BPM3MeasureandControl3116.pptx

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1、Topic 3.Business process controlling 1.Balanced Scorecard and Key Performance Indicators2.Critical success factors and business process prioritization 3.Business process control4.Activity based costingBalanced Scorecard and Key Performance IndicatorsBusiness performance assessment is important becau

2、se:If you are trying to control something,you should be able to measure it.As long as something is not measured,nobody pays attention to itEmployees behavior is oriented on assessment Balanced Scorecard and Key Performance IndicatorsGross salesEBIDTANet profitROICROAROEFinancial approachSet of indic

3、atorsIntegral indicatorBalanced Scorecard and Key Performance IndicatorsEconomic Value Added:EVA=NOPAT WACC x CENOPAT Net Operating Profit After TaxWACC Weighted average cost of capitalCE Capital Employed Capital Employed=Total Assets Current Liabilities Balanced Scorecard and Key Performance Indica

4、torsTraditional(financial)management control system has the following disadvantages:-Lack of relevance of information for decision making;-The task of financial control is contrary to the task of strategic planning;-Emphasis on information received in the accounting system that corresponds with lega

5、lly established requirements;-An incorrect information about cost distributing and control of investments.Traditional cost control does not analyze the causes for costs occurrence;-Providing incomplete information to employees.Most employees do not see the close link between company financial perfor

6、mance and results of their work;-Insufficient attention to the environment of the enterprise;Focus on current performance Value-producing activities hindering.Balanced Scorecard and Key Performance IndicatorsBalanced Scorecard and Key Performance IndicatorsBalanced Scorecard Collaborative provides t

7、he following data:Only 5%of the workforce understands the strategy of the company.Only 25%managers receive compensation directly related to the strategy.60%of organizations do not link budgets to strategy.86%of leadership teams spend less than an hour a month to discuss strategy Balanced Scorecard a

8、nd Key Performance IndicatorsStrategy-execution PyramidEXECUTIONStrategy-execution gapBalanced Scorecard and Key Performance IndicatorsThe balanced scorecard(BSC)is a system of business performance management and measurement in areas that are crucial to its success Balanced Scorecard and Key Perform

9、ance IndicatorsBSC FrameworkBalanced Scorecard and Key Performance IndicatorsBSC perspectives connectionBalanced Scorecard and Key Performance IndicatorsBalanced Scorecard design:Balanced Scorecard and Key Performance IndicatorsBalanced Scorecard design(continuation):Balanced Scorecard and Key Perfo

10、rmance IndicatorsBSC Cause-and-Effect Diagram with ARISBalanced Scorecard and Key Performance IndicatorsThe Balanced Scorecard exampleBalanced Scorecard and Key Performance IndicatorsFinancial objectives can differ considerably at each stage of a business life cycIe:GrowthSustainHarvestBalanced Scor

11、ecard and Key Performance IndicatorsGrowth businesses are at the early stages of their life cycle.They have products or services with significant growth potential.To capitalize on this potential,they may have to commit considerable resources to develop and enhance new products and services;construct

12、 and expand production facilities;build operating capabilities;invest in systems,infrastructure,and distribution networks that will support global relationships;develop customer relationshipBalanced Scorecard and Key Performance IndicatorsProbably the majority of business units in a company will be

13、in the sustain stage,where they still attract investment and reinvestment,but are required to earn excellent returns on invested capital.These businesses are expected to maintain their existing market share and perhaps grow it somewhat from year to year.Balanced Scorecard and Key Performance Indicat

14、orsSome business units will have reached a mature phase of their life cycle,where the company wants to harvest the investments made in the two earlier stages.These businesses no longer warrant significant investment only enough to maintain equipment and capabilities,not to expand or build new capabi

15、lities.Balanced Scorecard and Key Performance IndicatorsFor each of the three strategies of growth,sustain,and harvest,there are three financial themes that drive the business strategy:Revenue growth and mixCost reduction/productivity improvementAsset utilization/investment strategyBalanced Scorecar

16、d and Key Performance IndicatorsRevenue growth and mix refer to expanding product and service offerings,reaching new customers and markets,changing the product and service mix toward higher-value-added offerings,and repricing products and services.The cost reduction and productivity objective refers

17、 to efforts to lower the direct costs of products and services,reduce indirect costs,and share common resources with other business units.For the asset utilization theme,managers attempt to reduce the working capital levels required to support a given volume and mix of business.They also strive to o

18、btain greater utilization of their fixed asset base,by directing new business to resources currently not used to capacity,using scarce resources more efficiently,and disposing of assets that provide inadequate returns on their market value.Balanced Scorecard and Key Performance IndicatorsStrategic F

19、inancial ThemesBalanced Scorecard and Key Performance IndicatorsCustomer Core Measurement GroupBalanced Scorecard and Key Performance IndicatorsCustomer Core Measurement GroupBalanced Scorecard and Key Performance IndicatorsTwo process groups within the Value chainProcess perspectiveBalanced Scoreca

20、rd and Key Performance IndicatorsThe Innovation Process measures example:1.Percentage of sales from new products2.Percentage of sales from proprietary products3.New product introduction versus competitors;also new product introduction versus plan4.Manufacturing process capabilities5.Time to develop

21、next generation of products(Time-to-market)Balanced Scorecard and Key Performance IndicatorsThe Operations Process measures:QualityCycle timeCostFlexibilityBalanced Scorecard and Key Performance IndicatorsProcess quality measurements:Process part-per-million defect ratesYields(ratio of good items pr

22、oduced to good items entering the process)WasteScrapReworkReturnsPercentage of processes under statistical process controlBalanced Scorecard and Key Performance IndicatorsCycle timeManufacturing cycle effectiveness(MCE)is defined as:Balanced Scorecard and Key Performance IndicatorsThree principal ca

23、tegories for the learning and growth perspective:1.Employee capabilities2.Information systems capabilities3.Motivation,empowerment,and alignmentBalanced Scorecard and Key Performance IndicatorsLearning and Growth Measurement FrameworkBalanced Scorecard and Key Performance IndicatorsElements in an em

24、ployee satisfaction survey could include:Involvement in a decision making processRecognition for doing a good jobAccess to sufficient information to do the job wellActive encouragement to be creative and use initiativeSupport level from staff functionsOverall satisfaction with companyBalanced Scorec

25、ard and Key Performance IndicatorsMotivation,empowerment,and alignment measuring:Measures of proposals made and implemented by employeesMeasures of improvement(for example,the half-life metric,that measures time required for process performance to improve by 50%)Measures of individual and organizati

26、onal alignmentBalanced Scorecard and Key Performance IndicatorsMeasures of Individual and Organizational Alignment have two principal objectives:1.Individual and organizational subunit goals,and reward,and recognition systems aligned with achieving business objectives2.Team-based measures of perform

27、anceBalanced Scorecard and Key Performance IndicatorsBSC cascadingCorporate BSCDepartment/group BSCBusiness process BSCIndividual BSCCascadingCascadingCascadingCascadingBalanced Scorecard and Key Performance IndicatorsOptimal indicators number:15 25 indicators corporate level and for key business un

28、its10 15 departmental level 5 10 level of individuals and small groupsBalanced Scorecard and Key Performance IndicatorsBSC PyramidBalanced Scorecard and Key Performance IndicatorsThe Balanced Scorecard is more than a tactical or an operational measurement system.It helps to1.Clarify and translate vi

29、sion and strategy into sertain steps for action for line staff 2.Communicate and link strategic objectives and measures3.Focus on critical tasks 4.Provide a balanced development of the enterprise 5.Plan,set targets,and align strategic initiatives6.Enhance strategic feedback and learning7.Break inter

30、departmental barriers 8.Professionals learn to work in a team9.Improve delegation culture10.Improve workplace initiatives Balanced Scorecard and Key Performance IndicatorsBS does not allow to:Create a strategyRefuse the traditional tools of planning and controlImplement this ideology in the company

31、with a negative corporate culture Balanced Scorecard and Key Performance IndicatorsGroups of a business process indicators can be classified as follows:1)performance(optimality)indicators;2)value indicators;3)effectiveness(productivity)indicators;4)quality indicators5)observability indicators;6)mana

32、geability indicatorsBalanced Scorecard and Key Performance IndicatorsPerformance(optimality)indicators:process run-time;process labor intensity;the number of employees involved in the process implementation;the number of automated features of the process;the number of fully or partially doubling fun

33、ctions;the number of control functions within the process;process flexibilityBalanced Scorecard and Key Performance IndicatorsValue indicators:the total process cost,calculated by the ABC method;the cost of process maintaining;the value of output produced by the process(services,information).Balance

34、d Scorecard and Key Performance IndicatorsEffectiveness(productivity)indicators are relative indicators(ratios)and have Process indicator in numerator and one of following indicators as denominator:Target(referent)Process indicator value;Cost process characteristic;Performance indicatorBalanced Scor

35、ecard and Key Performance IndicatorsQuality business process indicators can be based on the assessment of:Customer satisfaction;Scrap rate;Defect rate;Quality(technical)characteristicsBalanced Scorecard and Key Performance IndicatorsObservability process indicators are very important.They characteri

36、ze the ability to receive and analyze data on the process status.In fact,these indicators reflect quality of enterprise managerial accounting system.Every business process should have a certain amount of control functions(points)that form the operational information about process condition.Balanced

37、Scorecard and Key Performance IndicatorsManageability process indicators reflect the possibility of operational management for business process.With the help of these indicators effectiveness of the control action can be measured.Balanced Scorecard and Key Performance IndicatorsHard and soft indicat

38、ors RevenueCostsTimeWaste level etc.Customer/employee satisfactionEmployee motivation levelOrganizational structure optimality etc.Balanced Scorecard and Key Performance IndicatorsLag and lead indicatorsA leading indicator measures a performance driver and is an indicator pointing to the future.As a

39、 rule,performance drivers belong to the learning and development perspective and the process perspective.These performance drivers come before the effects of the client perspective and the financial perspective.Leading indicators help to detect divergences from the objectives at an early stage A lag

40、ging indicator measures a result(result indicator)and is retrospective.Most of the key performance indicators in the client and financial perspectives are results indicators which measure the success of the business.Both leading and lagging indicators should be defined in every Balanced Scorecard pe

41、rspective so that the link between the initiatives and the attainment of the objectives can be displayed.Balanced Scorecard and Key Performance IndicatorsKPI description form exampleBalanced Scorecard and Key Performance IndicatorsSystem of BSC indicators should meet the following requirements:-Corr

42、espondence with the strategy;-Adaptation to the specific activity circumstances,description of the most important aspects of the business;-Completeness and integrity of the system of indicators;-The single meaning and the same calculation method;-Quantitative expression;-Relevance;-Sufficiency,cover

43、age of all main aspects of the enterprise activity and the key success factors;-Limited quantity;-Cause-effect linkages;-Suitability to set targets at the lower levels of management;-Ease of calculating;-Continuity(regularity)of measurements.Critical success factors and business process prioritizati

44、onOrganization often contains hundreds of processes in all categories.The description,analysis,and optimization of all processes can exceed the scope of the available resources,budgets,and management attention.Another complicating factor is that many organizations are so functionally focused that fe

45、w people understand the flows of the major cross-functional processes.In other words,they understand their own portion of the process,but theres an overall lack of understanding of the entire process.Critical success factors and business process prioritizationThis requires a prioritization of proces

46、ses and pinpointing of those in which there is the greatest requirement for action.A proven means for carrying out such process prioritization is a portfolio which classifies processes according to two criteria:strategic significance,contribution to the fulfillment of the critical success factors(CS

47、F)and perceived process performance.Critical success factors and business process prioritizationTwo categories of processes may impact strategy:(1)those that seriously block the organization from meeting strategic goals,and(2)those that the organization does so well that leveraging their capability

48、could take the organization to the next level.This is why the first two questions on the assessment template in the process section are as follows:1.Which processes have strategic significance in terms of gaps that need to be closed?2.Which processes have strategic significance in terms of strengths

49、 and capabilities to be leveraged?Critical success factors and business process prioritizationThe first question can be answered by using two tools common to process analysis:the system map the process map.System maps are ideal tools for a strategic assessment because they evaluate interactions.The

50、job of a manager is not to manage actions,but to manage interactionsCritical success factors and business process prioritizationSystem map templateSpecs(specifications)are the formal needs of the customer being analyzed.Imagine drawing up a contract between your organization and the customer in ques