cis 465 - business processes 1 business processes

CIS 465 - Business Processes 1

BusinessProcesses


Opening Case- Charles Schwab

• Considered the only retail operation to have successfully adapted its business to the Web

• Built on the idea of eliminating stockbrokers and providing only transaction processing services

• Started offering online trading early (using proprietary software), and was quick to move to Web trading


Work Systems Snapshot: Charles Schwab

CUSTOMER

• Charles Schwab account holder who buys and sells stocks.

PRODUCTS & SERVICES

•Execution of buy and sell transactions

•Online stock data and stock analysis

•Monthly account reports


Work Systems Snapshot: Charles Schwab

PARTICIPANTS

•Account Holder

•Financial professional (if desired)

•Schwab back office staff

INFORMATION

•Market price and purchase price of stocks•Analyst’s reports•Buy or sell orders•Account holder’s current portfolio of stocks, bonds, and other assets

TECHNOLOGY

•Personal Computer•Schwab’s hardware and software for tracking portfolios and trades•The Internet (Infrastructure)

BUSINESS PROCESS

•Evaluate current status of account

•Decide what to buy or sell

•Enter the buy or sell order on-line

•Receive confirmation of completed trade

•Receive monthly reports and other brokerage information


Introduction

• In order to develop information systems or understand them from a business professional’s viewpoint, one needs to be able to describe and analyze business processes.

• We will emphasize the relationship between process architecture and process performance. Recall:

– Improvements in a work system are usually related to the links between the architecture and the performance perspectives.

– Customer satisfaction is largely determined by product performance.

– Product performance is determined by a combination of product architecture and the internal work system performance.


From work system architecture to customer satisfaction


Process Modeling

Documenting a Business Process


Process Modeling

• A business process that involves naming business processes and subdividing them into their basic elements– Helps clarify the problem the information

system attempts to solve• Business Process Reengineering (BPR) = the

complete redesign of a business process using IT


Ford’s New Payables System

• New Payables to reduce staff from 500 to 400.• Mazda’s A/P Staff had only 5 individuals.• Differences in the Business Process Model

– Consider the degree of structure in Mazda model.

• Much of Ford’s A/P Staff time was spent on Exception Processing.

• New System requires only 125 persons.



• What changed in the new Ford system?• Are the successes of the Ford and Mazda systems

an indictment of management practices in other organizations?

• Work System Snapshot


Ford Reengineers Its Payables Process

• Old process: – The receiving department accepted orders that

did NOT match the purchasing order• Lots of overhead to reconcile the inconsistencies

• New process: – ONLY shipments that match the purchase order

are accepted– The information is entered into a shared

database


• The business process was changed, by eliminating eliminating steps that did not add valuesteps that did not add value

• The new information system was successful only because of the reorganized work flow



PRODUCTS & SERVICES

Verification that the the order was fulfilled correctly by the supplier

Payment to the supplier

CUSTOMER

Ford’s suppliers

Ford’s manufacturing and purchasing departments



BUSINESS PROCESS

Major Steps:

•Order material

•Receive shipments

•Reconcile receipts with purchase orders

•Pay suppliers

Rationale:

•store purchase orders in a shared database

•accept shipments only if they match the purchase order

•pay on receipt, not invoice



PARTICIPANTS

Purchasing department

Receiving department

Accounts payable department

INFORMATION

Purchase order

Receipt confirmation

TECHNOLOGY

Computer system supporting a shared database


Process Modeling: Business Process Architecture

• Process Modeling - A method of documenting process architecture by identifying major processes and sub-dividing them into linked sub-processes.– Data Flow Diagrams– Flow charts– Structured English


Data Flow Diagrams (DFDs)

• Represent the flow of data between different processes within a system– Simple & intuitive, not focusing on details – Describe what users dowhat users do, rather than what

computers do• Limitations:

– Focus only on flows of information– Ignore flows of materials, decision points, etc.


Figure 3.1 - Symbols used in data flow diagrams


Creating Data Flow Diagrams

• The starting point for a DFD is a Context Diagram, which shows sources and destinations of the data being used and generated.

• Context diagramContext diagram – bounds the system + summarizes the data flows

• The context diagram establishes the scope of the system.• Next identify processes, and break them down into sub-

processes to describe how work is done.– Possible to look at a process at any level of detail

• The value of DFD’s is in resolving disagreements about how work is currently done, or it should be done in the future.

• Example: Ford Accounts Payable.


Figure 3.2 - Context diagram for the Ford purchasing system


F 3.3 - Data flow diagram showing the main processes in Ford’s original purchasing system


F 3.4 - Data flow diagram dividing PCH 1 into four subprocesses


Example Data Flow Diagram: Student Grading

STUDENTS REGISTRAR’sOFFICE

TEACHER

CLASS/GRADEFILE

STUDENTFILE

CALCULATECLASS

GRADES

CALCULATEUNIVERSITY

GRADES

Final Grades

Test Scores Current Grade

Current Score

Final Score

Final Grades


Other Process Modeling Techniques

• DFD’s are used extensively. However, other techniques can also be used to fill in some details not expressed by DFD’s. DFD’s do not express the sequence and timing of processes nor the detailed logic of processes.

• Flowcharting - represent the sequence and logic of procedures

• Structured English - “pseudo-code” - represent the precise logic of a procedure by writing it down.


F 3.6 – Flowcharts demonstrate conditions


• Idealized business process – the way the process is supposed to work – Assumes that the participants follow the rules

• Workaround – a divergence – Necessary when the rules built into the system

become an obstacle to getting the work done– May indicate a poor design or that an external

change has occurred

Please note…


Reality Check

• Can you identify a business process that was overly idealized and you had to develop a “work around” in order to accomplish a goal?


Process Characteristics


Architectural Characteristics of a Business Process

• Eight Characteristics that often affect business process performance:

1. Degree of Structure2. Range of Involvement3. Level of Integration4. Rhythm5. Complexity6. Degree of Reliance on Machines7. Prominence of Planning and Control8. Attention to Errors and Exceptions


#1: Degree of Structure

• The extent to which a task or business process can be scripted in advance, e.g.,– Order of steps– Required information– Validation– Relationships between inputs and outputs


Structured Tasks

• Structured taskStructured task = possible to exactly specify how the task is to be performed and the evaluation criteria

– Ex.: totaling invoices, ATMs, etc.

– information requirements known exactly– methods of processing known precisely– desired format of information known exactly– decisions or steps within the process are clearly defined and

repetitive.– Criteria for making decisions clearly understood.– Success in executing the task can be measured precisely


Semi structured Tasks

• Semistructured taskSemistructured task – information requirements and procedures are generally known, but some aspects rely on human judgment– Ex.: medical diagnosis


Unstructured Tasks

Unstructured taskUnstructured task – cannot specify what information is to be used, how to use it, nor what the evaluation criteria should be– so poorly understood that the information to be used,

method of using the information, criteria for deciding when task is done can not be specified.

– Unstructured tasks are performed based on experience, intuition, trial and error, rules of thumb, and very qualitative measures.

– Ex.: choosing a picture for the cover of a fashion magazine• The desired degree of structure is sometimes a matter of

controversy


Figure 3.7 - Structuring loan authorization


• Successful Information systems impose the amount of structure appropriate for the taskamount of structure appropriate for the task being supported– Too much structure stifles creativity– Too little structure may lead to inefficiencies

and errors


DEGREE TO WHICH STRUCTURE IS IMPOSED

Highest: Substitution of technology for people

High: Enforcement of rules or procedures

Low: Access to information or tools

Problem if the level is too high: •People doing the work are prevented from their judgement.•People doing the work feel like cogs in a machine because they have too little autonomy.

Problem if the level is too low:•Easily foreseeable errors occur because well-understood rules are not applied consistently.•Outputs are inconsistent.

Review Table 3.2 – p. 98.


#2: Range of Involvement

• Refers to the organizational span of people associated with the business process– Too narrow decisions are made from a

local viewpoint, often missing enterprise-wide opportunities

– Too wide business processes slow down


RANGE OF INVOLVEMENT•too many participants or too few•the organizational span of people involved in a process.

RANGE OF INVOLVEMENT

Problem if the level is too high: •Work is slowed down because too many people get involved before steps are completed.

Problem if the level is too low: •Work is performed based on narrow or personal considerations considerations, resulting in decisions that may not be the best for the overall organization.

The Role of Information Systems:•Information systems can be designed to broaden or constrict the range of involvement.•Executive Information Systems•Case Manager Approach

•TQM: Reduce involvement and empower workers•Note separation of duties from an internal audit perspective.


#3: Level of Integration

• Often a confusing term• The right level of integration is not obvious

– Too little disorganized & unproductive – Too much complex & hard to control

• INTEGRATION = mutual responsiveness & collaboration between distinct activities or processes– Related to the speed with which one responds to

events in the other


#3: Level of Integration

Integration is the mutual responsiveness and collaboration between distinct activities or processes.

In general, the extent of integration between two processes or activities is related to the speed with which one responds to the other.

The speed depends on the immediacy of communication and the degree to which the process responds to the information communicated.

e.g. level of integration between NJIT Registrar and Rutgers-Newark Registrar

Five Levels of Integration:

•common culture

•common standards

•information sharing

•coordination

•collaboration


• Common culture• Shared understandings & beliefs

Common standards• Using consistent terminology & procedures

Information sharing• Independent business processes can share each other’s data

– Coordination• Separate but interdependent processes respond to each other’s

needs and limitations

– Collaboration• Strong interdependence; the unique identity of each process

begins to disappear

Five levels of integration


Five levels of integration between business processes


Five levels of integration between business processes - continued


Level of Integration

LEVEL OF INTEGRATION

Problem if the level is too high: •Steps in the process are too intertwined. •Participants in different business processes get in each other’s way. •To change one step it is necessary to analyze too many other steps or processes.

Problem if the level is too low: •Steps in the processes are too independent. •The process needs greater integration to produce results.


#4: Rhythm

• The frequency and predictability with which a process occurs– Periodic– Event-driven– Haphazard

• E-business makes it possible to support more responsive business rhythms


#5: Managing Complexity

• Complexity – how many types of elements the system contains + the number and nature of their interaction– Complex systems are difficult to develop and

understand– Difficult to anticipate the consequences of

changes


• How to handle complexity?– Eliminate low value variables

• Different versions of processes and information that exist simply because of historical accident

– Recognize variations explicitly and treat them differently, instead of using a fundamentally similar process


Complexity

Systems that are too simple don’t handle the complexity of the problem; systems that are too complex are hard to understand, maintain, and fix.

Complexity can be measured by the number of elements it contains, and the number and nature of their interactions

Reduce Complexity by reducing low value variations, reducing the number of interacting components, and simplify the nature of interactions.

COMPLEXITY

Problem if the level is too high: •Participants, managers, and programmers have difficulty understanding how the system operates or what will happen if it is changed.

Problem if the level is too low: •The system cannot handle the different cases that it should be able to handle.


#6: Degree of Reliance on Machines

• Tasks assigned to computers are:– Totally structured– Can be described completely– Require speed, accuracy, endurance

• Tasks assigned to people require:– Common sense– Intelligence– Judgment– Creativity


Degree of Reliance on Machines

Not everything can be automated!

DEGREE OF RELIANCE ON MACHINES

Problem if the level is too high:•People become disengaged from their work.•People’s skills may decrease. •Mistakes occur because people overestimate what the computers are programmed to handle.

Problem if the level is too low: •Productivity and consistency decrease as bored people perform repetitive work that computers could do more efficiently.


#7: Prominence of Planning and Control

• Participants in a business process need to know what to do, when to do it, and how to make sure it was done right.

• Planning - decide what work to do and what outputs to produce when.

• Executing - process of doing the work• Controlling - use information about past work

performance to assure goals are attained and plans carried out.


Planning, Execution, and Control- Figure 3.10


Comparison of Planning, Execution, and Control

PLANNING

Time focus: Future

Important issues related to information:•Having reliable methods of projecting into the future by combining models, assumptions, and data about the past and present

EXECUTION

Time focus: Present

Important issues related to information: •Providing information that tells people what to do now to meet the plan and adjust for any problems that have occurred recently •Using current information to identify problems or errors in current work •Collecting information without getting in the way of doing the work

CONTROL

Time focus: Past

Important issues related to information: •Having reliable methods of using data about the past to develop or adjust plans, and to motivate employees•Provide information current enough that it can be used to guide current actions


Attention to Planning, Execution, and Control

ATTENTION TO PLANNING, EXECUTION, AND CONTROL

Problem if the level is too high: •Too much effort goes into planning and controlling within the process, and not enough goes into execution.

Problem if the level is too low: •Insufficient effort in planning and control leaves the business process inconsistent and unresponsive to customer requirements


#8: Attention to Errors & Exceptions

• The process architecture should specify how the process should respond when errors, exceptions, or malfunctions occur

• Tradeoff: – Wasting resources by being unsystematic vs.

diverting resources from the main system goals through excessive formalization of exception handling


Treatment of Exceptions, Errors, and Malfunctions

Exceptions: The system does not handle special cases properly.

Operational failures: The system fails to operate as intended.

Bugs: The system does not correctly reflect the ideas of the system designers.

Design errors: The system does what the designers intended, but they failed to consider certain factors.

Capacity shortfall: The system cannot meet current output requirements.

Displacement of problems: The system creates problems that must be absorbed and fixed somewhere else.

Computer crime: The system is used for theft, sabotage, or other illegal purposes often based on fraudulent data inputs.


Treatment of Exceptions, Errors, and Malfunctions

•The danger in designing systems is not planning for the unexpected.

•A mistake should be as easy to correct as it was to commit in the first place!

TREATMENT OF EXCEPTIONS, ERRORS, AND MALFUNCTIONS

Problem if the level is too high: •The process focuses on exceptions and becomes inefficient and inconsistent.

Problem if the level is too low: •The process fails altogether or handles exceptions incorrectly, resulting in low productivity or poor quality and responsiveness perceived by customers.


Evaluating Business Process Performance

Seven Main Performance Variables


Process Performance Variables

• Activity rate• Output rate• Consistency• Productivity• Cycle Time• Downtime• Security


Evaluating Business Process Performance

PROCESS PERFORMANCE VARIABLES:

• Rate of output - the amount of output it actually produces in a time period

– consider capacity and scalability

– How can I handle special needs?

• Consistency

– A Basic TQM tenet: “unwarranted variation destroys quality”.

– Carefully specify how something should be performed and monitor the process to ensure it is performed consistently.


Activity Rate and Output Rate

• Output rate = the amount of outputs produced per unit of time

• Activity rate = the number of interim work steps performed per unit of time– The distinction is important mainly for systems that

take long to complete and/or are complex• The activity rate is a good predictor of the output rate


• You should consider capacity and scalability – How can you handle special needs?

• Capacity = the theoretical limit for the output rate– The challenge to determine the ideal capacity

and output rate• Scalability = the ability to increase or decrease the

capacity without major disruption or excessive costs


Consistency

• ConsistencyConsistency = applying the same techniques in the same order to obtain the same results

– Basic TQM Rule: “unwarranted variability destroys quality”

• Information systems may force organizations to do things consistently

• Emphasizing consistency often makes it difficult to be flexible• FlexibilityFlexibility = the ease with which the process can be modified

to:– Meet customer needs– Adapt to external changes


Control chart for monitoring consistency of a business process

– Carefully specify how something should be performed and monitor

the process to ensure it is performed consistently


• How to achieve FLEXIBILITY WITHIN A FRAMEWORK OF CONSISTENCY:– Avoid restrictions that can be left to the

judgment of the process participants– Delay as long as possible converting

information to physical results that are hard to change

– Use technical tools and methods that are themselves flexible


Productivity

• Productivity = the amount of output produced vs. the resources consumed

• Waste = any activity that uses resources without adding value– Reduces productivity– Built into the way many processes operate

• Ford example

• IT does not always lead to increased productivity


Cycle Time

• Cycle timeCycle time = the length of time between the start of a process and its completion– Processing time for each step– Waiting times between steps– Dependencies between steps

• BottleneckBottleneck = an essential step where a capacity shortage induces consistent delays


Figure 3.13Identifying the causes of long cycle times


Downtime

• Downtime = the amount of time the process is out of operation– Unexpected failures– Planned maintenance

• Especially important consideration for e-business


Security

• Security = the likelihood that the process is not vulnerable to unauthorized uses, sabotage, or criminal activity

• Depends on procedures that insure accuracy and prevent unauthorized access


Finding the Right Level for Each Process Performance Variable

ACTIVITY RATE Problem if the level is too high: •Wasted effort and buildup of unneeded inventoryProblem if the level is too low:•Inefficient resource usage and imbalanced work in process

RATE OF OUTPUTProblem if the level is too high: •Lower productivity and consistency due to increasing rates of errors and reworkProblem if the level is too low:•Lower productivity due to the cost of unused capacity



PRODUCTIVITYProblem if the level is too high:•Too much emphasis on cost per unit and too little emphasis on quality of the outputProblem if the level is too low: •Output unnecessarily expensive to produce

CONSISTENCYProblem if the level is too high:•Inflexibility, making it difficult to produce what the customer wantsProblem if the level is too low:

•Too much variability in the output, reducing quality perceived by the customer



CYCLE TIMEProblem if the level is too high:•Lack of responsiveness to customer •Excess costs and waste due to delaysProblem if the level is too low:•Product produced too soon is damaged or compromised before the customer needs it Delivery before the customer is ready

FLEXIBILITYProblem if the level is too high:•Too much variability in the output, reducing quality perceived by the customerProblem if the level is too low: •Inflexibility, making it difficult to produce what the customer wants or to modify the process over time

SECURITYProblem if the level is too high: •Excess attention to security gets in the way of doing workProblem if the level is too low: •Insufficient attention to security permits security breaches


Process Performance Variables and Related Roles of Information systems

• Review Table 3.5 p. 111.


Introduction to Communication and Decision Making


• Activities that are part of business processes include:– Processing data– Communicating *– Making decisions *– Thinking/creating– Taking physical action


ACTIVITY RATE AND OUTPUT RATEImprove communication: Make sure communication does not cause delays in performing work stepsCommunicate more information or more types to more peopleImprove decision making: Make sure information for decision making is readily availableMake more decisions using better, more complete information

CONSISTENCYImprove communication: Make sure different people receive the same communication Improve decision making: Make sure repetitive decisions are made in the same way

PRODUCTIVITYImprove communication: Achieve more communication with less effort. Permit efficient communication in many different forms.Improve decision making: Make better decisions with less effort. Maintain decision quality across a wider range of situations.

Improving Communication and Decision Making Performance within Business Processes


Improving Communication and Decision Making Performance within Business Processes

CYCLE TIMEImprove communication: Eliminate undesirable delays in communicationImprove decision making: Eliminate unnecessary delays in decision making

DOWNTIMEImprove communication: Provide backup channels to continue communication even if the regular channel is not available. Improve decision making: Automate certain decisions to minimize the impacts of process downtime.

SECURITYImprove communication: Make sure communications go only to the intended recipientsImprove decision making: Make sure decisions are controlled only by those authorized to make the decisions


Basic Concepts of Communication


CommunicationCommunication

• Communication is an interpersonal process of sending and receiving symbols with messages attached to them.

General Model of a Communication SystemGeneral Model of a Communication System

Source Transmitterencoder Channel

ReceiverDecoder Destination

Noiseand

Distortion

Feedback


Basic Communication ConceptsBasic Communication Concepts

• Social Context• Personal, Impersonal, and Anonymous

Communication• Time, Place, and Direction of Communication


Social ContextSocial Context

• The situation and relationships within which communication takes place.– Social presence (perceives as a personal interaction)– Organizational position– Relationships– Cultural Norms– Age– Gender– The topic being discussed

• Nonverbal communication• Media Richness Theory


Personal, Impersonal, and Anonymous Communication

Personal, Impersonal, and Anonymous Communication

• Personal - the relationship between sender and receiver matters. It affects form and content.

• Impersonal - The sender and receiver’s relationship does not matter. Both serve as agents of the organization.

• Anonymous - The sender’s identity is hidden from the recipient.

• IT can make communication more personal AND more impersonal.


Time, Place, and Direction of CommunicationTime, Place, and Direction of Communication

• Synchronous - The sender and Receiver are available simultaneously

• Asynchronous - The sender and receiver are not available simultaneously.

• Place Involves Physical Presence• Direction: One-way vs. Two Way communication.

Common Communications Classified By Time and Place

Common Communications Classified By Time and Place

SAMEPLACE

DIFFERENTPLACE

SAME TIME DIFFERENT TIME

Presentation SystemsCopyboardsPC ProjectorsFacilitation ServicesPolling SystemsGroup Decision Rooms

Transaction databasesWorld Wide WebShared FilesElectronic MailVoice MailShift Work Communications

Typical TelephoneVideo Telephone Video ConferencingLive Radio TV Broadcast

EDITransaction databasesElectronic MailComputer ConferencingVoice MailFaxPre-recorded Radio/TV


What are some approaches for Information Systems to

improve communications?


Approaches for Improving CommunicationApproaches for Improving Communication

1. Permit communication that could not take place otherwise.

2. Make communication situations more effective.

3. Eliminate Unnecessary Person to Person Communication

4. Make Communications more systematic

5. Combine and Extend Electronic Communications


Permit Communications That Could not Take Place Otherwise


Making Face to Face Communication More Effective

Making Face to Face Communication More Effective

• Presentation Technologies:– Blackboard– Prepared Paper Handouts– Overhead projector or slide projector with color

transparencies– Electronic Blackboard– Computer LCD Display panels– Computer for “What-If” Scenarios– Computer-controlled Multi-media– Computer controlled multi-media with interactive

control.


Eliminate Unnecessary Person to Person CommunicationEliminate Unnecessary Person to Person Communication

• Substitute on-line Access to data– Example: Supplier/Customer Relationships as

discussed in Inter-organizational Information systems

• ATM access• Automated Telephone Attendants• Danger of becoming too impersonal


Making Communication SystematicMaking Communication Systematic

• Contrast communication between people vs. communication between machines.

• The business Memo Header:– To:– From:– Date:– Re:

• Having structure reduces the effort required to figure out what the communication means.

• Even with communication between groups of people, repetitive aspects of communication are systematized.


Combine and Extend Electronic Communication Functions

Combine and Extend Electronic Communication Functions

• Early communication technologies have been combined and extended to create more powerful communication technologies.

• Example: Telegraph, Telephone, Radio Broadcast• Consider how more modern technologies are

being combined.• More convergence of computing and

communications technologies.


Question:

How have the different degrees of social presence in communication, or how have time, place, and

direction of communication affected a situation in which you have been involved?


Basic Decision-Making Concepts

• Steps in a decision process– Problem findingProblem finding

• All too often resources are spent finding good solutions to the wrong problem!

– Problem solvingProblem solving• Decision processes typically iterate between the

various phases


Four-phase Decision Making Process Figure 3.15


• Rationality vs. satisficing– Rationality – a common model for explaining

how people should make decisions• “Rational” people are expected to attempt to

maximize their welfare

– Satisficing – how people actually behave when making a decision

• Looking for a satisfactory alternative, rather than the optimal one bounded rationalitybounded rationality


– (To Be Discussed Later)– Poor framing– Recency effects– Primacy effects– Poor probability estimation– Overconfidence– Escalation phenomena– Association bias– Groupthink

Common flaws in decision making


• Automating decisions– Have important advantages when

• A great deal of information must be processed; or• Small delays affect the outcome

– Only acceptable when every aspect of the decision is fully understood

cis 465 - business processes 1 business processes

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