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Part One of Creating Well-Defined Processes Series
Because the answer is no. No improvement occurred. In fact, your process deteriorated. Sure, revenue increased, but is this really an improvement? Let's take a look at the problem in this table.
Let's examine the before and the after scenario. Say, in the before picture, you have sales of $100,000, fixed costs of $20,000 and variable costs of $70,000. Total expenses amount to $90,000, giving you a gross profit of $10,000. In the after picture, sales increase to $110,000, while variable costs rise to $77,000 in addition to $2,000 in Extra Expenses – which give you total expenses of $99,000 and a gross profit of $11,000. In the after picture, remember though, fixed costs are fixed, and do not change with additional revenue. So you should get more than 10% (11.8% to be exact) profit from 10% growth.
Extra Expenses Prevent Process Improvement
Here we have the before and the after scenario. You can see that fixed costs are fixed, and do not change with additional revenue. So you should get more than 10% (11.8% to be exact) profit from 10% growth.
And notice that in order to maintain a 10% profit we have to spend $2,000 in Extra Expenses. These Extra Expenses represent your process inefficiencies. These expenses could be sales discounts, travel, overtime, or something else. The names don't really matter. What does matter is that we are not improving.
Process Evolution Enables Improvement
Improvement results from process evolution, not from an increase in scale. What's the difference? Scale increases when we hire another person, increase expenses, or purchase more assets in order to acquire or service more business. Process evolution occurs when we change the process and as a result can release hidden capacity and service more business without adding any costs - and this is a form of efficiency. You can measure efficiency with the formula:
Efficiency = Output / Costs
But process evolution is about more than just changing costs. It is about changing time, increasing process velocity, and getting more output from the costs you already have. Cutting costs, by itself, does not evolve a process. In fact, reducing costs, without properly understanding how those costs relate to the process, can actually decrease process evolution (devolution). Let's review an example…
A Cost Reduction and Procedures Training Case Study
A company decreases costs by switching suppliers and using cheaper materials for their manufacturing process. Now the purchasing department is happy they are saving money. The bottom line is starting to look better as profits initially increase. And so this improved the process, right? Well...
But then complaints start rolling in from the field. Products are breaking down faster. Technical support costs rise, and customers start reducing their orders. Not only do profits evaporate, but customer goodwill does too. To offset this, your first reaction might be to switch back to the old supplier. This is much easier and it fixes the immediate problem, but it won't recapture the lost sales, customers and damage to the company's reputation.
But, again, you need to focus on the most important issue. There is a limit to the amount of costs one can reduce in any process – zero. You can't reduce costs below zero. On the other hand, there is no limit to the process potential we can achieve. Process evolution concerns the numerator (the output), not the denominator (the costs) in the efficiency equation above.
Change in Process Evolution = New Output / Old Output
(Assuming costs are held constant)
By focusing on process evolution instead of costs we can continue to increase our output forever. We just have to make sure that the output increases faster than the costs. Then what we have is incremental improvement. But what procedure can use to achieve this?
Process Training
It's all about collecting feedback to set the right priorities for your change process. You need feedback to drive the change process. The more feedback you get the better you will be able to evolve your process. So let's take a look at what your change process needs to include.
1. Feedback Records with Deficiency Notations
2. Trend Analysis
3. Corrective Action Process and Criteria for action
4. Audit Process
5. Management Review Process
And then ask yourself the following questions about your change process:
• Are process feedback records created?
• Have the feedback records been analyzed for process deficiencies?
• Are the deficiencies analyzed for statistical significance?
• Are the deficiencies of statistical significance written up for corrective action?
• Is corrective/preventive action implemented?
• Is there an objective review of all processes to ensure the change process is working?
• Does management review all findings to ensure the change process is working -- and that processes are evolving to meet or exceed organizational requirements?
Next Week: Business Modeling
With these thoughts in mind, you can see how important it is to first define continuous improvement and note how it can actually affect your business. But you can't gather feedback from all processes at once. If you did, that would generate a process overload. So where do you start?
Next time we will show you show how when we discuss business modeling. Business modeling prioritizes which core processes you should improve. It tells you which processes are most important to not only achieve your company goals - but also to survive as a profitable business.
What Is Process Improvement
Are you just starting out in business? Are you wondering what IOVC and the "O" of IOVC technology means? You heard about office process improvement, business process improvement, business process management, workflow management and you wonder what these IOVC technologies can do for improving your business operation?
IOVC technologies can cut your business costs sharply. Business process improvements that address your office processes have demonstrated many business benefits for a long time now. This set of IOVC technologies has been primarily associated with large corporate business but no more. Small and medium business can benefit from an office process improvement or BPI/BPM tool. If you need to ring more profit from an existing business operation then you owe it to yourself to make yourself profitable with the many readily available business process improvement technologies.
In this series examining the "O" of IOVC (internet, office, voip and crm) technologies, the office improvement or business process improvement movement has many tools and products available to help the business owner improve their business operation. To sort out the complexity of business process improvement, business process management, technology and application support we need to answer a few key questions such as:
What is your BPI, BPM process?
What is your potential problem?
What do you need to learn about your business?
What is the business process improvement process?
What is the best way to train you and your team?
What benefits can you expect?
What are the next steps?
What is your BPI, BPM process? Those new to business process improvement and business process management need to understand just what is a business processes. The office or business process is really your normal office workflow that you and your team use daily. Within that workflow are people, process, products and projects. Supporting and or enabling these components are your software applications and supporting technologies that allow you to perform the business functions.
What is your potential problem? The complexity that occurs after your business has been operating for a while means your business processes by their nature become complex, disjointed and out of sync. The ability to manage your processes and keep your processes operating at peak efficiency is what's needed to keep your business healthy. Viewed from a top down perspective, it is your end-to-end business process or business workflow that drives your business.
What do you need to learn about your business? With that understanding your team needs to define your business process and unearth the perceived business problem. Yes you have to make the problem real on paper. The team needs to define what tools are used when identifying your business processes.
What is the Business Process Improvement process? The team would document the existing business process by developing beginning to end process maps. They would identify which steps in your process add value. Then the team would identify the steps that cause pain and detract from the efficiency of the process. Then the team works to eliminate those business steps that fail to add value. Once all is documented, the team transitions from identifying and knowing what steps to improve, the team would collectively be able to understand and discuss what to do when the identified solution conflicts with business policy or a current external process and still make it functional within your organization.
Enter Business Process Management phrase - Then the business improvement solution is implemented and becomes operational. To ensure continued success, the group proceeds to manage the business process using a selected business process management tool. This requires the complete understanding of current routines, future goals and the gaps in between. Once the process is operational, the process becomes a business process management procedure.
What is the best way to train you and your team? Since your personnel work daily to complete specific business processes using technology that you have within in your business, they should become intimately involved with learning about managing your business processes especially since they are a part of them everyday. For BPI assessments to be effective, the best way to learn is in a situational manner which enables you to identify and manage your specific business processes. You may even consider having customized courses that can be defined to target your specific situation.
What are the expected benefits? The benefits of a business process improvement and management assessment is that your business will be able to continuously strive for a more effective business process and therefore you will gain improved efficiency. The resulting office process improvements enable many other products and services to operate more efficiently. Working with a team and understanding the issues associated with your end to end business operation can help you define the gaps in your business and remove the daily problems and disconnects with your vendors. This can come from keeping your business processes in sync with the proper support of your technology and your people. The gains can sometimes approach a 50 percent or more gain in efficiency.
In today's business environment, we continuously strive for a more effective business process operation and a firm with actual hands on experience can help you learn and apply these strategies. That is because business process improvement and business process management have become essential tools to just about any organization.
In summary, with proper people, education and learning in a situational environment, one can first identify the process, then analyze the process and move on to improving and monitoring the process. The complexity and payback of business process improvements are many because one improvement can lead to many more and sometimes it's a simple fix and other times a lot more complex. The details require more explanation then we can provide here, however you owe it to yourself to investigate this area of IOVC technologies further and profit from these capabilities.
Both Chris Anderson & Gregory Burrus are contributors for EditorialToday. The above articles have been edited for relevancy and timeliness. All write-ups, reviews, tips and guides published by EditorialToday.com and its partners or affiliates are for informational purposes only. They should not be used for any legal or any other type of advice. We do not endorse any author, contributor, writer or article posted by our team.
Chris Anderson has sinced written about articles on various topics from Finances, Real Estate and Real Estate. . Chris Anderson's top article generates over 33100 views. to your Favourites.
Gregory Burrus has sinced written about articles on various topics from Health, Site Promotion and Customer Service. Save money, reduce cost and increase customer acquisitions through Internet, Office, VOIP & CRM solutions.. Gregory Burrus's top article generates over 22200 views. to your Favourites.
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