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 for how much you’ve improved. How much do you weigh today or how fast do you run a marathon today? In BPI 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 much time is required to complete each step, known as the process time. You often hear two types of time related to BPI:

  • processing time is the time required to complete a single activity.
  • cycle time It is the time required to complete a complete process, from its first to its last step. You may also hear this referred to as elapsed time.

Identifying the processing time it will help you summarize the manpower required to deliver business results. When you include overhead and employee expenses in your BPI projects, you begin to add a financial dimension to your work.

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

Once you have drawn the process map and estimated the time associated with each activity, validate this information with stakeholders (eg, stakeholders, employees performing the work, sponsor, etc.). Performing this review validates the baseline for your improvement goal and eliminates the possibility of any future challenges. You want to make sure everyone involved is on the same page about the workmanship used today so that the improvements made aren’t called into question. Validating this information gives you a solid foundation to start the next step, the real 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 passed.

Copyright 2009 Susan Page

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