Archive for March, 2013

“Risen”

Posted March 31, 2013 By Fletcher Groves

(this entry is posted on “Escape from Averageness” every year at Easter)

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Easter 2013, Ponte Vedra Beach, Florida

The intrepid, results-based consultant reclined into the natural seat, at the back edge of one of the dry-eddy pools, where the beach resumed its slope more steeply upward, toward the dunes.  She dug her bare feet into still-wet sand, and felt the remnant of last night’s high tide through her jeans and shirt.  It felt good, she thought, as she rested her arms on her knees, gazed eastward, and studied the movement of sea and sky.  She smiled, as she felt the morning sun, only moments above the horizon, yet already warming to her face, on what was – predictably for late March – still a cool morning in northeast Florida.

She was comfortable in her element.  A seventh-generation Floridian, she loved the waters and land of her native state, although she wished she could have seen for herself the Cracker Florida her dad liked to tell her about – the Florida of his youth, as he would describe it, before air conditioning, before hordes of people, before interstate highways and theme parks.

This was her routine, every year, on Easter morning.

Her thoughts went back to the pre-dawn darkness of the very first Easter morning, to what the disillusioned friends and followers of the one they called Jesus of Nazareth must have been thinking, as they hid in fear.  By every rational explanation and every shred of evidence, this man of so much promise, in whom they had placed so much hope, was dead.  They had been eyewitnesses to that unquestionable death, and the effects of the torture that preceded it.  She reminded herself that the term excruciating came from the Latin ex crucis, literally, “out of the cross”;  Roman crucifixions left nothing to the imagination.

They had been witnesses to his burial, and the intense security of his tomb.

For them, this was certainly more than the physical death of one man;  for them, it was the death of all faith and hope.

Her thoughts moved to a time, not far removed at all from the darkness of the days immediately following the death of Jesus, as Peter and others publicly asserted that they were the subsequent eyewitnesses to the effect of His resurrection and the actuality of His ascension, and that, far from abandoning their faith in fear for their own lives and succumbing to hopelessness, they were willing to live their lives – to give their lives – for the lives of others, and for the faith and the hope that His crucifixion, death and resurrection gave all of them.

So it has been, that decision, she thought, for every Christian, ever since.  So it was for her.

She smiled again, and whispered.

“Risen”.

 

The Cost of Process Variation and Waste

Posted March 24, 2013 By Fletcher Groves

(originally published on EFA, on August 26, 2012, as “The Cost of Tolerating the AS-IS State of Business Processes”, reduced to the essence of the argument and republished here, part of our retrospective Above Average: The Best of Escape from Averageness, 2009-2012)

SAI has been mapping business processes – documenting, analyzing, and improving workflow – in the residential construction industry for more than 15 years.  During that period, we have managed dozens of engagements, across a broad range of geographical markets and builder types, multiples of processes, involving thousands of discrete steps.

Most of our clients are well-managed homebuilding companies, some of them exceptionally well-structured and well-managed, by the standards with which this industry is judged.  The list includes past and present National Housing Quality (NHQ) Award winners and past winners of Professional Builder’s Builder of the Year award.  Certainly, all of them were forward-looking enough in the first place to be concerned with Business Process Improvement.

Nevertheless, the data from these process mapping engagements, anecdotal or otherwise, in its totality, suggests that fully 25% of the work these builders perform adds no value whatsoever;  it is almost certain that the actual percentage is considerably higher.  No two process steps have equal weight, but the percentage of non-value-added work has validity in assessing whether a process is either badly-designed or being poorly managed.

If you are a homebuilder, the point is this:  What are such badly-designed, poorly-managed processes costing you?

The most basic – the most universal – proposition of business is this:  The goal of an enterprise is to make money;  the way that it makes money is through the value that it delivers to its customers;  that value is delivered by the work that the enterprise performs, and that work has to be performed in some method of workflow.

The effort to deliver customer value costs the enterprise something.

Set aside the substantial costs a homebuilding company incurs in the business sub-process known as Start-to-Completion (STC).  For a number of reasons, STC is excluded from the scope of the typical process mapping engagement (see the original post).  The cost of that part of the effort to deliver value – including all of the very real cost of wasted effort associated with scrap, jobsite conditions, jobsite mistakes, scheduling conflicts, design issues, etc. – is not reflected in the data we just referenced.  On an Income Statement, it is Cost of Sales.

Cost of Sales is considered to be a converted or transformed cost, the cost of the non-value-adding effort of which is passed on largely hidden, in the form of higher pricing from the sub-contractors and suppliers to which virtually 100% of the work is outsourced.  The cost of non-value-adding effort contained in Cost of Sales diminishes Gross Income;  it depletes the value delivered to the homebuyer, who paid more to receive the same benefit;  it can be affected by non-value-adding effort in areas outside of Cost of Sales;  it is significant;  it is expensive.

But, it is not the issue under discussion.

This discussion is about the consumed cost of non-value-adding effort, reflected in a building company’s Operating Expense.  Whether you choose to view Operating Expense as a productivity issue or as an excess capacity issue – as a consumed cost that should be leveraged (our preference) or as a consumed cost that should be reduced, as a “more-for-less” proposition or a “more-for-the-same” proposition – there is clearly a pointlessly-incurred cost associated with wasted effort, with effort that produces no value.

That cost diminishes Net Income.

How much?

In builderonline.com, John Caulfield highlighted data from The Shinn Group’s 19th annual Financial and Operations Study, based on information provided by 450 builders that are participants in the Shinn Group of Companies’ Builder Partnerships.  More than two-fifths of the builders surveyed reported Operating Expenses of more than 25% of Revenue (Shinn’s recommended target is less than 25%). The report said the most profitable builders were the ones that kept their Operating Expenses under 20% of Revenue.

Out of the Shinn data and the SAI data, let’s consider a favorable scenario:  a hypothetical builder with modest overhead (20%) and a low level of wasted effort (25%).  That makes this hypothetical builder’s cost of wasted effort five-percent of its Revenue;  for every million dollars of Revenue, the cost is $50,000, a cost that comes right off the builder’s bottom-line.

That’s one matter, if you are a homebuilding company the size of Pulte (a mere $197.5 million per year in lost-but-potentially-recoverable Net Income).  It’s another matter, one that likely strikes closer to home, if you are a homebuilder with Revenue in the $40 to $45 million range – a range, incidentally, bracketed by two of the consistently successful builders that we took through the effort to map their business processes, and who’s data is included in our calculations:  Jagoe Homes (Owensboro, KY) and Charter Homes & Neighborhoods (Lancaster, PA).

Let’s be clear:  If you are the size of a Jagoe or a Charter, and unlike Jagoe or Charter, you do nothing to improve the AS-IS – if you do nothing to remove the waste and variation associated with the current state of the processes you depend upon to deliver value to your homebuyers – that bogie is a cool $2.1 million per year.

 

(initially published on EFA on March 31, 2011, as “Our Insight and Advice on Business Processes”, republished here, as the last of a four-part series;  part of the retrospective Above Average: The Best of Escape from Averageness, 2009-2012)

I will offer you a couple of final suggestions.

First – the value we are attempting to create for “customers” (customers, clients, constituents, etc.) is created by the work flowing through processes, so, wherever possible, the other elements of the business operating model (systems, organizational structure, employees, culture, etc.) should support process design, not vice versa.

Second – knowledge of process design and process documentation is one matter, knowledge of process management is something altogether different.  In addition to the process areas, a working knowledge of management areas like Six Sigma, Lean Manufacturing, and Theory of Constraints – and how to blend them – is essential when it comes to good process management.  As I previously suggested, a process management interface – a tool that automates and manages processes – may or may not be important, depending on your situation;  process automation is not as important in homebuilding as it is in other industries and disciplines.

Third – as I mentioned at the outset – you need to be able to distinguish (and operate effectively) between the areas of process management and project management.  In particular, you would find a knowledge of Critical Chain Project Management (CCPM) helpful;  CCPM is part of the Theory of Constraints.

As I noted earlier, I rarely plug SAI on the pages of this weblog.  However, SAI has done more work with processes – and done it longer – than anyone in the homebuilding industry.  Before the creation of the National Housing Quality (NHQ) Award, we were already assisting Malcolm Baldrige National Quality Award winners in their efforts to refocus, restructure, and redesign their business operations around their processes.  Before there was any interest in the homebuilding industry on the documentation and management of business and operating processes, we were already recognized experts in that field.

Our process toolbox is the best in the industry.  We pioneered the development of many of the tools and techniques we use in this area.  We use the most advanced process flowcharting and modeling software available – after having participated in a part of its development.

We are adept at every form of process documentation, including cross-functional flowcharting, value stream mapping, and IDEF0 process modeling, all of the notation languages, as well as the methodologies – Total Quality Management, Lean-Six Sigma, Theory of Constraints, and Lean/TPS – that act upon them.

We know what we are talking about.  More importantly, I suppose, we are willing to talk with you, to help you make the right decisions about workflow.

By all means, please take us up on the offer.  Here is my contact information:

Fletcher L. Groves, III
Vice President
SAI Consulting, Inc.
PO Box 1755
Ponte Vedra Beach, FL
32004-1755

(904) 273-9840 (office)
(904) 613-5213 (mobile)

E-mail: flgroves@saiconsulting.com

Website: www.saiconsulting.com

(initially published on EFA on March 31, 2011, as “Our Insight and Advice on Business Processes”, republished here, as the third of a four-part series;  part of the retrospective Above Average: The Best of Escape from Averageness, 2009-2012)

 

As for book recommendations, there is no single, comprehensive reference or guide to all of the areas of process improvement and documentation.  At SAI, much of what we know, we learned by doing, by seeing what worked – and what did not work – in the real world.

Having said all of that, here are my book recommendations:

For processes generally, I still think Business Process Improvement (Harrington) and Beyond Reengineering (Hammer) are the best.  Although there is a newer handbook, Harrington is now dated because of its TQM approach, but it is a process classic.  Hammer, although also dated, still has the best understanding of enterprise-level processes, if you set aside the focus on reengineering.

Depending on your level of experience and expertise, you might also pick up The Horizontal Organization (Ostroff) or Process Redesign (Tonner, DeToro).  They are not great books, but they can help, if you are new to process improvement.

For process mapping, I recommend The Basics of Process Mapping (Damelio), Process Mapping: How to Reengineer Your Business Processes (Hunt), Workflow Modeling (Sharp, McDermott), Process Mapping, Process Improvement, and Process Management (Madison), and BPMN Method and Style (Silver).  Damelio covers very basic flowcharting, Hunt covers IDEF0 process modeling, Sharp has more of an IT and project perspective, and is better on implementation issues, Madison is a good practical guide in all three areas in its title, while Silver does a nice job of explaining BPMN as an emerging standard.

Somewhere in between are books like Improving Performance: Managing the White Space on the Organization Chart (Rummler, Brache), Cycle Time Reduction (Harbour), and Fast Cycle Time (Meyer).  These books tend to focus on both processes and process mapping, but usually in the context of their own views and methods on areas like strategy and change management.  They are older books.

Almost every book ever written about process design, analysis, and documentation is in the SAI library, including all of the ones that I recommended.  I have personally read all of them.  There are some newer books that I have not had a chance to read.  The recommendations are not a comprehensive list, nor are they the only worthwhile reading on the subject, but I do think it is a good starting point. In any event, they are the best recommendations I can offer.

As far as process software, we use and recommend the iGrafx (www.igrafx.com) suite of process applications.  We are an iGrafx Consulting Partner, not a reseller.  iGrafx applications support a wide range of process methodology, including basic flowcharting, cross-functional flowcharting, BPMN, IDEF0 process modeling, Six-Sigma (SIPOC) process documentation, Lean Six Sigma, and Lean Value Stream Mapping (VSM).

 

Next:  Part IV:  Final Suggestions

(initially published on EFA on March 31, 2011, as “Our Insight and Advice on Business Processes”, republished here, as the second part of a four-part series;  part of the retrospective Above Average: The Best of Escape from Averageness, 2009-2012)

 

Our proposition regarding processes is very simple:  The way an enterprise creates value on behalf of its customers is mainly through the work that it does, and the way an enterprise performs the resulting workflow is largely through its processes.

For us, understanding workflow is a means to an end.  It is the front-end of a problem-solving methodology, in which we first eliminate the activities, reports, inspections, and other work that is waste (muda), and, therefore, adds no value, and then make the remaining value-adding activities flow more smoothly, more directly.  In our way of explaining production principles, using the analogy of a pipeline, we want a process that is a shorter, straighter pipe.  It is a way of simplifying and streamlining processes, so that our clients can deliver more value from what remains, with the same amount of capacity.

Understanding workflow also tends to clarify the underlying problems and issues, for example, the variation and uncertainty that haunts any production system.  When process workflows are connected to performance measures – to existing performance and targeted performance – clients can start to understand the requirements and necessary conditions that have to exist for the process to be improved.

For the most part, we like to look at the current (AS-IS) state of a process through the lens of cross-functional flowcharting teams, comprised of the people who actually perform the work in the process;  management, we like to remind our clients, at best, only knows how a process is supposed to work.  In the past, we would also use cross-functional flowcharting teams to redesign the same process to reflect its desired future (SHOULD-BE) state, because it made comparisons between previous and redesigned states of a process more insightful;  and, it does make the difference between AS-IS and SHOULD-BE more stark.

We like the starkness.  Now, however, we tend to get to the point more quickly.  We tend to use IDEF process modeling in the design/redesign phase, and we almost always document processes in IDEF notation, the most common version of which is known as IDEF0.  For continuity, and to take advantage of the insight gained mapping the current state, we use the same cross-functional teams for the SHOULD-BE that we used in the AS-IS; we just use a different methodology.

The advantage of IDEF0 lies in the ability of its hierarchical structure of graphic diagrams and supporting text diagrams to gradually and infinitely reveal increasing levels of process detail.  Unlike cross-functional flowcharting, SIPOC charts, or value stream mapping, IDEF0 process modeling does not impose a single level of process detail;  the level of detail is whatever is necessary to create the understanding.  As a result, IDEF0 presents a far better learning/training outcome than flowcharting, SIPOC, or value stream mapping.

There are additional advantages to using IDEF0 for designing and documenting the desired future state of a process. Unlike other methods, IDEF0 establishes parameters and outcomes as part of the process design. More importantly from a process design/redesign standpoint, IDEF0 does not carry the legacy – the burden – of the current state, as other methods tend to do.

I would be glad to send, any reader who requests it, the client tutorial we wrote explaining IDEF0 process modeling.

Process design, improvement, and documentation is only half the battle.  There still has to be a way to manage process workflow.  The inability to provide clients with a practical means of automating and managing processes has tended to be a shortcoming of Business Process Improvement (BPI) and Business Process Management (BPM).

There is an emerging standard known as BPMN, (Business Process Modeling and Notation), the promising aspect of which is the ability to automate and manage process steps through execution language.  Some require code to be written, others claim not to require additional code-writing.  The current version (2.0) is more open source and supported by OMG.  The common execution languages that BPMN uses are BPEL, XPDL, and XML.  The significance is that these types of applications extend process design, improvement, and documentation into process management and automation.  BPMN offers the prospect of process management and automation for the everyday business world.  Like IDEF process notation, BPMN uses a hierarchical, parent-child structure of processes and embedded sub-processes.

Since most of our clients are homebuilding companies, the benefit of automating processes is of less importance than industry verticals that have high-transaction volumes and high-IT components.  For our clients, we would prefer to have whatever automation is needed built into the operating system that supports the process workflow, not the other way around.

Moreover, homebuilding companies, as I said earlier, have to be concerned with project management, not just process management.

 

Next:  Part III:  Recommendations