’s

http://www.historylearningsite.co.uk/America_economy_1920s.htm

If you want to improve your business, challenge your core assumptions and then reengineer.

Process Reengineering

Traditional business processes are based on the simple-task, complex system in mind. An individual’s work scope was narrowed to very simple tasks that required minimal training. The organization was comprised of complex systems of simple tasks. While this model seemed to work well with the Industrial Revolution, it does not scale well. Simple tasks seem easy to manage when there are only a few tasks, supervising, monitoring and checking become more difficult when many more tasks need to be done. This increases the need for more management, but a larger management structure in proportion to the rest of the organization. The results are higher overhead, lower profit margins and lower ROI. (3)

When you see excessive communication between business units, combine some or all of those processes as they may have been artificially fragmented. If you encounter high levels of inventory, synchronize supplier and/or customer processes with your own.

Team Reengineering

Teams need to be enabled to take on more of the workload that traditionally belonged to the manager. This requires they receive broader roles, more responsibility and increased authority. Expand their role by moving them outside their simple, isolated task and into a much larger portion of the value chain. The team follows the product through its lifecycle and has much more visibility to systemic problems that were previously hidden. The team is given responsibility for the product collectively and, when possible, communicates directly with their customer. The additional authority granted should be sufficient to empower the team to fulfill the larger roles and responsibilities already mentioned. (5)

Leadership Reengineering

Managers need to empower their employees to work a larger scope than they did traditionally. Managers also need to move to more of a supervisory role by developing teams to design, allocate, monitor and control their own work. The ability to enable others to improve is a skill that you should cultivate within your managers. Where a traditional manager can manage around 7 people, a hands-off supervisor can supervise around 30. (3) Effective leaders continuously improve through life-long learning and should view continuous education as a minimum requirement to maintain current effectiveness. (4)

“It is important for managers and leaders to recognize what they have to do, and what they often have to do is enable real operational change.” , stated Jim Champy, author of “Reengineering the Corporation” in a recent phone interview. “In the past, many leaders downsized organizations, but didn’t really reengineer.” (2)

Information System Reengineering

Information systems were often built to support the existing poorly designed organizational model and thereby helped to entrench this inefficient way of operating within the organization. Many Enterprise Resource Planning (ERP) software packages still encourage this mindset by offering small-work, low visibility modules.

Understand that the off-the-shelf ERP solutions will not solve all your business problems. In a rapidly changing world where customer expectations increase every year, carefully and iteratively reengineer your information systems to match your customer’s needs. ERP provides much security and a solid foundation to build from but it is not enough. The SAPs and Oracles of the world are not going to solve our problems. (2) Custom development that builds upon existing ERP systems enables a company to respond rapidly to changing demand while leveraging the same sound technological foundation that got many organizations to where they are in the first place. Custom systems are an excellent way to fill in the gap between what is currently available and what is needed.

Business Model Reengineering

If individual tasks can be optimized, and operational systems within organizations can be reengineered, why can’t the same be true with an entire business model? Technology is a wonderful enabler, one that supports near-zero marginal-cost transactions and opens up entirely new possibilities.(1) We see this playing out dramatically in digital media distribution, such as music, video and books to name a few.(2) Look for ways to change your model entirely.

If you want to improve your business, if you want to get better, challenge all assumptions about your process, teams, leadership and even your business model.

– Chris Acree

(1) Anderson, Chris. Free: The Future of a Radical Price. Hyperion, 2009.

(2) Champy, Jim, author of Reengineering the Corporation: A Manifesto for Business Revolution and other best sellers. Personal interview. 30 Jan. 2012.

(3) Hammer, Michael and James Champy. Reengineering the Corporation: A Manifesto for Business Revolution. HaperBusiness, 2003.

(4) Kotter, John P. Leading Change. Harvard Business Review Press, 1996.

(5) Pellerin, Charles, J. How NASA Builds Teams: Mission Critical Soft Skills for Scientists, Engineers, and Project Teams. Wiley, 2009.