Thursday, June 5, 2014

Measuring ROI from Business Process Management Initiatives

Executive Summary:
Business process management projects are riddled with implementation challenges. Differing expectations on process performance and lack of communication between IT and business users, delays in “operationalizing” BPM applications, process design that changes the "we have always done it this way" style of operations are some of the main contributors to these challenges. The delays in implementing new applications make it difficult to correctly measure the return on investment (ROI). This article explores some of the tangible ways in which the ROI can be correctly measured after a BPM project implementation.

Why the delay?
During the requirements phase, the business process (operations) users might have different expectations from an automated process. In most of the scenarios, the operations users tend to be influenced by the legacy systems while describing the process requirements. After the IT team develops the automated process application eliminating inefficiencies, differences crop up. This problem is compounded if the process "playback" methodology is not adopted while developing the application. The tug of war between the IT and operations leads to delays in implementing the process application, hence delaying the ROI and increasing the project costs. A lack of executive sponsorship for championing the process improvement cause among the business users is also one of the chief reasons that delays adoption of the new application. A process performance benchmark set before an IT initiative is undertaken would solve all these problems.

How to set process benchmarks?
The first step is to achieve process maturity within the organization. This need not wait till a BPM initiative(s) is identified. A comprehensive process inventory capturing the existing processes within an organization gives a good view to plan the process benchmarking. If a Big Bang approach to process inventory is not possible, the process assessment can be limited to a business unit or function. It can be started with value map or capability map or organization chart.  A combination of top down and bottom up approach to create process awareness should be adopted. Business users should be enlisted to help identify the critical process.

Steps to set process benchmarks:

Identify objectives for each area for next few years:

  • What are the processes that currently exist in these areas? Who owns them?
  • Are these processes helping to achieve the objective?
  • What is the desired state for the processes to achieve the objectives?
  • How do you measure if processes are helping you achieve the objectives?
  • Which business units are involved in the business process?
  • What are the key areas impacted by the business process?

Define KPI & SLAs:
  • Is the goal to reduce time or achieve agility or improve visibility? or all of them?
  • What should be the end to end cycle time of the business process?
  • Do the current SLA's apply to the new objectives?
  • How do my SLA's compare against my competitors (if possible to compare)?
  • Do the current processes create enough and relevant data for me to measure my business performance? What should I do to create digital data?
Set Employee Measures:
  • What is the best utilization of my full time employees (FTE's) within these units? 
  • Are the processes too much people dependent?
  • What will happen to my operations if my employees quit?
  • What type of employee skill sets do I need in the next few years? Do these processes support working with such skill sets?
Set Revenue & Cost Measures:
  • For revenue impacting processes, how do these processes measure up against the revenue targets for next quarter/month/year?
  • For customer impacting process, what do the customer satisfaction ratings say? What are the desired ratings?
  • What are my cost savings targets for next quarter/month/year?
These are some of the ideas for setting up process benchmarks. When these benchmarks are set up proactively, it keeps the measures independent of any BPM/Automation initiatives and provides an objective measure for ROI on the BPM/Automation initiatives.

Setting ROI Measures:
Once the process benchmarking has been set, it is a good time to identify BPM and other digital/automation initiatives. Select a critical process improvement initiative that can be implemented in around 4 months to show value and achieve a quick win. In order to regularly measure the progress of the process initiative, the benchmark targets should be broken down into multiple, phased targets. 
  • After iteration one, the process cycle time should be reduced by X hours
  • After iteration two, the FTE utilization should only be 60% of process work
  • After iteration one, work assignment should be dynamic and flexible. 
The ROI should be mapped against these benchmarks. The benchmarks should be assigned a $$ value, the expected time to achieve the benchmark taken into account and discount factor assigned to this $$ value. The increase in revenue $$ and cost savings $$ should be added to create the complete ROI figures.

Measuring ROI:
True continuous improvement is achieved in an iterative manner:

ROI Measurement Cycle
Compare the process/rules/IT performance against benchmarks regularly
Implement Data Analytics tools to measure business data impacted by business processes
Compare the process KPIs with captured data
Perform a regression, is there a correlation between process KPIs and my revenue/cost drivers?
What KPI measures do you have to meet/improve to achieve the desired objective?
Identify process areas that can improve these KPIs
Get back to process improvement

The ROI should be measured against a minimum of 3 process cycles (around 2 years):

ROI Measurement in Phases
Project investment (-$$) + (Iteration 1 ROI/ (1+IRR) + (Iteration 2 ROI/ (1+ IRR)2) + (Iteration 3 ROI/ (1+ IRR3)3) = 0

Closing Comments:
Setting process benchmarks builds accountability into BPM projects. Setting the correct expectations and making budget decisions based on a ROI calendar helps in reducing the delays in implementing BPM projects and to add true value to the business.

To learn more about Prolifics' BPM solutions, visit our website.

N.R. Vijay is a Solution Architect in the Business Process Management division of Prolifics. He has over 10 years of consulting experience across domains such as Retail, Healthcare and Banking. Specializing in technology, management concepts and enterprise strategy, he is focused on change management and process improvement initiatives. He co-authored a whitepaper titled "Improving Customer Loyalty through Business Process Optimization and Advanced Business Analytics"