Thursday, August 14, 2014

Identifying Business Processes

Business Processes are inherent to any organization. The processes define the dynamic nature of organization. Also they draw the formal communication channels in the organization. If one has to understand how organizations work, one has to follow the processes that work inside the organization. The business process analysis template can be downloaded form ((Business Process Analysis)) Index page.

Methodology of Identifying Processes
Identifying business processes is more of an art than science. There are certain techniques that might help in unraveling the mystery but be ready for surprises. Have certain attitudinal factors up in your
sleeves always:
  • Never assume : Inferences based on knowledge or some historical incidents should be verified. Do not assume that if certain things have worked in certain way somewhere it's going to work the same way.
  • Always ask : It's a corollary to "Never assume". It's better that let the people tell their mind to you.
  • Cross verify : A process is seen from different perspectives so it might be present to you in different ways by different people. So talk to all stakeholders to get the normalized perspective.
  • Be an archaeologist : There are processes which are not written in any manual and are not used in day to day work but would throw up as huge challenge when conditions to invoke them is met. To identify these hidden processes or decision conditions in a process, look for boundary conditions  
To identify business processes, some of the techniques that can help out is:
  • Understand Business Model : Most of the processes of an organization are geared around the business focus of the organization. A glimpse of that can be taken from the organization's mission and vision statement.
  • Study standards adopted by company : If company has adopted some standards like ISO or CMMi than the documents related to these standards will tell a lot about the processes in the organization.
  • Inputs and Outputs to Organization : Study the inputs and outputs. What organization procures from external entities and what it delivers to external entities? Follow the steps taken to convert input to output will unravel the processes working in organization.
  • Study Financial Statements : Study the financial statements. They also bring out the input and output of organizations. Big expense and big revenue items are the key candidates to watch for.
Process Classification
  • While identifying business processes its important to understand how they impact the bottom and top line of the organization. The processes should also be classified in certain way so that it's easier to handle them. There are many ways and categorizations to classify the business processes. The one I follow is to classify them into three broad categories:
Direct Processes: Processes that directly impact the revenue of the organization. Also these processes are closely related to the Business Model of the organization. These processes are quite similar from one organization to another in the same industry segment. These are the processes where the organization has to deal with external entities also. For example in the case of a Textile manufacturing plant the direct processes are:
  • Procurement process of raw material like cotton.
  • Order taking and dispatch process of finished product.

Indirect Processes: Processes that do not directly impact the revenue but are enabler for direct processes. These processes are usually internal to the organization and do differ from organization to organization. For example in the same textile organization:
  • Production Planning process.
Administrative Processes: Processes that are administrative in nature and are usually at cost centers. The processes are similar among industries but may differ from geography to geography. The nature of these processes are governed by local laws also.
  • Accounting Process
  • Payroll and Leave Management Process

These categories are conceptually similar to the classification of costs in an organization but spatially they are different. For example the expenses incurred in Sales organization is not a part of either direct or indirect cost but in terms of processes, its an essential process the effectiveness and efficiency of which makes a material difference to the organization.

Another useful dimension in which the processes can be classified is as per the basic classification of business processes. These classification works along all types of industry as it does the categorization based on the functional nature of processes.

Customer Relationship Management (CRM)
  • Market research
  • Marketing and promotion
  • Finished goods Warehouse Management
  • Sales
  • Customer service
Supply Chain Management (SCM)
Evaluating and selecting suppliers
Monitoring inventory levels and reordering
Warehouse Management
Accounting and Financial Management
  • Accounting
  • Forecasting
  • Budgeting
  • Performance Monitoring
Design and Production
  • Product design process
  • Production Planning
  • Manufacturing
Human Resource Management
  • Recruiting and training new employees
  • Assessing employee performance
  • Managing benefit plans for employees
  • Developing current levels of task training for current employees and future career potential.
  • This classification is a natural fit to the way the organization is structured.  
Granularity in Identifying Process
In identifying business processes the right granularity has to be achieved. Also the granularity has to be decided based on the stage on which the analysis is being done. Bringing too fine details in the beginning becomes a self defeating exercise. The granularity of Business process an be done at three levels.

Process: It's at very high level and details out the high level building blocks.
  • Subprocess: Subprocess and Process are different in terms of granularity. Subprocesses should be looked also from the angle of modularity.For example taking the approval from Finance Department can be a good subprocess as it than can modularly participate in many processes.
  • Task: Task is the finest level which go to the finest level.
  • Also it's possible to granulate the processes with more intermediate levels. For example a subprocess can have more subprocesses and so on before we reach to task level. The aspect of granularity should be looked also from the possibility of modularizing the processes that can be fit together.
Attaching Attributes to Business Process
It is useful to attach some weightage to the Business processes identified. Attaching the attribute helps in finding the relative importance of processes with respect to each other. Also it helps to identify which business processes needs more focus.

The processes should be figured out in terms of cost they incur. Usually its difficult to find the cost in numbers at this point. But it is useful to atleast score them on some scale say 1-10 or 1-5. If scoring is difficult even a subjective rating like High/Average/Low cost criteria can be attributed to it. This rating will help in focusing on the processes which can provide more benefit. Also while attributing cost factor only provide the cost of process. For example in Procurement process, the cost of items procured should not be attached to the cost of process. The process of procuring an engine and a pen. However if the processes are different for high cost and low cost item than they accordingly should be marked accordingly, may be as teo different processes.

The other attribute which helps in finding the relative importance is the criticality of the processes to the business model of the organization. Procurement processes are very important in Process industries whereas recruitment and training processes have high importance in IT organizations. The criticality of the Business process should again be judged based on some scale similar to the cost attribute/

The scales for different attributes should be normalized so that they can be combined in a meaningful way. For example the cost and the criticality attribute both can be classified on the scale of 1-5 or as High/Average/Low.

More on Business Process Analysis

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