MODULE 7 – BUSINESS Dr.

Tuan Truong

PROCESS ANALYSIS
CONTENTS
Qualitative process analysis
 Value-added analysis
 Waste analysis
 Stakeholder analysis and issue register
 Root-cause analysis

Quantitative process analysis

 Flow analysis
 Queue analysis
 Process simulation
QUALITATIVE PROCESS
ANALYSIS
 VALUE-ADDED ANALYSIS
Decorticate the process into steps
 Steps performed before a task
 The task itself, possibly decomposed into smaller steps
 Steps performed after a task, in preparation for the next task

Classify each step

 Value-adding (VA)
 Business value-adding (BVA)
 Non-value-adding (NVA)
 Produces value or satisfaction to the customer.
Criteria:
 Is the customer willing to pay for this step?
 Would the customer agree that this step is necessary to
VALUE-ADDING 
achieve their goals?
If the step is removed, would the customer perceive that
ACTIVITIES the end product or service is less valuable?

Examples:
 Order-to-cash process: Confirm delivery date, Deliver
products
 University admission process: Assess application, Notify
admission outcome

5
BUSINESS VALUE-ADDING ACTIVITIES
Necessary or useful for the business to operate.
Criteria
 Is this step required in order to collect revenue, to improve or grow the business?
 Would the business (potentially) suffer in the long-term if this step was removed? Does
it reduce risk of business losses?
 Is this step required in order to comply with regulatory requirements?

Example
 Order-to-cash process: Check purchase order, Check customer’s credit worthiness,
Issue invoice, Collect payment, Collect customer feedback
 University admission process: Verify completeness of application, Check validity of
degrees, Check validity of language test results

6
 Everything else besides VA and BVA

Incudes:
• Handovers, context switches
NON-VALUE- • Waiting times, delays
• Rework or defect correction
ADDING Examples
ACTIVITIES • Order-to-cash: Forward PO to warehouse,
Re-send confirmation, Receive rejected
products
• University admission: Forward applications to
committee, Receive admission results from
committee

7
EXTRACT OF EQUIPMENT RENTAL PROCESS
Fill request (VA)
Send request to clerk (NVA)

Check equipment availability (VA) – 1st time

Record recommended equipment (BVA)
Forward request to works engineer (NVA)

Open and read request (NVA)

Select suitable equipment (VA) – 1st time
Produce PO (BVA)
Submit PO to supplier (VA)
Open and examine request (BVA)
Communicate issues (BVA)
Forward request back to clerk (NVA)
EQUIPMENT RENTAL PROCESS – VA ANALYSIS
 EXERCISE 7.1 – SEE WORK BOOK
Customers drop off their prescriptions either in the drive-through counter or in the front counter of the pharmacy. Customers can request that their prescription be filled immediately. In this

case, they have to wait between 15 min and 1 h depending on the current workload. However, most customers are not willing to wait that long, so they opt to nominate a pickup time at a later point

during the day. Generally, customers drop their prescriptions in the morning before going to work (or at lunchtime) and they come back to pick up the drugs after work, typically between 5 p.m. and

6 p.m. When a prescription is dropped off, a technician asks the customer for the pick-up time and puts the prescription in a box labeled with the hour preceding the pick-up time. For example, if

the customer asks to have the prescription be ready at 5 p.m., the technician will drop it in the box with the label 4 p.m. (there is one box for each hour of the day). Every hour, one of the pharmacy

technicians picks up the prescriptions due to be filled in the current hour. The technician then enters the details of each prescription (e.g., doctor details, patient details and medication details) into

the pharmacy system. As soon as the details of a prescription are entered, the pharmacy system performs an automated check called Drug Utilization Review (DUR). This check is meant to

determine if the prescription contains any drugs that may be incompatible with other drugs that had been dispensed to the same customer in the past, or drugs that may be inappropriate for the

customer taking into account the customer data maintained in the system (e.g., age). Any alarms raised during the automated DUR are reviewed by a pharmacist who performs a more thorough

check. In some cases, the pharmacist even has to call the doctor who issued the prescription in order to confirm it.

After the DUR, the system performs an insurance check in order to determine whether the customer’s insurance policy will pay for part or for the whole cost of the drugs. In most cases, the

output of this check is that the insurance company will only pay for a certain percentage of the costs, while the customer has to pay for the remaining part (also called the co-payment). The rules

for determining how much the insurance company will pay and how much the customer has to pay are very complicated. Every insurance company has different rules. In some cases, the

insurance policy does not cover one or several drugs in a prescription, but the drug in question can be replaced by another drug that is covered by the insurance policy. When such cases are

detected, the pharmacist generally calls the doctor and potentially also the patient to determine if it is possible to perform the drug replacement. Once the prescription passes the insurance check,

it is assigned to a technician who collects the drugs from the shelves and puts them in a bag with the prescription stapled to it. After the technician has filled a given prescription, the bag is passed

to the pharmacist who double-checks that the prescription has been filled correctly. After this quality check, the pharmacist seals the bag and puts it in the pick-up area. When a customer arrives to
WASTE ANALYSIS
"All we are doing is looking at the timeline, from the moment the customer
gives us an order to the point when we collect the cash.
And we are reducing the timeline by reducing the non-value-adding wastes ”
Taiichi Ohno

Read more in Chapter 06 – Qualitative Process

Analysis of Fundamental of BPM 2nd edition
SEVEN SOURCES OF WASTE
Move
• Unnecessary Transportation
• Motion
Hold
• Inventory
• Waiting (and idleness)
Over-do
• Defects
• Over-Processing
• Over-Production
12
IDENTIFYING AND
DOCUMENTING PROCESS ISSUES
Stakeholder analysis: allows us to collect issues from
complementary perspectives.
Issue register: allows us to document issues and their impact
in a structured manner
Pareto analysis and PICK charts: allow us to select a subset
of issues for further analysis and redesign.

Slide 13
 STAKEHOLDER ANALYSIS
Stakeholder analysis is about gathering data from multiple sources by interviewing stakeholders of
different types and reconciling their viewpoints
In BPM, stakeholder analysis is commonly used to gather information about issues that affect the
performance of the process from different perspectives.
There are typically five categories of stakeholders:
The customer(s) of the process.
The process participants.
The external parties (e.g., suppliers, sub-contractors) involved in the process.
The process owner and the operational managers who supervise the process participants.
The sponsor of the process improvement effort and other executive managers who have a stake in the
performance of the process.

Slide 14
 TYPICAL STAKEHOLDER
CONCERNS
Customers are often concerned about slow cycle time, defects, lack of
transparency, or lack of traceability (inability to observe the current process
status).
Process participants might be rather concerned about:
 High resource utilization, working under stress.
 Defects arising from handoffs in the process and wastes.

External parties (e.g. suppliers and sub-contractors) are generally concerned

about having a steady or growing stream of work from the process, being able
to plan their work ahead, and being able to meet contractual requirements.
The process owner is usually concerned with performance, be it high cycle
times or high processing times. Also be concerned about common defects and
wastes, and compliance with internal policy and external regulations.
The sponsor and other high-level managers are generally concerned
with the strategic alignment of the process and the contribution of the process to
key performance indicators. Also concerned about the ability of the process to
adapt to evolving customer expectations, competition, and market conditions.

Slide 15
ISSUE REGISTER
Purpose: to maintain, organize and prioritize
perceived weaknesses of the process (issues)
Sources of issues:
 Input to a process modelling project
 Collected as part of ongoing process improvement
actions
 Collected during process discovery (modelling)
 Value-added/waste analysis
ISSUE REGISTER STRUCTURE
Can take the form of a table with:
 Issue identifier
 Short name
 Description
 Assumptions
 Impact: Qualitative and Quantitative
 Possible improvement actions
Larger process improvement projects may require issue trackers

17
 Issue name

• Equipment kept longer than needed

Description

EXAMPLE OF AN • Site engineers keep rented equipment longer than

needed by asking for deadline extensions

ISSUE Assumptions

DOCUMENTATION • 3000 pieces of equipment rented p.a.

• In 10% of cases, equipment is kept two days more than
needed
• Average rental cost is 100 per day

Quantitative impact

• 0.1 × 3000 × 2 × 100 = 60,000 p.a

18
ISSUE REGISTER EXAMPLE
Name Explanation Assumptions Qualitative Quantitative
Impact Impact

Equipment Site engineers keep 3000 pieces of equipment rented p.a. 0.1 × 3000
kept longer equipment longer In 10% of cases, equipment kept two × 2 × 100
than needed than needed via days longer than needed. = 60,000
deadline extensions Rental cost is 100 per day p.a.

Rejected Site engineers reject 3000 pieces of equipment rented p.a. Disrupted 3000 × 0.05
equipment delivered equipment 5% of them are rejected due to an schedules. × 100 =
due to non- internal mistake Employee 15,000 p.a.
conformance to their For each equipment rejected due to an stress and
specifications internal mistake, BuildIT is billed 100. frustration

Late Late payment fees 3000 pieces of equipment rented p.a. Poor 0.1 × 3000
payment incurred because Average rental time is 4 days reputation × 4 × 100
fees invoices are not paid Rental cost is 100 per day. with suppliers × 0.02 =
by their due date Each rental leads to one invoice. 2400 p.a.
About 10% of invoices are paid late.
Penalty for late payment is 2%.
 EXERCISE 7.2
Use the business scenario in Exercise 7.1. Identify and document at least two issues in
an issue register
PARETO CHART
Useful to prioritize a collection of issues
Bar chart where the height of the bar denotes the
impact of each issue
Bars sorted by impact
Superposed curve of cumulative percentage impact
PARETO CHART EXAMPLE
ROOT-CAUSE ANALYSIS

Why-why diagram

Factors Issue

Cause-effect
diagram
WHY-WHY Contributing
Factor
DIAGRAM Contributing ...
Factor
Five levels of nesting
Contributing
“Five Why’s”
Factor
Issue

Contributing
Factor

Contributing
Factor ...
Contributing
Factor
WHY-WHY DIAGRAM EXAMPLE
Site engineers keep equipment longer, why?
Site engineer fears that equipment will not be available later when needed, why?
 time between request and delivery too long, why?
 excessive time spent in finding suitable equipment and approving the request, why?
 time spent by clerk contacting possibly multiple suppliers sequentially;
 time spent waiting for works engineer to check the requests;
CAUSE-EFFECT
(FISHBONE)
DIAGRAM
 CATEGORIES OF CAUSES: SIX MS
1. Machine: factors stemming from technology used
 Lack of suitable functionality in the supporting software applications
 Poor User Interface (UI) design
 Lack of integration between systems

2. Method: factors stemming from the way the process is designed, understood or
performed
 Unclear assignments of responsibilities
 Unclear instructions
 Insufficient training
 Lack of timely communication

3. Material: factors stemming from input materials or data

 Missing, incorrect or outdated data

27
CATEGORIES OF CAUSES: SIX MS
4. Man: factors stemming from wrong assessments or incorrect
performance of steps attributable to:
 Lack of training and clear instructions
 Lack of motivation
 Too high demands towards process workers

5. Measurement: factors stemming from reliance on:

 Inaccurate estimations
 Miscalculations

6. Milieu: factors outside the scope of the process

 Delays caused because of unresponsive external actors
 Sudden increases of workload due to special circumstances

28
CAUSE-EFFECT
DIAGRAM
EXAMPLE
EXERCISE 7.3
Use previously identified issues and analyze it using a why-why diagram & Fish-bone
diagram
QUANTITATIVE PROCESS
ANALYSIS
FLOW ANALYSIS
Process
model

Process
performance

Performance
of each
activity

32
REFRESHER: PROCESS PERFORMANCE MEASURES
Time

Process
performance

Quality Cost
COMMON TIME-RELATED MEASURES
Time taken by
value-adding
Processing activities
time
Time between start and
completion of a process

Cycle instance

time
Waiting
time Time taken by non-
value-adding
activities 34
CYCLE TIME EFFICIENCY

Processing Cycle Time

Cycle Time
Time Efficiency

35
FLOW ANALYSIS OF CYCLE TIME
1 day 1 day

1 day 3 days

3 days 2 days

Cycle time = X days

36
SEQUENCE – EXAMPLE
• What is the average cycle time?

Cycle time = 10 + 20 = 30

37
EXAMPLE: ALTERNATIVE PATHS
• What is the average cycle time?

50% 90%

50% 10%

Cycle time = 10 + (20+10)/2 = 25

Cycle time = 10 + 0.9*20+0.1*10 = 29
EXAMPLE: PARALLEL PATHS
• What is the average cycle time?

Cycle time = 10 + 20 = 30
EXAMPLE: REWORK LOOP
• What is the average cycle time?

80% 1%
100%

20% 99%
0%

Cycle time = 10 + 20 = 30
Cycle time = 10 + 20/0.01 = 2010
Cycle time = 10 + 20/0.8 = 35
FLOW ANALYSIS EQUATIONS FOR CYCLE TIME
T1 T2 ... TN
CT = T1+T2+…+ TN
T1
p1

T2
p2

pn ... CT = p1*T1+p2*T2+…+ pn*TN

TN

T1

T2
CT = max(T1, T2,…, TN)
...

TN

1-r
T

r CT = T / (1-r)
FLOW ANALYSIS OF CYCLE TIME
1 day 1 day
20% 60%

80%
1 day 3 days 40
%
3 days 2 days

1/0.8 max(1,3) 3 0.6*1+0.4*2

Cycle time = 1.25 + 3 + 3 + 1.4 = 8.65 days

42
FLOW ANALYSIS OF PROCESSING TIME
0.5 hour 2 hours
20% 60%

80%
2 hours 2 hours 40
%
3 hours 0.5 mins.

2/0.8 max(0.5,3) 2 0.6*2+0.4*0.5

Processing time = 2.5 + 3 + 2 + 1.4 = 8.9 hours

Cycle time efficiency = 8.9 hours / 8.65 days = 12.9%
43
 INTERLUDE: CYCLE TIME & WORK-IN-PROGRESS
WIP = (average) Work-In-Process
 Number of cases that are running (started but not yet completed)
 E.g. # of active and unfilled orders in an order-to-cash process
WIP is a form of waste (cf. 7+1 sources of waste)
Little’s Formula: WIP = ·CT
  = arrival rate (number of new cases per time unit)
 CT = cycle time
RESOURCE UTILIZATION

Time available
Time spent per Resource
per resource
resource on utilization
for process
process work
work

Resource utilization = 60%

 on average resources are idle 40% of their allocated time

45
RESOURCE UTILIZATION VS. WAITING TIME

Resource
utilization Waiting
time

Typically, when resource utilization > 90%

 Waiting time increases steeply
46
 EXERCISE 7.4
A fast-food restaurant receives on average 1200 customers per day (between
10:00 and 22:00). During peak times (12:00-15:00 and 18:00-21:00), the
restaurant receives around 900 customers in total, and 90 customers can be
found in the restaurant (on average) at a given point in time. At non-peak
times, the restaurant receives 300 customers in total, and 30 customers can be
found in the restaurant (on average) at a given point in time.
1. What is the average time (CT) that a customer spends in the restaurant during peak times?
2. What is the average time (CT) that a customer spends in the restaurant during non-peak times?
3. The restaurant plans to launch a marketing campaign to attract more customers.
However, the restaurant’s capacity is limited and becomes too full during peak times.
What can the restaurant do to address this issue without investing in extending its
building?
HOW ABOUT MEASUREMENT FOR PROCESS COST?
Time

Process
performance

Quality Cost
 QUEUING ANALYSIS
Capacity problems are common and a key driver of process redesign
 Need to balance the cost of increased capacity against the gains of increased
productivity and service

Queuing and waiting time analysis is particularly important in service

systems
 Large costs of waiting and/or lost sales due to waiting

Example – Emergency Room (ER) at a Hospital

 Patients arrive by ambulance or by their own accord
 One doctor is always on duty
 More patients seeks help  longer waiting times
 Should we increase the capacity from one to two doctors?

49
DELAY IS CAUSED BY JOB INTERFERENCE
If arrivals are regular or sufficiently spaced apart, no queuing delay occurs

Deterministic traffic

Variable but
spaced apart
traffic

50
BURSTINESS CAUSES INTERFERENCE
 Queuing results from variability in processing times and/or interarrival times

51
HIGH UTILIZATION EXACERBATES INTERFERENCE
The queuing probability increases as the load increases
Utilization close to 100% is unsustainable  too long queuing times

© Dimitri P. Bertsekas
52
 THE POISSON PROCESS
Common arrival assumption in many queuing and simulation models
The times between arrivals are independent, identically distributed and
exponential
 P (arrival < t) = 1 – e-λt
This distribution is applicable when the next arrival (i.e. the next creation
of a case) does not depend on how long ago the previous arrival
occurred
 In other words, the creation of a case is independent of the creation of other cases.

53
NEGATIVE EXPONENTIAL DISTRIBUTION

54
QUEUING THEORY: BASIC CONCEPTS
waiting service
arrivals


c m
Basic characteristics:
 (mean arrival rate) = average number of arrivals per time unit
m (mean service rate) = average number of jobs that can be
handled by one server per time unit:
c = number of servers

55
QUEUING THEORY CONCEPTS (CONT.)


c m
Wq,Lq

W,L

Given  , m and c, we can calculate :

occupation rate: r
Wq = average time in queue
W = average system in system (i.e. cycle time)
Lq = average number in queue (i.e. length of queue)
L = average number in system average (i.e. Work-in-Progress) 56
M/M/1 QUEUE

1 m
Assumptions:
• time between arrivals and processing
Capacity Demand λ
time follow a negative exponential ρ 
distribution Available Capacity μ
• 1 server (c = 1)
• FIFO
L=r/(1- r) Lq= r2/(1- r) = L-r
W=L/=1/(m- ) Wq=Lq/=  /( m(m- ))

57
 EXAMPLE – ER AT COUNTY HOSPITAL
 Situation
 Patients arrive according to a Poisson process with intensity  ( the time
between arrivals is exp() distributed.
 The service time (the doctor’s examination and treatment time of a patient)
follows an exponential distribution with mean 1/m (=exp(m) distributed)
 The ER can be modeled as an M/M/c system where c = the number of doctors
 Data gathering
  = 2 patients per hour
 m = 3 patients per hour
 Question
– Should the capacity be increased from 1 to 2 doctors?

58
QUEUING ANALYSIS – HOSPITAL SCENARIO
Interpretation
 To be in the queue = to be in the waiting room
 To be in the system = to be in the ER (waiting or under treatment)

Characteristic One doctor (c=1) Two Doctors (c=2)

r 2/3 1/3
Wq = average time in queue
Lq 4/3 patients 1/12 patients
W = cycle time
L 2 patients 3/4 patients Lq = length of queue
Wq 2/3 h = 40 minutes 1/24 h = 2.5 minutes L = Work-in-Progress
W 1h 3/8 h = 22.5 minutes

Should we increase the capacity from one to two doctors?

59
PROCESS SIMULATION
Versatile quantitative analysis method for
 As-is analysis
 What-if analysis
In a nutshell:
 Run a large number of process instances
 Gather performance data (cost, time, resource usage)
 Calculate statistics from the collected data

60
PROCESS SIMULATION
Model the Define a Run the
process simulation simulation
scenario

Repeat for Analyze the

alternative simulation
scenarios outputs

61
EXAMPLE OF BP SIMULATION
[Link]