There comes a time in every organisation´s process maturity journey where understanding the actual cost of business processes is vital. If you would like a recap of the process maturity journey, please refer to my article [https://www.linkedin.com/pulse/5-steps-create-beneficial-process-maturity-strategy-your-hunkin/] that takes you through the steps.
If your organisation is at the point where you know your processes, they are being followed and you have process accountability and ownership, then you are definitely ready for the next step in the process maturity journey.
This step is all about understanding the throughput, volumes and costs of your process. You may have a perfectly streamlined process that is followed adequately with little to no risk, and it may be worth asking the following five questions:
● Do you know how much your process costs you?
● Is your process performed once, twice, or more a day?
● And during the times when your process is not being performed, what is your staff doing and how much does it cost from an overhead perspective?
● Do you know where your most expensive activity lies and why?
If cost savings isn’t a big enough benefit for understanding the costs of your processes, then you might see greater value in one of the five additional benefits outlined below:
- You will know the true cost of your staff
Any process executed is a cost to an organisation. To cost a process, it is imperative to put in the resource costs, the timing of the specific activities the resource is executing as well as volumes – how many times must that specific activity be executed. The resource costs can be calculated against a range of criteria that can show per hour, per month, per year, with or without overhead costs, lunch breaks, tea times and % time wastage. The power of breaking down your processes into an activity level and including the resources accountable for executing that activity, is that you can extract a report of just that resource per process and understand what that resource costs you per process.
2. You can correctly charge staff out for internal projects
Now that you know what your staff truly costs you per process. It becomes easier to cost your Service Level Agreements together between departments. With this accurate costing in place, charging internal customers no longer just needs to take volumes with salaries as the only option, you can charge per activity within specific processes.
3. There is a clear-cut view of capacity and workload
It becomes significantly easier to determine the staff compliment for certain processes when you understand the times and volumes required to execute pre-determined processes.
For example, through analysis during costing you may find that:
- 375 minutes per day are spent on opening accounts:
- To open an account takes 15 min
- 25 are completed a day
- Peak times of accounts being opened are between 11am – 1pm on a Thursday and Friday
It is clear that between 11am and 1pm on Thursdays and Fridays the workload increases and there is a risk that the current staff allocation may not be able to handle the additional work. This doesn’t mean you need to hire additional staff, it requires monitoring and / or it’s a process improvement opportunity, whereby perhaps more of the process can be automated to avoid the possibilities of bottlenecks.
4. Identify effective points of monitoring to determine whether or not your processes are being followed
Not only can costing your processes provide you with the costs but , but the groundwork provides you with the identification of real points of failure and points to monitor your processes.
Monitoring is essential with your processes. If you have costed your processes, you’re charging out your staff at specific rates, charging customers for certain items based on these costs and the processes aren’t being followed – you may actually run at a loss. Staff may be working overtime, or little time. Your product or service may not meet the quality standards; therefore, you will have rework. There is a cost to the rework – it may even become double the cost of the original timing of the process.
5. Process improvement opportunities.
As mentioned in points three and four, what comes with understanding your processes in more detail are process improvement opportunities. Costing gives the following data on your processes:
- Ability to understand who executes a process
- How many times a process is executed
- Understand how many activities are repeated in a process
- Which step in the process takes the longest?
- What is the turnaround time of the entire process?
- What is the waiting time between activities – and what happens during the wait time
- Identification of any bottlenecks in the process
Using data, you can make far more accurate business decisions and find the tangible motivation for process improvement.
Originally published for LinkedIn: