How effective are your business processes? Are you measuring the right things?

Axion Innovations - Fast forward your business processses with 4TQ Process Management software

www.axioninnovations.com.au

Axion Innovations - 4TQ Process Management Software: How effective are your business processes? Are you measuring the right things?

How effective are your business processes? Are you measuring the right things?

Traditionally process measures are focused on easy to measure costs such as people, resource and asset costs. Costs such as opportunity costs or indirect costs are less obvious and harder to measure. Often these hidden costs due to less visible causes have a greater impact on the process effectiveness. Factors such as waste and poor equipment performance can result in:

Late delivery
Poor use of people’s skills
Poor image
Low customer satisfaction
Less ability to respond to customers’ needs.

What is a measure that demonstrates process effectiveness and can form the basis for improvement? The maintenance industry has been using a measure of Overall Equipment Effectiveness (OEE).

OEE = availability X performance rate X quality rate

We have adapted OEE to measure Overall Process Effectiveness (OPE) where:

OPE = process availability X process performance rate X quality rate

Availability is the ratio of available time for processing to scheduled process time.

Availability = Available process time / Scheduled process time

For instance in a payment process in an hour three minutes are lost due to printer and computer breakdowns and setup and adjustment issues. Then the availability is 57/60 = 0.95 or 95 percent.

Performance rate is the ratio of actual process speed to rated process speed.

Performance rate = Actual process speed / Rated process speed

If the payment process is rated to pay 60 invoices per hour but only achieves forty five then the performance rate is 45/60 = 0.75 or 75 percent. Reduced speed can be due to issues such as a replacement operator who is untrained or equipment such as an enveloper having to run at reduced speed because it is not set up correctly.

The quality rate is the ratio of the number of items that meet requirements to the total items produced.

Quality rate = Number meeting requirements / Total produced

For instance in the example of invoice processing if three payments in 60 were incorrect then the quality rate is 57/60 = 0.95 or 95 percent.

For the payment process example:

Overall Process Efficiency OPE = 0.95 X 0.75 X 0.95 = 0.677 or 67.7 percent

An appropriate target for process improvement could be 85 percent. The achievement of 85 percent as compared to 67.7 percent should directly impact on the profitability of the process.

About the Author

Bob Digance is a principal consultant with Axion Innovations specializing in business process management and improvement and the effective use of 4TQ business process management applications.

For further information go to www.axioninnovations.com.au