It's a sad fact that in today's business environment, 'The ROI' is generally king.
Unless you can provide a compelling business case for business process management you are unlikely to be able to gain any credence or acceptance for that. And when I say a compelling business case this refers to a quantifiable positive impact on the company's bottom line.
Unfortunately, like 'quality' as a concept, business process management (not Business Process Management) is something that everyone can agree to in principle, but which tends to fall down when actual figures are produced.
The problem is the nebulous nature of the topic. It is much easier in a business to look at something concrete - such as a manufacturing site building being created, or a new CRM application being added - than it is to look at 'a process capability', and justify it on a dollar (or Pound Sterling/Euro/Yen) basis.
Don't get me wrong, it's very easy to quantify the cost of doing something. This is created from adding up training costs, software installation and maintenance costs, consultancy costs etc. and arriving at a bottom line figure. What's more difficult is arriving at a figure for savings.
Although that's not always the case.
Take, for example a manufacturing line that is experiencing issues with rework. Each piece of rework is costing the company an amount of money. By recognising the process issue behind this and resolving it with process improvement it is easy to arrive at a cost saving. But not all businesses are like that.
I'm working with an organisation at the moment who have just received venture capital to allow them to expand. Their VC's have mandated a tripling of turnover within 3 years as a result of the cash injection. Obviously that can't be achieved purely by increasing business, costs have to be decreased too. This is a case where managing and understanding the processes has to play a part.
But I can't build the business case.
The reason I can't build the business case is that I can't know what I need to know about the company until I've been in and seen it ,and I can't go in and see it until the business case has been created to allow me in there. It's Catch-22.
So how can we solve the problem? How can we build a business case for process management that focuses on tangible items a CEO can understand?
Let me propose a couple of suggestions:
1) Identify a recognised need for understanding and managing your processes. Let's say, for example, that you were looking to outsource a section of your organisation. Understanding the processes that are supported by that part of the business would enable you to be better prepared to handle outsourcing discussions. Understanding exactly where the responsibility is passed to the outsourcing company and exactly where it comes back to your organisation has to give you a financial advantage.
Assign a notional value to each 'transaction' (i.e. if the outsourcing company is managing your Accounts Receivables, divide the cost of outsourcing your AR department by the number of transactions dealt with in a year and this will give you a notional value per transaction. If you don't know how much the outsourcing is going to cost you, use the cost of your AR function from last year). Divide that figure by the number of 'steps' or 'handoffs' each transaction goes through. This will give you a notional cost per process step. Now realise that each time a transaction has to go through one of these steps it is costing your company $x. Now look at the amount of rework that is being performed at the moment. Multiply that by the notional dollar cost and this will give you the amount that bad process is costing. It is generally all bad process that causes things like that to happen.
2) Identify a target saving. Assume that at present you are in an organisation that has an overhead of $xM. Target a particular saving against that which you would like to come as a result of process improvement (say $0.25M) This will give you the top line of the business case. You can then start to understand the bottom line of the business case by identifying the factors mentioned earlier (training costs, software installation and maintenance costs, consultancy costs etc). Subtract the two and that's your business case. The downside of this is that it is not always feasible to assume that the target saving can be achieved through process improvement. Sometimes the figures are just outlandish!
The benefit of this type of proposal is that once the initial costs have been saved, the capability that has been implemented to identify and improve processes can be applied to other parts of the business at a very small incremental costs. This is a key differentiator between process improvement projects and other types of projects: Once the capability has been created, it can be applied to other parts of the organisation with minimal incremental cost.
Summary
I answered a similar question recently on Linked-in which was asking how to convince a CEO to subscribe to Enterprise Architecture. My reply to that was quite simple: "Take your nearest competitor and analyse what advantage they would have over you if they could make strategic decisions and implement them in half the time you do. Then ask your board why you wouldn't put in something that would enable you to do that. EA can enable you to do that" Maybe the business case for process management is along the similar lines "Take your nearest competitor and analyse what advantage they would have over you if their processes were slick, streamlined and manged efficiently Then ask your board why you wouldn't put in something that would enable you to do the same with your processes"
Sometimes it just needs someone to show the leap of faith in starting the ball rolling.
For more about me check out my "About Me' page
All information is Copyright (C) G Comerford
Unless you can provide a compelling business case for business process management you are unlikely to be able to gain any credence or acceptance for that. And when I say a compelling business case this refers to a quantifiable positive impact on the company's bottom line.
Unfortunately, like 'quality' as a concept, business process management (not Business Process Management) is something that everyone can agree to in principle, but which tends to fall down when actual figures are produced.
The problem is the nebulous nature of the topic. It is much easier in a business to look at something concrete - such as a manufacturing site building being created, or a new CRM application being added - than it is to look at 'a process capability', and justify it on a dollar (or Pound Sterling/Euro/Yen) basis.
Don't get me wrong, it's very easy to quantify the cost of doing something. This is created from adding up training costs, software installation and maintenance costs, consultancy costs etc. and arriving at a bottom line figure. What's more difficult is arriving at a figure for savings.
Although that's not always the case.
Take, for example a manufacturing line that is experiencing issues with rework. Each piece of rework is costing the company an amount of money. By recognising the process issue behind this and resolving it with process improvement it is easy to arrive at a cost saving. But not all businesses are like that.
I'm working with an organisation at the moment who have just received venture capital to allow them to expand. Their VC's have mandated a tripling of turnover within 3 years as a result of the cash injection. Obviously that can't be achieved purely by increasing business, costs have to be decreased too. This is a case where managing and understanding the processes has to play a part.
But I can't build the business case.
The reason I can't build the business case is that I can't know what I need to know about the company until I've been in and seen it ,and I can't go in and see it until the business case has been created to allow me in there. It's Catch-22.
So how can we solve the problem? How can we build a business case for process management that focuses on tangible items a CEO can understand?
Let me propose a couple of suggestions:
1) Identify a recognised need for understanding and managing your processes. Let's say, for example, that you were looking to outsource a section of your organisation. Understanding the processes that are supported by that part of the business would enable you to be better prepared to handle outsourcing discussions. Understanding exactly where the responsibility is passed to the outsourcing company and exactly where it comes back to your organisation has to give you a financial advantage.
Assign a notional value to each 'transaction' (i.e. if the outsourcing company is managing your Accounts Receivables, divide the cost of outsourcing your AR department by the number of transactions dealt with in a year and this will give you a notional value per transaction. If you don't know how much the outsourcing is going to cost you, use the cost of your AR function from last year). Divide that figure by the number of 'steps' or 'handoffs' each transaction goes through. This will give you a notional cost per process step. Now realise that each time a transaction has to go through one of these steps it is costing your company $x. Now look at the amount of rework that is being performed at the moment. Multiply that by the notional dollar cost and this will give you the amount that bad process is costing. It is generally all bad process that causes things like that to happen.
2) Identify a target saving. Assume that at present you are in an organisation that has an overhead of $xM. Target a particular saving against that which you would like to come as a result of process improvement (say $0.25M) This will give you the top line of the business case. You can then start to understand the bottom line of the business case by identifying the factors mentioned earlier (training costs, software installation and maintenance costs, consultancy costs etc). Subtract the two and that's your business case. The downside of this is that it is not always feasible to assume that the target saving can be achieved through process improvement. Sometimes the figures are just outlandish!
The benefit of this type of proposal is that once the initial costs have been saved, the capability that has been implemented to identify and improve processes can be applied to other parts of the business at a very small incremental costs. This is a key differentiator between process improvement projects and other types of projects: Once the capability has been created, it can be applied to other parts of the organisation with minimal incremental cost.
Summary
I answered a similar question recently on Linked-in which was asking how to convince a CEO to subscribe to Enterprise Architecture. My reply to that was quite simple: "Take your nearest competitor and analyse what advantage they would have over you if they could make strategic decisions and implement them in half the time you do. Then ask your board why you wouldn't put in something that would enable you to do that. EA can enable you to do that" Maybe the business case for process management is along the similar lines "Take your nearest competitor and analyse what advantage they would have over you if their processes were slick, streamlined and manged efficiently Then ask your board why you wouldn't put in something that would enable you to do the same with your processes"
Sometimes it just needs someone to show the leap of faith in starting the ball rolling.
Reminder: 'Doing Business Process Work in your organisation - A white paper' is still available. Don't miss the chance to get this valuable insight into how to make business processes work for you.
Click this link and follow the instructions to get this free download.
For more about me check out my "About Me' page
All information is Copyright (C) G Comerford
