Business Processes –Chaos or Predictable Results

 

Most successful companies are established with the objective to profitably satisfy a customers need for a physical product or a service in a particular market. One could think of a company as a matrix of business processes established to support the company’s objective. Looking at a business from this perspective completely changes how business processes are viewed. They are no longer a necessary evil, they are the foundation of a successful company.

 

So what is a business process. A business process is a coordinated set of actions that are carried out to achieve a specified business purpose. Following business processes allows a company to get a predictable result based on a known set of inputs. This predictability is required for a company to achieve its objective. What would happen if a company did not have this predictability. Lets imagine a company’s payroll process and make the following assumptions

 

Each time the payroll process ran

  • The pay period was based on the Company’s cash balance
  • The process did include agreed to withholdings for savings, insurance, and taxes
  • Wage rates changed without communication
  • Direct deposits were made on a random basis

 

Although these assumptions are nonsensical they make a point. Without business processes that drive predictable results a company will experience CHAOS !!! In our payroll example employees will leave, internal reporting will drive bad or prevent decisions, insurance companies will cancel policies , and government agencies will have a field day and go wild.

 

I’m going to make a bold statement, “a company is only as good as its business processes and in fact any business process, overtime, any can prevent a company from achieving its objective. Consider that a small business will have 50 to 100 business processes and large multinational company will have thousands of business processes. Let’s assume each of the large multinational company business flows has a few minor flaws that are insignificant in the isolated business process. Now consider what the cumulative effect of these flaws will be, when each business process infects thousands of other interrelated business processes with its flaws. The impact of these flaws in not predictable. Business processes without predictable business results will negatively impact a companies’ ability achieve its objective and CHAOS will creep into a company as a cancer. I believe that establishing effective, predictable business processes will avoid chaos and provide the foundation for a company to achieve its business objectives.

 

A business process is a coordinated set of actions that are carried out to achieve a specified purpose. Following processes allows a company to get a predictable result based on a known set of inputs. A business process usually has 5 elements ;An Owner, Inputs, Activities, Outputs and Customers. I will use the payroll process to describe these element.

 

Process Owner

The Person, Organization or Department who is responsible for the management of the Inputs, Activities, Outputs and Customer satisfaction of the payroll process.

 

 

 

Inputs

  • Available Money
  • Number of hours worked for each employee
  • Wage per hour
  • Payroll period
  • Withholdings calculations for 401K, Savings, Insurance and Taxes
  • Social Security #
  • Employee #
  • Employee Department #
  • Bank Information

 

Activities

  • Calculate gross wages, 401K withholding and matching, insurance withholdings, and taxes due, etc.
  • Ensure adequate funds are in the bank
  • Distribute wages, withholdings, and taxes to various stakeholders

 

Outputs

  • A payroll deposit or physical paycheck
  • A reconciliation of gross pay to net pay
  • Deposits in savings, insurance agency and governmental bank accounts
  • Regulatory and business required reports

 

Customers

  • Employee
  • Bank
  • Government Entities
  • Insurance Companies
  • Finance / Accounting Department
  • Employee managers

 

 

The above examples of Process Owners, Inputs, Activities and Outputs are understandable and easily transferred to other types of business processes. The definition of a customer requires a bit more explaining. A customer is a person, organization or entity that uses or relies on an outcome of a particular business process. There are two types of customers for a business process ;an external customer is a person, organization or entity outside the business, such as an entity that is paying for a product or service, a 3rd party supplier or a governmental organization; an internal customer is an employee, manager, another department or organization inside a company. In order for a business process to be effective (and avoid chaos) it must satisfy the agreed to needs of all external and internal customers. Business processes must be flexible because customer’s needs are always changing. In addition if you are a member of a company your are most likely both a supplier and consumer of at least one business process.

 

Customer needs should be documented in a Customer Service Agreement (CSA), which identifies and documents the customer’s needs that will be satisfied by the process owner, as well as the metrics that will be used to measure the level of compliance with the agreement. In order to avoid future conflicts or misunderstanding the CSA should be as detailed a possible.

 

I plan on several blog posts concerning business processes, so stay tuned. What points do I want you to take away from this post

  • A business process is a coordinated set of actions that are carried out to achieve a specified purpose.
  • A business process usually has 5 elements ; An Owner, Inputs, Activities, Outputs and Customers.
  • Business processes should not be viewed as a necessary evil. In fact they are the foundation to a company achieving its business objectives.
  • To be effective a business process must result in a predictable outcomes based on known set of inputs and satisfy all customers needs
  • A business process usually has 2 types of customers, internal and external
  • A company is only as good as its business processes and in fact any business process, overtime, any can prevent a company from achieving its objective.
  • Process Owners and Customers should use Customer service agreements