Business Process Performance Measurement

Why measure?
Check position
Measures as a means of establishing position Measures as a means of comparing position (benchmarking) Measures to monitor progress

Communicate position
Measures as a means of communicating performance Measuring because you have to: regulatory communication

Compel progress
Measures as a means of motivation Measures as a means of communicating priorities Measures as a basis of reward
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Performance Measurement Myths?

What gets measured, gets done. If you dont measure results, you cant tell success from failure. If you cant see success, you cant reward it. If you cant reward success, you are probably rewarding failure. If you cant see success, you cant learn from it. If you cant recognise failure, you cant correct it. If you can demonstrate results, you can win public support.

Measuring Business Processes

Cost of Performance Measurement

Every measurement activity incurs costs to both implement and maintain. Without the knowledge of the exact circumstances under which a measurement system either will or will not improve the performance, it is difficult to genuinely justify the additional cost of implementing a measurement system.

Measuring Business Processes

Functional versus Process Measures

Functional measures Usually derived from the financial statements and on traditional ways of measuring the efficiency of work within a department. Process measures Derive from general measures of customer satisfaction with the outputs of a process.
These measures are used to work backward to measure how each department might contribute to customer satisfaction.
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Functional versus Process Measures (contd.)

They overlap as long as departmental goals overlap with the customer goals, such as departmental efficiency and productivity versus production of products/services quickly and cheaply. They conflict when a functional measure slows or disrupts the overall speed or efficiency of process to maximise some departmental-oriented goal.

Measuring Business Processes

Comparison of Functional & Process Measures

Department or function Sales department Typical departmental measures Cost of sales Revenue Cost of inventory Cost of materials Cost of labour Percent of bad debt Mean labour budget Gross revenue Cost of sales Customer growth
Measuring Business Processes

Typical process measures Timeliness & accuracy of orders Order processing cost Timely order shipment Timely order scheduling Invoice processing cost Timely cheque prep. % of on-time delivery % of rejects
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Production department

Finance department

External organizational measures

Need for Process Measurement

The purpose of process measurement is to: ensure progress in improving its performance prevent process problems and errors work with facts, not opinions set performance standards (benchmarks) recognise success.

Measuring Business Processes

Process Metrics
Measures used for measuring process performance are called process metrics.

Measuring Business Processes

Role of Process Metrics

Business objectives are often couched in phrases like being the best or delivering world-class customer service. Moving towards these aims is only possible if the company uses measures to compare against its own baseline position, or against competition. Metrics are important within process management since only through these can we establish whether the hoped improvements have been achieved, and monitor how future improvements occur through time. Metrics are also important because of their high visibility with process users and managers.

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Ensuring Success with Metrics

For each metric, an owner needs to be held accountable for the metrics performance. To be effective, each metric must have a target or goal associated with it. Each metric should have one or more initiatives associated with it that significantly increase the probability of meeting or exceeding the target.

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Recommendations for Using Metrics

Involve as many constituents as possible early in the metric development process. Select only few metrics for final use. Use SMART technique for evaluating each metric. Assign an owner for each metric, who is accountable for metric performance. For each metric, assign a target. For each metric, develop at least one initiative that is explicitly designed to significantly increase the probability of successfully meeting or exceeding the target. Be sure to validate each metric to ensure that it is producing the desired results.
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Different Types of Process Metrics

Organisational performance metrics
Turnover, profitability, market share, customer satisfaction

Process performance metrics

Lead-time, process profitability

Critical success factors (CSFs)

Customer service index, employee satisfaction

Defect based metrics

Customer complaints; cases processed late (than the scheduled time)

Integrated metrics
Balanced scorecard
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Techniques for Selecting Metrics

Analyse corporate objectives. Review existing reports. Individual interviews. Map business processes. Key performance indicators (KPI) definition sessions. Group interviews. Map information. Strategy maps. Surveys.

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Collecting SMART Metrics

Metrics must be: S pecific M easurable A ctionable R elevant T imely

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Advantage of Using SMART Metrics

Using SMART metrics avoids the following types of problems: Developing metrics for which accurate or complete data cannot be collected. Developing metrics that measure the right thing, but cause people to act in a way contrary to the best interest of the business to simply make their numbers. Developing too many metrics to create excessive overhead and red tape. Developing metrics that are complex and difficult to explain to others.

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Customers Value Criteria

Quality x Service Value = ------------------------------Cost x Cycle Time
.

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Value Criteria Examples

Quality
Meeting

Service

Cost
Design & Engineering Quality assurance Distribution Materials Inventory Conversion Administration

Cycle Time
Time-to-market - Concept-todelivery - Order-todelivery Lead time - Design - Engineering - Delivery - Conversion

Customer support customer Product service/ requirements support Fitness for use Elimination of Flexibility to meet customer waste demand Continuous Flexibility to improvement meet market Process integrity change minimum variances

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Value for Money Framework for Process Performance

Activities Input
(Resources)

Output
(Products/ Services)

Outcome
(Impact)

Economy Relation (Cost)

Efficiency Relation (Throughput)

Effectiveness Relation (Value addition)

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Performance Measurement of Public Services

Value for Money
Economic acquisition of resources and their efficient utilisation in the realisation of the purposes of the organisation with the simultaneous achievement of economy, efficiency, and effectiveness.

Measuring outputs versus measuring outcomes

An output is a measure of efficiency, whereas an outcome is a measure of the quality/effectiveness. Outputs do not guarantee outcomes.

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Programme and Policy Outcomes

Programme outcome
Effectiveness of specific programme in achieving desired outcomes. Sarva shiksha abhiyan: effectiveness in bringing 100% literacy.

Policy outcome
Effectiveness of broader policies in achieving fundamental goals. SC/ST reservation policy: effectiveness in bringing employment to people in SC/ST category (without degrading the performance at a particular job level).
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Measuring Process Performance

1. Think about what is currently being measured. 2. Does the current approach gives the information that is needed? 3. Do you have the following:
clear top-down requirements: measurable improvement goals; specific process outputs; numerical targets and milestones? customer-related measures: to clarify requirements; to receive ongoing feedback? process performance measures which are: focused on key points; clear, simple and relevant?

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Measuring Process Performance

(contd.)
measures of bottom-up achievements: focused on work teams; compared to targets; visible to team members?

Top down requirements bottom up achievements

PROCESS METRICS

CUSTOMER MEASURES

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Integrated Metrics Using Balanced Scorecard

Balanced scorecard (BSC) can translate a process vision and strategy into specific objectives. The BSC emphasises that a company should monitor a number of key performance indicators (KPIs) that collectively tell the senior management how the organisation is doing.

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Integrated Metrics Using Balanced Scorecard (contd.)

The BSC is structured in four main areas:
Customer concerns. These include time (lead time, time to quote, etc.), quality, performance, service and cost. Internal business processes. These KPIs focus on measures of internal processes that have greatest impact on customer satisfaction: cycle time, quality, employee skills and productivity. Financial measures. These KPIs focus on revenue growth, cash flow, and profitability. Learning and growth. Innovation, measured by change in value through time (employee value, shareholder value, % and value of sales from products less than x years old).

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Strategy and Balanced Scorecard

Balanced scorecard (BCS), when properly connected to a strategy, is a very powerful tool for communicating strategy.

BCS as a hierarchy: Financial Return On Investment

Customer
Process Innovation

Value preposition
Unique processes/activities Continuing innovation

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Strategy and Balanced Score Card

Financial Perspective

Vision

Customer Perspective

Strategy

Internal Process Perspective

Learning & Growth Perspective

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Measuring & Planning Using BSC

Vision Perspectives Strategic Aims? Critical Success Factors

Performance Indicators

Action Plan

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Performance Metric Example -Purchase

Pre-ordering
PR-to-PO Conversion Time

Post-ordering
Cost of Purchasing Ordering On-time Delivery Index Rejection Level Index

Vendor Related
Vendor Relationship Profile Vendor Development Index Vendor On-time Payment Index

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Performance Metric Example -Inventory & Stores

Days Spares Held
(Average spares inventory / cost of spares consumed per day)

Days Raw Material Held Days Stores Held Non-Moving Inventory Index
(Non-moving inventory value / average inventory value)

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Performance Metric Example -Human Resource Development

Functionwise Manpower Distribution Employee Turnover Ratio Training Days per Employee Training Investment per Employee Productivity per Employee Suggestions per Employee

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