Business Process Improvement: Estimating the Cost of a Business Process

To measure any achievement, you need to know where you started. Whether you want to lose weight or run a marathon, you need to establish a baseline to see how much you have improved. How much do you weigh today or how fast do you run a marathon today? In BPI’s work, to set an improvement goal, you first need to know how long a process takes and how much it costs.

After drawing a process map, you understand the activities involved and can estimate how long it takes to complete each step, known as process hour. You often hear two types of time related to BPI:

• Processing time is the time required to complete a unique activity.
• Cycle time it is the time required to complete a complete process, from its first to its last step. You may also hear that this is known as elapsed hour.

Identifying the processing time It will help you summarize the manpower required to get the business results. When you include employee and general expenses in your BPI projects, you begin to bring a financial dimension to your work.

Once you calculate how long each activity takes, you need to identify the annual volume, decide the FTE (full-time equivalent) calculation to use, and apply the employee salary and benefit rates to the time estimates. Since many employees are not engaged in a single business process, the FTE calculation allows you to account for parts of an employee’s time. At the end of this analysis, you will know if a business process consumes 2.5 FTE, for example, and costs $ 450,000 per year.

Once you have drawn the process map and estimated the associated time for each activity, validate this information with your stakeholders (eg, stakeholders, employees doing the work, sponsor, etc.). Performing this review validates the baseline for your improvement goal and eliminates the possibility of future challenges. You want to make sure everyone involved agrees with the manpower used today so that the improvements made are not in doubt. Validating this information provides you with a solid foundation to begin the next step, the actual improvement phase.

Estimate the process and cycle time and its associated cost is the four step to improve the effectiveness, efficiency and adaptability of your business processes, and validate the information (both the map and the estimated times) is the fifth He passed.

Copyright 2009 Susan Page