OCEB2F 07 Process Quality, Governance, and Metrics Frameworks

Module 7. Process Quality, Governance,
and Metrics Frameworks⌘

Source of information⌘

• APQC Process Classification Framework, V 6.0.0
• Supply Chain Council's Supply-Chain Operations Reference model (SCOR), v10.0
• Introduction to the Value Reference Model (VRM)
• Business Process Maturity Model Specification, V1.0
• Six Sigma for Dummies, Second Ed. (2012)

Today's Business Environment⌘

• Many different rules and regulation
  • SOX, BASEL, ...
• Many different frameworks for achieving compliance or improving maturity in an area
• BPM is part of the solution

APQC⌘

• The American Productivity & Quality Centre
• Non-profit, internationally recognized resource for process and performance improvement
• Helps organizations adapt to rapidly changing environment, build new and better ways to work and succeed in a competitive marketplace
• The APQC Process Classification Framework (PCF) serves as a high-level, industry-neutral enterprise model that allows organizations to see their activities from a cross industry process viewpoint.
• The PCF organizes operating and management process into 12 enterprise level categories, including process groups and over 1000 processes and associated activities

APQC PCF⌘

PCF Levels⌘

PCF Example⌘

SCC and SCOR⌘

• Supply-Chain Council (SCC) is a global non-profit consortium whose methodology, diagnostic and benchmarking tools help organizations make dramatic and rapid improvements in supply chain processes.
• The framework – the SCOR process reference model – lets companies quickly determine and compare the performance of supply chain and related operations within their company or against other companies.

SCOR⌘

• The Supply-Chain Operations Reference (SCOR) is the product of the Supply-Chain Council
• The SCOR model captures the council's consensus view of supply chain management.
• SCOR is a unique framework that links business process, metrics, best practices and technology features into a unified structure to support communication among supply chain partners and to improve the effectiveness of supply chain management and related supply chain improvement activities

SCOR PRM⌘

A Process Reference Model Contains:

• Standard descriptions of management processes
• A framework of relationships among the standards processes
• Standard metrics to measure process performance
• Management practices that produce best-in-class performance
• Standard alignment to features and functionality

SCOR Scope⌘

SCOR Is Based on Five Level 1 Management Processes

• Plan, Source, Make, Deliver, and Return

Value Chain Group⌘

• The VCG Business Process Transformation Framework provides robust reference dictionaries and methods that are tested and proven for the extended enterprise value network
• The standard framework promotes consensus and helps drive continuous improvement and transformation of process

Value Reference Model⌘

The structure of the VRM (Value Reference Model) supports and enables corporations to integrate their three critical domains;

• Global Product Developments,
• Global Supply Network Integration
• Global Customer Success

using one reference model to support the vision of an integrated value chain.

VRM⌘

• Key elements of the standard process VRM dictionary include inputs/outputs, metrics and best practices
• Three levels of processes: Strategic, Tactical and Operational
• At the each level the processes are categorized as plan, govern and execute

Business Process Maturity⌘

• Frameworks and best practices will not be implementable without a process!
• In the 1980s, Watts Humphrey, working at IBM, explored how to best introduce quality practices into software organizations.
• BPMM describes Business Process Maturity levels

BPMM Maturity Levels (OMG)⌘

• Level 1: Initial
  • Inconsistent, ad hoc business processes
  • results that are difficult to predict.
• Level 2: Managed
  • work within local work units is performed in a repeatable way
  • work units performing similar tasks may use different procedures
• Level 3: Standardized
  • common, standard processes are synthesized from best practices identified in the work groups and tailoring guidelines are provided for supporting different business needs
  • Standard processes provide an economy of scale and a foundation for learning from common measures and experience

BPMM Maturity Levels (OMG)⌘

• Level 4: Predictable
  • the capabilities enabled by standard processes are exploited and provided back into the work units
  • Process performance is managed statistically throughout the workflow to understand and control variation so that process outcomes can be predicted from intermediate states
• Level 5: Innovating
  • both proactive and opportunistic improvement actions seek innovations that can close gaps between the organization’s current capability and the capability required to achieve its business objectives.

OMG BPMM⌘

Six Sigma⌘

• Six Sigma seeks to identify and remove the causes of defects and errors in manufacturing and business processes
• Sigma is used to represent the standard deviation (a measure of variation) of a statistical population.
• The name Six Sigma comes from the notion that if one has six standard deviations between the mean of a process and the nearest specification limit, there will be practically no items that fail to meet the specifications
• The widely accepted definition of a six sigma process is one that produces 3.4 defective parts per million opportunities (DPMO)

Six Sigma Methods ⌘

• DMAIC
  • used for EXISTING PROCESSES
  • Define, Measure, Analyze,
  • Improve, Control
• DMADV
  • Used for NEW PROCESSES
  • Define, Measure, Analyze,
  • Design details, Verify the design

Cause of Variation⌘

• Six Sigma often uses a top control chart to determine whether a manufacturing or business process is in a state of statistical control or not
• Common Cause of Variation
  • usual, historical, quantifiable variation in a system
  • Also known as a Type I error
• Special Cause of Variation
  • unusual, not previously observed, non-quantifiable variation
  • Also known as a Type II error

Control Chart⌘

Control Chart⌘

Quality According to ISO 9000:2000⌘

• Quality is defined as: “the degree to which a set of inherent characteristics fulfils requirements”
• Quality is the degree to which the material meets the specification (expected metrics)

ISO9000⌘

• ISO stands for International Organization for Standardization (fr. Organisation Internationale de Normalisation)
• ISO 9000 is a family of standards for quality management systems
• ISO standards are maintained by ISO and is administered by accreditation and certification bodies.

ISO9000⌘

• An organization that has been independently audited and certified to be in conformance with ISO 9001 may publicly state that it is "ISO 9001 certified" or "ISO 9001 registered"
• Certification to an ISO 9000 standard does not guarantee the compliance (and therefore the quality) of end products and services
• It certifies that consistent business processes are being applied.

Other Process Frameworks⌘

• Just in time (JIT) is an inventory strategy implemented to improve the return on investment of a business by reducing in-process inventory and its associated carrying costs.
• JIT emphasizes inventory as one of the seven wastes (overproduction, waiting time, transportation, inventory, processing, motion and product defect), and as such its practice involves the philosophical aim of reducing input buffer inventory to zero.

Run Charts⌘

• Displays observed data in a time sequence
• Represents some aspect of the out or performance of a manufacturing or other business process
• Run charts are analyzed to find anomalies in data that suggest shifts in a process over time or special factors that may be influencing the variability of a process

Heat Maps⌘

• A heat map is a graphical colour display of data
• Heat maps are also used in places where the data is volatile and representation of this data as a heat map improves usability
• There are also heat maps for showing the housing price in various regions

Risk Management⌘

Transfer Shifts the negative impact of a threat with ownership of the response to a third party It does not eliminate the risk Cost-based contract transfers the risk to the buyer Fixed-price contract transfers the risk to the seller

Mitigate Reduces the probability and/or impact of adverse event Can be cheaper than the repair of the damage Less complex processes, more tests Data redundancy, limited speed, etc..

Regulatory Process Drivers⌘

• COBIT
• BASEL II
• SOX
• Corporate Governance & Compliance
  • Authoritative Rules
  • Safe Harbour
• Balanced Score Card

COBIT⌘

• The Control Objectives for Information and related Technology (COBIT) is a set of best practices (framework) for information technology (IT) management
• Created by the Information System Audit and Control Association (ISACA) and the IT Governance Institute (ITGI) in 1992.
• COBIT provides managers, auditors and IT users with a set of generally accepted measures, indicators, processes and best practices to assist them in maximizing the benefits derived through the use of information technology and developing appropriate IT governance and control in a company

Corporate Governance⌘

• Corporate governance refers to the mechanisms, processes and relations by which corporations are controlled and directed.
• Governance identify the distribution of rights and responsibilities among different participants in the corporation (such as the board of directors, managers, shareholders, creditors, auditors, regulators, and other stakeholders) and includes the rules and procedures for making decisions in company.

Corporate Governance - Why do we need it?⌘

• The shareholder delegates decision rights to the manager to act in the principal's best interests.
• This separation of ownership from control implies a loss of effective control by shareholders over managerial decisions.
• A board of directors often plays a key role in corporate governance. It is their responsibility to endorse the organization's strategy, develop directional policy, appoint, supervise and remunerate senior executives and to ensure accountability of the organization to its owners and authorities.

BASELII⌘

• Issued by the Basel Committee on Banking Supervision
• Recommendations on banking laws and regulations
• International standard that regulates how much capital banks need to put aside to guard against the types of financial and operational risks banks face
• Tries to protect the international financial system from the types of problems that might arise if a major bank or a serious of banks collapse.

SOX⌘

• The Sarbanes-Oxley Act of 2002
• AKA the Public Company Accounting Reform and Investor Protection Act of 2002
• US federal law enacted in response to a number of major corporate and accounting scandals (Enron)
• Contains 11 titles that describe specific mandates and requirements for financial reporting (from additional corporate board responsibilities to criminal penalties)

Compliance⌘

• Compliance is ensuring that the requirements of law, regulations, industry codes, organizational doctrines and contractual arrangements are met.
• Authoritative rules to which we comply with must not be of own creation
• Collectively, we refer to these as authority documents

Authority Documents⌘

• Standards are created by well organized groups or are generally accepted within the industry
• Regulations are rules of law that,
  • if not followed, can result in penalties.
  • State that something must be done
  • Promulgated by governmental agencies to interpret or expand the reach of statuses
• Guidelines are detailed outlines and plans for determining a course of action
• Best practices are programs, initiatives or activities which are considered leading edge or exceptional models for other to follow

Safe Harbour⌘

• In a law or regulation is a short-cut used by the regulators to make it easier for people to determine whether they are in compliance with the law without requiring an in-depth analysis of each particular case.
• Provides that if you take the actions required to be within the safe harbour, you will automatically be considered to be in compliance with that particular aspect of the law or regulation

Balanced Score Card⌘

Balanced Score Card⌘

• Translates an organizations mission and strategy into a comprehensive set of performance measures that provides the framework for a strategic measurement and management system
• Measures organization performance across four balanced perspectives: financial, customers, internal business process and learning and growth
• BSC is a management framework that provides managers with financial instrumentation to navigate into future competitive success
• An accurate understanding of their goals and the methods for attaining those goals is vital

Key Performance Indicator⌘

• KPIs are financial or non-financial metrics that combine with CSF (Critical Success Factors) used to help an organization define and measure progress toward organizational goals
• KPIs can measure, predict and manage the business health of a company in real time, KPIs are dynamic real-time enterprise metrics
• A CSF is some feature of the internal or external environment of an organization that has a major influence on achieving the organization's aims.
• A KPI is a quantifiable criteria that an organization uses to measure its performance in terms of meeting its CSFs.
• Examples
  • CSF = Installation of a call centre for providing superior customer service (and indirectly, influencing acquiring new customers through customer satisfaction).
  • KPI = Number of new customers. (Measurable, quantifiable) + Threshold = 10 per week [KPI reached if 10 or more new customers, failed if <10]

Module 7. Questions⌘

What is:

• APQC PCF
• COBIT
• BASEL II
• SOX
• Safe Harbour
• Balanced Score Card
• Risk
• Heat Map
• Run chart