Good Process Design

We have been mapping processes – helping clients document, redesign, and improve workflow – since 1996.  In different vertical spaces, for dozens of clients.  Early-on, it became very apparent that the majority of enterprises don’t come into BPI or BPR initiatives with an understanding of good process design.

So – we have always taken the time to prepare and provide process design guidelines for these engagements.  These process design guidelines are now in their fifth generation, and the revisions to these guidelines reflect the progression of our thinking on the design and management of business processes.  These guidelines reflect, as well, our inclination to incorporate process methodologies and tools that work, without regard to their process denomination.

As we have stated previously on Escape from Averageness, to a certain degree, workflow is workflow, process is process.  There are common principles of process design, and while each set of process guidelines is crafted with the needs of each client in mind, much of good process design tends to transcend industry classifications.

We offer these process design guidelines from a recent engagement involving one of the business units of a community bank as an example;  clearly, a specific client, with specific circumstances and requirements.  But – substitute your own terms, definitions, and org structures, and see if these process guidelines don’t make remarkable sense in the workflow world in which your own enterprise operates:

1.   Start process design and redesign efforts from the desired future state of the process, and work backwards.  What is the intended result?  What do we want the process to be capable of doing?

2.   Set specific performance requirements for new processes.  Make the connection between better operating performance – in terms of shorter lead time and higher productivity – and the resulting increase in profitability and economic return.

3.   Focus on the outcomes that satisfy both the Borrower’s and the Investor’s requirements, on outcomes that simplify the process, and eliminate the non-value-added activities – the waste, errors, redundancy, and bureaucracy – that have been built into the process.

—  Overly-complex processes require a multitude of simple tasks to operate, but processes that are elegant – processes that are simple, themselves – require a different approach.  In order to make the new process easier to manage, use complex tasks – sets of tasks that were previously handed-off between departments – that can be performed by one person.

—  Processes that are focused on specific product families generally produce better designs.  Avoid designing one-size-fits-all processes – particularly on value delivery processes;  they will be too complex, they will be compromised.

—  Place the authority and responsibility for decision-making with the teammates who actually do the work, without imposing the requirement for unnecessary reviews, inspections and approvals.

—  Reduce the number of unnecessary reports, files, and documents in the system, while standardizing and automating the remaining, essential documentation, paper or otherwise.

—  Capture information one time – at its source – preserve it, and make it available for all future users – online, real-time, and universally accessible.

—  Solve the problem, don’t treat its symptoms.  Replace the current practice of reviewing and correcting errors with a problem-solving method that prevents the errors from ever occurring in the first place.  When problems do surface, stop the process and fix the problem, and insert counter-measures that prevent it from reoccurring.

—  Build the necessary controls into the front-end of the process.

4.   Eliminate process variation and uncertainty.  Variation is a form of waste, like anything else that does not add value.  However, variation is more the result of unevenness, and connotes a lack of stability – the inability to produce a consistent result.  Production processes need stability, and variation causes instability.  In many ways, variation is far more damaging to a process than activity that simply does not add any value.  If all [the bank] does is attack waste (in the form of errors, rework, redundancy, etc.), and it fails to directly attack the variation that causes instability, then its mortgage banking operation will have to live with a loan production system that contains some combination of an unmanageable level of loans-in-process, longer-than-necessary lead times, and wasted loan production capacity.

5.   Process design is only part of the battle – the loading and sequencing of work in the process is equally important.  A poorly-designed-but-well-managed process will always outperform a well-designed-but-poorly-managed process.  Eliminate the disconnected, stop-and-start, hurry-up-and-wait, inventory-intensive sequence of loan production associated with the current method for originating, underwriting, processing, closing, and transferring/selling mortgage loan products, and replace it with a system of even-flow production intended to:

—  Recognize the paradox between systems with balanced capacity and systems with balanced production, and treat even-flow production as an outcome (not a mechanism).

—  Produce a protective rate of loan originations, and an even and sufficient rate of loan closings.

—  Maximize the rate of system throughput (rate of loan closings) that can be generated with a planned, finite, and controlled level of loan production capacity.

—  Pull loan applications into the system at the rate of loan closings, rather than push applications into the system without regard to production capacity.  The capacity of a loan production system is determined by the number of loans-in-process and the rate loan closings.

—  Understand that process duration (lead time), throughput (loan closings), and work-in-process (loan applications-in-process) are genetically-attached;  they have the same DNA, and they impact each other in cause-and-effect relationships.

6.   Standardize and simplify a process before automating it.

7.   Let the requirements of processes drive the other components of the business operating model (systems, organizational structure, employee selection, etc.).  Wherever possible, move from a vertical, functional organizational structure to a horizontal, team-based approach aligned with the flow of work and the creation of value.

8.   Although processes present a standardized approach to workflow that promotes consistency, evenness, and stability, those same processes need to support enterprise models that are adaptable, agile, and responsive.

9.   Processes benefit from a systems approach to continuous improvement.  The goal is not to improve the performance of the process – the goal is to continuously improve the performance of the overall system.  99% of the improvement in operational performance will come from improving performance on whatever resource is the system’s constraint.

10.   Processes don’t perform work or deliver value – the people working in the process do.  Make the training, performance measurement, and – especially – the compensation structure reflect the performance requirements of the new process.