Chapter 1 – Introduction to BPM

1. Types of Processes
2. What is a Business Process?
3. Historic Perspective of BPM
4. The BPM Lifecycle

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 Introduction to BPM

What are the most important assets of an organization?

Buildings Vehicles
IT/IS

Business
Machinery reputation
Intellectual
property
Business
Furniture reputation
Prepaid
expenses
Accounts Cash
receivable
Brand names

3
 Introduction to BPM

What is the most important assets of an organization?

Buildings Vehicles
IT/IS
What about
Business
Machinery Business reputation
Intellectual
processes?
property
Business
Furniture reputation
Prepaid
expenses
Accounts Cash
receivable
Brand names

4
 Introduction to BPM

Scope of Business Process Management

Business Process Management (BPM) consists of overseeing how work is performed in
an organization to ensure consistent outcomes and to take advantage of improvement
opportunities. In this context, the term “improvement” may take different meaning
depending on the objectives of the organization.

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 What is a Business Process?

What is a Business Process?

A business process consists, among others, of the following parts:

Events Things that occur automatically (no intervention; no duration)

Activities Do not occur automatically (require intervention), is consisted of
many steps and take time
Task A very simple activity that can be seen as one single unit of work
Decision points Points when a decision that affects the execution of a process is
taken. They affect the outcome of processes
Actors Entities that range from individuals, to organizations, information
systems, physical objects
Outcomes May be multiple. Characterized as either positive (ideally) or negative
(avoidable), dependent if that same process brought value to the
actor(s) involved in the process

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 What is a Business Process?

What is a Business Process?

In respect to the actors involved in a business process, the one who consumes the final
output of the process is of special importance and is known as customer. Customers may
be internal or external to an organization. Note also that a business process may have
several customers.

➢ Can you think of a business process that has, at least, two customers?

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 What is a Business Process?

What is a Business Process?

By the previous slides, business processes may be defined as:

“a complete set of activities end-to-end that creates value for the customer”
(Michael Hammer, Harper Business, 1996)

or,

“a collection of inter-related events, activities and decision points that involve a

number of actors and objects, and that collectively lead on an outcome that is of
value to at least one customer” (Dumas et al., 2013)

Hence, business processes are the basic unit of business value in a company!

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 Types of Processes

Categories Start with… End with…

Quote-to-order The supplier receive a RFQ from The customer places a PO
a customer
Order-to-cash The customer fills an product or P/S is delivered and paid
service PO
Procure-to-pay Firm’s employee tries to acquire P/S is delivered and paid for
a P/S that is needed to the firm
Issue-to- Someone raises a problem or The issue as been solved
resolution issue when consuming a P/S
Application-to- Someone requests a benefit or That same request is either
approval privilege accepted or denied

No matter its type, organizations need to incur in several processes. Hence, the way
processes are designed and performed affect the “perceived quality” by an
organization’s customers and its own performance.
➢ This fact affects organizations’ competitiveness.
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 What is a Business Process?

“My washing machine won’t work!”

Warranty?
Call Centre
Technician

Customer Customer
Parts
Service Store
Dispatch

VALUE
fault-report-to-resolution process

© Michael Rosemann
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 What is a Business Process?

Business Process outcomes

➢ Every process leads to one or several outcomes, positive or negative:
• Positive outcomes deliver value;
• Negative outcomes reduce value.

➢ Fault-to-resolution process
• Fault repaired without technician intervention;
• Fault repaired with minor technician intervention;
• Fault repaired and fully covered by warranty;
• Fault repaired and partly covered by warranty;
• Fault repaired but not covered by warranty;
• Fault not repaired (customer withdrew request).

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 What is a Business Process?

Business process recap

Dumas, et al. (2013)

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 What is a BPM?

What is Business Process Management?

“a disciplined approach to identify, document, measure, design, execute,
monitor and control both automated and non-automated business processes to
achieve consistent, targeted results consistent with an organization's strategic
goals. BPM involves the deliberate, collaborative and increasingly technology-
aided definition, improvement, innovation, and management of end-to-end
business processes...” (adapted from ABPMP)

“a body of methods, techniques and tools to discover, analyze, redesign, execute

and monitor business processes. ” (Dumas et al., 2013)

Note that, according to this definition, business processes occupy a critical part of BPM
and that BPM involves different phases and activities in the business processes’
lifecycle. BPM is not the only discipline dealing with business processes as there are
several others that do so (e.g., Total Quality Management, Operations Management, Lean, Six Sigma, among others).

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 Why BPM?

Why BPM?
➢ “The first rule of any technology used in a business is that automation applied to
an efficient operation will magnify the efficiency.

➢ The second is that automation applied to an inefficient operation will magnify

the inefficiency.”

Bill Gates

Index Group (1982)

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 Why BPM?

The IS value chain

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 Why BPM?

Organizations nowadays
Typical organization has:
• many departments
• lots of hierarchal levels
• different roles and jobs

What is the purpose?

To create value for a customer.
How is value created?

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 Why BPM?

Organizations nowadays Support

Business functions and departments ...

IS
are in a traditional firm as a fortresses Sales
Purchase
Logistics Finance
Development
Management
Markting
Production

HRM Organizational units are more

important than processes and
projects. Organizational units’
performance is optimized.

For a customer products are more important (relevant) than our organizational structure 17
 Historic Perspective of BPM

Origins and History of BPM

In order to better understand the popularity and usefulness of BPM, it is
worth to look at its main drivers from a historical perspective. Its key drivers
are the advent of the functional organization, the process thinking and the
business process re-engineering (BPR).

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 Historic Perspective of BPM

The functional organization

The figure below provides a perspective of some of the most important historical
changes, in the context of how organizations performed their business, relevant to
BPM. Ultimately, these events led to the concept of functional organizations.

Dumas, et al. (2013)

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 Historic Perspective of BPM

Four Industrial Revolutions

1st Industrial
Revolution
Mechanization of manufacturing processes through steam power
Late 18th Century

2nd Industrial
Revolution Division of labour and electrically-powered mass production
Early 20th Century

3rd Industrial
Revolution
Early 1970s
Lack
Use of mobility
of computation and electronics
May take longer to
4th Industrial
get a driving
Revolution
Higher
license systems
Cyber-physical likelihood
and abiliy to treat largeof givingofup
quantities data
Present Days
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 Why BPM?

How to engage in Business Process Management?

Continuous Process Improvement (CPI)

• Does not put into question the current process structure
• Seeks to identify issues and resolve them incrementally, one step at a time and
one fix at a time

Business Process Re-Engineering (BPR)

• Puts into question the fundamental assumptions and principles of the existing
process structure
• Aims to achieve breakthrough, for example by removing costly tasks that do not
directly add value

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 Historic Perspective of BPM

The process thinking

One of the most popular examples of process thinking, and one of the firsts, was the
Ford’s acquisition of a big share of Mazda. Ford’s managers noticed that, in comparison
to Ford’s, Mazda’s units were considerable smaller, even considering the size of the
two organizations - for additional detail see Michael Hammer (1990).

Ford needed to review its procurement process to:

➢ Do it cheaper (cut costs);
➢ Do it faster (reduce turnaround times);
➢ Do it better (reduce error rates).
➢ There are two other performance measures/dimensions…
Accounts payable in North America alone employed more than 500 people and
turnaround times for processing POs and invoices was in the order of weeks.

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 Historic Perspective of BPM

The process thinking

Automation would bring some improvement (≈20% improvement, i.e., break-even in 5
years)

But Ford decided not to do it… Why?

A. Because at the time, the IT needed to automate the process was not yet available.
B. Because nobody at Ford knew how to develop the IT/IS needed to automate the
process.
C. Because there were not enough computers and computer-literate employees at
Ford.
D. None of the above

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 Historic Perspective of BPM

As-is accounts payable process at the time

14 data items Adapted from

x3 Dumas, et al. (2013)

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 Historic Perspective of BPM

As-is accounts payable process at the time (cont.)

Ford’s original accounts payable model

Dumas, et al. (2013)

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 Historic Perspective of BPM

As-is accounts payable process

Adapted from
Dumas, et al. (2013)

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 Historic Perspective of BPM

The process thinking

Ford’s new accounts payable model

Dumas, et al. (2013)

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 Historic Perspective of BPM

The process thinking

• 75% reduction in head count;

• Material control is simpler and financial information is more accurate;
• Purchase requisition is faster;
• Less overdue payments.
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 Historic Perspective of BPM

The process thinking

A key element in this case study is that a problematic performance issue can
(should) be approached by considering an entire process, e.g., the accounts
payable department plays an important role in the overall purchasing process,
but the process also involves tasks by staff at the purchasing department, the
warehouse, and by the vendor. Regardless of these barriers, changes are
made across the process and these changes are multi-pronged: They include
informational, technological and structural changes.
Questions:
1. Who are the actors in this process?
2. Which actors can be considered to be the customer(s) in this process?
3. What value does the process deliver to its customer(s)?
4. What are the possible outcomes of this process?
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 Historic Perspective of BPM

The failure of Business Process Re-engineering

Throughout the 1990s organizations all over the world assembled BPR teams
to review and redesign their processes. The enthusiasm for BPR faded down
by the late 1990s as many organizations terminated their BPR projects. In a
retrospective analysis, a number of factors leading to this fad down are:
1. Concept misuse;
2. Over-radicalism;
3. Support immaturity.

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 The BPM Lifecycle

The BPM Lifecycle

The previous slide, and the issue regarding BPR vs BPM, demonstrates that BPM,
contrarily to BPR, focuses on the entire lifecycle of business processes.

The business processes’ lifecycle in Dumas, et al. (2013)

consisted of many phases, each one

with its own methods, techniques and
tools, within the scope of BPM.
The phases within the business process
lifecycle are: process identification;
process discovery; process analysis;
process redesign; process
implementation; and process
monitoring and controlling.

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 The BPM Lifecycle

| Process Identification

The organization has a clear notion of where does that process

begins and the processes that need to be improved?

• start identifying the processes that are

relevant to the problem
• delimiting their scope
• identifying relationships with other
processes

… 34
 The BPM Lifecycle

| Process Identification

Core processes
Support processes
Management processes

Quote handling
Product delivery
Invoice handling

Detailed quote
handling process

Dumas, et al. (2013)

35
 The BPM Lifecycle

| Process Identification
One might ask what is the purpose of commencing a BPM initiative. An obvious
question would be to make sure that business processes consistently lead to positive
outcomes to its customers, thus providing the maximum value possible to the
organization in servicing its clients.

A question then arises: How do you measure the value of a business process?

By defining process performance metrics or measures

Types of process performance metrics:

Cost-related Assess the (financial) costs that a given process yields to a company
Time-related Focus on the time spent between the beginning and the end of a
given process. Are also know as cycle time
Error-related Focus on quality of business processes

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 The BPM Lifecycle

| Process Identification

Cost Time Quality

Cost per
Cycle time Error rates
execution

Resource Waiting SLA

utilization time violations

Non-value- Customer
Waste
adding time feedback

37
 The BPM Lifecycle

| Process Discovery

The output of this phase is one, or multiple, as-is processes.

As-is process models should reflect the current state of how a business process in an
organization is perceived by its employees. Process models should be easy to interpret
and facilitate communication between the BPM stakeholders. Modelling business
processes can be done in free-text, although the most common way is by diagrams.

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 The BPM Lifecycle

| Process Discovery
There are many ways to model business processes by diagrams. One of the most popular
is through flowcharts.

In general a diagrammatic process model typically consists of:

Activity nodes units of work that may be performed by humans or software

applications, or a combination thereof
Control nodes capture the flow of execution between activities
Event nodes Indicates that something may or must happen, within the process or
in the environment of the process, that requires a reaction

There are several languages to process modelling. Some of the most popular are Event-
driven Process Chains (EPCs); Data-flow diagrams; IDEF3; Business Process Model and
Notation (BPMN), and BPMN 2.0.

39
 The BPM Lifecycle

| Process Discovery
Activities are represented as
rounded rectangles
BPMN 2.0 example

Activities and control nodes are connected

by means of arcs (called flows)

Control nodes (called gateways) are

represented using diamond shapes

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 The BPM Lifecycle

| Process Analysis

Process analysis - analysis of the as-is process and assessment of its performance’s
potential issues and space for improvement.

A process analyst needs to:

• define the suitable performance measures mentioned earlier
• quantify them in the as-is process
• take the appropriate actions to solve possible issues

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 The BPM Lifecycle

| Process Analysis

Qualitative analysis
• Value-added analysis
• Root-cause analysis
• PICK charts
• Issue register

Quantitative Analysis
• Quantitative flow analysis
• Queuing analysis
• Process simulation

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 The BPM Lifecycle

| Process Analysis

Issue Short Issue Explanation Broad Consequence Assumptions Impact

No. Description

2 Information Units in Relocation system Wrongly calculated 5% of cases go to the wrong 28,000x0.05x15
regarding do not match information entitlements cause manual queue, 5 minutes to sort queue = 21,000
units does provided by ... calculation... and redirect. minutes
not match 5% recalculating on average 10 350 hours/7.5
minutes per calculation. 47 hrs
9.5 working
days
5 Protected/ Not all fields in data entry Resource intensive, 5% of cases taking 2 minutes to 28,000x0.05x32
Mandatory forms are relevant but incorrect data. Cases in locate and close. =
data entry mandatory. So "fuzzy" Clarify need to physically 5% of relocations requiring 44,800 minutes
fields information is entered be closed. entry that is not needed taking 477 hours/7.5
30 minutes each. 99.5 hrs
20 working
days

11 Information Time consuming to sort MBR does not get Info Only 1/3 rd of postings and 84,000x3.5 =
on through posting orders to pack therefore cannot CIPC’s are entitled to 294,000
posting identify relocations.... process move. More relocation. 28000 relocations min/60/7.5 =
orders information could be then sorting through 84000 653 days /250
provided which could be postings. 3 to 4 minutes on working days
used later in process ... average to sort through each. in year.
2.61 FTE

© Michael Rosemann
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 The BPM Lifecycle

| Process Redesign
Costs

Flexibility
Time

Adapted from
Dumas, et al. (2013)

Quality 44
 The BPM Lifecycle

| Process Redesign
problems have been
assessed and quantified

Process Redesign - identifying and analyzing potential solutions for those problems.

Some important constraints to redesigning a process are:

• Solving one issue in a process may potentially cause cost of the changes
other issues afterwards;
VS
• Changing the way processes are conducted its not easy
(people often resist changes); expected benefits that
• If the change involves also changing the IS, its cost may changes would give
be significant, and affect and/or depend upon other
third-party organizations

The idea is to propose a redesigned version of the process, i.e., a to-be process (the
main output of the process redesign phase.)
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 The BPM Lifecycle

| Process Implementation

Process implementation – implementation of the necessary changes so that the to-be

process can eventually be put into execution

Process implementation may comprise two complementary substages: organizational

change management and process automation.

Organizational Set of activities required to change the way of working

of all participants involved in the process
Process Change Management
Implementation Configuration/re-configuration or implementation of a
Process Automation IT/IS to support the “to-be” process

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 The BPM Lifecycle

Process Implementation

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 The BPM Lifecycle

| Process Monitoring and Controlling

problems solved, but

need to be continuously
monitored

It is expected that, with time, adjustments made to the as-is process, i.e., the to-be
process, will need adjustments. In other words, the solutions developed in the process
redesign, and implemented in the phase immediately after, need to be continuously
monitored and, probably, adjusted. Thus, the implemented to-be process needs to be
monitored and analysts ought to scrutinize the data collected by monitoring the process
in order to identify needed adjustments to better control the execution of the process.
These activities are comprised with the process monitoring and controlling phase.

Managing a process requires a continuous effort. Lack of continuous monitoring and

improvement of a process leads to degradation. For this reason, BPM lifecycle should be
seen as being circular.
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The BPM Lifecycle

49
 The BPM Lifecycle

Stakeholders in the BPM Lifecycle

Management Depending on how the management of a company is organized, one

Team might find the following positions: CEO, COO, CIO, CFO, HR director
Responsible for the efficient and effective operation of a given process
Process
(planning, organizing, monitoring, controlling, define performance
Owners
measures and objectives)
Process Human actors who perform the activities of a business process on a
Participants day-to-day basis
Process Conduct process identification, discovery (in particular modeling),
Analysts analysis and redesign activities
Are involved in process redesign and implementation. They interact
System
with process analysts to capture system requirements. Then, they
Engineers
translate requirements into a system design
Responsible for maintaining a BPM culture and ensuring that this BPM
BPM Group
culture is supporting the strategic goals of the organization

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 Recap

Question 1
Which of the following is NOT a task?

➢ A. Check insurance policy details

➢ B. Insurance policy does not cover the damage

➢ C. Calculate settlement amount

➢ D. Determine if customer is liable for damage

51
 Recap

Question 1
Which of the following is NOT a task?

➢ A. Check insurance policy details

➢ B. Insurance policy does not cover the damage

➢ C. Calculate settlement amount

➢ D. Determine if customer is liable for damage

52
 Recap

Question 2
Which of the following is NOT an event?

➢ A. Purchase order received

➢ B. Claim withdrawn by customer

➢ C. Notify settlement decision to customer

➢ D. Payment delay expired

53
 Recap

Question 2
Which of the following is NOT an event?

➢ A. Purchase order received

➢ B. Claim withdrawn by customer

➢ C. Notify settlement decision to customer

➢ D. Payment delay expired

54
 Recap

Question 3
The measurement-to-cash process of an electricity company is the process that starts
when the electricity meter of a customer is read at the end of a month and ends
(successfully) when the customer pays the electricity bill for that month. In this
process, which of the following performance measures are directly related to costs?

➢ A. Average electricity consumption per customer

➢ B. Cycle time

➢ C. Percentage of under-billing errors

➢ D. Percentage of over-billing errors

➢ E. Price per kilowatt-hour (KWh)

55
 Recap

Question 3
The measurement-to-cash process of an electricity company is the process that starts
when the electricity meter of a customer is read at the end of a month and ends
(successfully) when the customer pays the electricity bill for that month. In this
process, which of the following performance measures are directly related to costs?

➢ A. Average electricity consumption per customer

➢ B. Cycle time

➢ C. Percentage of under-billing errors

➢ D. Percentage of over-billing errors

➢ E. Price per kilowatt-hour (KWh)

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 Recap

Question 4
In a process-oriented organization, who is directly accountable for poor performance
of a process?

➢ A. The process participants

➢ B. The executive management team

➢ C. The process owner

➢ D. The process analyst

➢ E. The BPM group

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 Recap

Question 4
In a process-oriented organization, who is directly accountable for poor performance
of a process?

➢ A. The process participants

➢ B. The executive management team

➢ C. The process owner

➢ D. The process analyst

➢ E. The BPM group

58
 Recap

Question 5
Which of the following statements refer to a critical (core) process of a company?

➢ A. Human resource management

➢ B. Accounts payable

➢ C. Order-to-cash

➢ D. Customer relationship management

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 Recap

Question 5
Which of the following statements refer to a critical (core) process of a company?

➢ A. Human resource management

➢ B. Accounts payable

➢ C. Order-to-cash

➢ D. Customer relationship management

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 Recap

Question 6
A water utility company provides drinking water to residents and businesses in a city
of one million inhabitants, as well wastewater treatment services to the city council.
Which processes are likely to be core processes of this company.

➢ A. Bill-to-cash

➢ B. Procure-to-pay

➢ C. Issue-to-resolution

➢ D. Infrastructure inspection

➢ E. Debt collection

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 Recap

Question 6
A water utility company provides drinking water to residents and businesses in a city
of one million inhabitants, as well wastewater treatment services to the city council.
Which processes are likely to be core processes of this company.

➢ A. Bill-to-cash

➢ B. Procure-to-pay

➢ C. Issue-to-resolution

➢ D. Infrastructure inspection

➢ E. Debt collection

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 The BPM Lifecycle

Process Identification
In the commercial credits’ department of a Bank, employees wrote their main
processes of the commercial crediting process on Post Its. 12 processes were
identified:
1. Identify Prospect
2. Solicit Prospect
Solicit Identify Settle Qualify Distribute
Book Loan 3. Qualify Prospect
Payment Prospect Loan Prospect Payment 4. Assess Loan Application
5. Accept Loan Application
6. Register Customer
7. Settle Loan
Accept Receive Assess Solicit Register 8. Book Loan
Fund Loan 9. Distribute Payment
Loan App. Payment Loan App. Prospect Customer
10.Fund Loan
11.Solicit Payment
12.Receive Payment
Exercise: Order the processes in the right sequence, indicating how many processes
there are really.

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 The BPM Lifecycle

Process Identification
In the commercial credits’ department of a Bank, employees wrote their main
processes of the commercial crediting process on Post Its. 12 processes were
identified:
1. Identify Prospect
2. Solicit Prospect
Solicit Identify Settle Qualify Distribute
Book Loan 3. Qualify Prospect
Payment Prospect Loan Prospect Payment 4. Assess Loan Application
5. Accept Loan Application
6. Register Customer
7. Settle Loan
Accept Receive Assess Solicit Register 8. Book Loan
Fund Loan 9. Distribute Payment
Loan App. Payment Loan App. Prospect Customer
10.Fund Loan
11.Solicit Payment
12.Receive Payment
Exercise: Order the processes in the right sequence, indicating how many processes
there are really.

64
 Bibliography

1. Dumas, M., Rosa, M. L., Mendling, J., & Reijers, H. A. (2013). Fundamentals of
Business Process Management pp 1-19. Springer Berlin Heidelberg.

2. Dumas, M., Rosa, M. L., Mendling, J., & Reijers, H. A. (2017). Fundamentals of
Business Process Management 2nd Edition pp 1-34. Springer Berlin Heidelberg

3. Michael Glykas (Ed.) (2013). Business Process Management: Theory and

Applications. Springer Berlin Heidelberg.

4. vom Brocke, J., & Mending, J. (Ed.) (2018). Business Process Management Cases:
Digital Innovation and Business Transformation in Practice. Springer Berlin
Heidelberg.

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