Modeling Business Processes

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Modeling Business Processes

• Chapter 2

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Objectives
Describe a business processes and identify the
business processes of an organization
Identify the events that comprise a business
process
Model operating events using the REAL concepts
Build and validate a REAL business processes model
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Introduction

• The first step toward enhancing a business
  professionals value is enhancing the role he/she
  plays in helping an organization define and
  improve its business processes.
• So what are business processes and how can they
  be designed to support an organizations
  objectives?
• How do we design information systems that
  collect, maintain, and process the data needed to
  generate the outputs required by management to
  effectively manage business processes in the
  information age?
• Our analysis will use semantic models ? models of
  real world actions or phenomenon. We will use
  REAL Business Process Modeling as a method to
  help you understand and model business processes.

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Business Processes
Acquisition/payment Business Process
Conversion Business Process
Sales/CollectionBusiness Process
Human Resources Financial Resources Supplies Inven
tories Property, Plant and Equipment New
Ideas (R D) Miscellaneous services
Operations Varies widely depending upon the
industry SAP industry solution maps
Marketing and Sales Service Promotion Outbound
logistics Collection and Credit E-Commerce
Activities
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Are All Processes And Business Activities Created
Equally?

• Companies often prioritize their business
  processes based on the value of the process in
  achieving the organizations objectives.
• Some business activities determine an
  organizations competitiveness in the marketplace
  while other activities might be classified as
  support activities.
• An organization may be internally cost-effective
  but it might be an unsuccessful organization.
  Why?
• Perhaps the organization has competitors
• who better meet the needs of customers,
• do a good job of outsourcing some business
  functions,
• or do a better job of creating effective
  strategic alliances with trading partners.

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Primary Value Activities

• Inbound logistics - activities associated with
  receiving, storing, and disseminating inputs to
  the products or services
• Operations- activities associated with
  transforming inputs into the final products or
  services
• Outbound logistics - activities associated with
  collecting, storing, and physically distributing
  the products or services
• Marketing and sales - activities associated with
  providing a means by which customers can buy
  produce and the means for inducing them to buy
• Service - activities associated with providing
  service to enhance or maintain the value of the
  products or services

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Support Activities

• Procurement - the function of purchasing inputs
  to firms value chain
• Technology Development - the know-how,
  procedures, or technology embedded in processes
  that are intended to improve the product,
  services, and/or process
• Human Resource Management - activities involved
  in recruiting, hiring, training, developing, and
  compensating all types of personnel
• Firm Infrastructure - activities that support the
  entire value chain (e.g. general management,
  planning, finance, accounting, legal, government
  affairs, quality management, etc.)

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Porters Generic Value Chain
Revenue
Costs
Firm Infrastructure
Human resource management
Support Activities
Technology development
Procurement
Margin
Inbound Logistics
Operations
Output Logistics
Marketing Sales
Service
Primary Activities
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Business Process Events

• A business process is a series of activities
  intended to accomplish the strategic objectives
  of an organization.
• Operating Events are the operating activities
  performed within a business process to provide
  goods and services to customers.
• Information Events include three activities
  recording data about operating events,
  maintaining reference data that are important to
  the organization, and reporting useful
  information to management and other decision
  makers.
• Decision/Management Events are activities where
  management and other people make decisions about
  planning, controlling, and evaluating business
  processes.

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Business Processes and Business Events
Business Process Delivering Goods and Collecting
Payment
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Exhibit 2-3 Business Process Activities (Events)
Define and often trigger
Decision / management events
Operating events
Trigger
Trigger
Information events
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Managing Business and Information Processes
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Processes that Trigger Information System
Responses
Information System Response Record (event
data) Maintain (agent, resource, location data)
Trigger
Business events
Information processes
Information System Response Report (in many
forms)
Trigger
Information processes
Decision Making Needs of Information Customers
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Acquisition / Payment Process

• Regardless of the type of good or service being
  acquired, the following are typical operating
  events in the acquisition / payment business
  process
• Request goods or services.
• Order goods or services.
• Receive and inspect goods or services.
• Store and/or maintain goods.
• Pay for goods or services.
• Return goods.
• Some organizations
• may order the events differently,
• may use a subset of the events, or
• may add more detailed events.

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Sales/Collection Process

• Although there is some diversity across the types
  of goods and services sold, the sales/collection
  process typically includes the following events
• Receive an order for goods or services.
• Select and inspect goods or services to be
  delivered.
• Prepare goods or services for delivery.
• Deliver goods or services.
• Receive payment for goods or services.
• Accept customer returns of goods.
• Some organizations
• may order the events differently,
• may use a subset of the events, or
• may add more detailed events.

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Conversion Process

• Finally, examples of some of the more general
  activities in the conversion process include
• Assembling.
• Growing.
• Excavating.
• Harvesting.
• Basic manufacturing (e.g., metals, woods, and
  chemicals).
• Finished manufacturing (e.g., tools, instruments,
  and components).
• Cleaning.
• Transporting.
• Distributing.
• Providing (e.g., power, water, protection, and
  communication).
• Educating.
• Discovering (e.g., research and development).

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Process Analysis Golden Pizza
Decision/Management
Operating Events
Information Events

• Analyzing the Standish market, competitors, and
  customers.
• Deciding what pizzas to place on Goldens menu.
• Determine if the cooked pizza is correct for the
  customer presenting his/her copy of the order
  form.

• Receive customer pizza order.
• Receive customer payment.
• Make pizza.
• Box pizza.
• Give pizza to customer.

• Record customer order.
• Calculate order amount.
• Mark order Paid.
• Give customer copy of order.
• Give cook copy of order.
• Tape order to pizza box.
• Remove copy of order from box.
• Send order copies to accounting.

• Generate a customer analysis report.
• Generate a report of sales by pizza type.
• Generate a gross margin analysis.
• Generate a report of lost sales due to the 20
  minute guarantee.

Trigger
Trigger
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Developing a REAL Business Process Model

• REAL Business Process Modeling is a formal method
  of identifying and representing the essential
  characteristics that collectively describe
  business processes and events.
• The title REAL is an acronym for Resources,
  Events, Agents, and Locations.
• Preparing a REAL Business Process Model requires
  you to identify strategically significant
  business activities and essential characteristics
  about these business activities (see Exhibit 2-4).

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Exhibit 2-4Real Business Process Model Matrix
Strategically relevant events What happened? How
is each event executed and why is it
executed.? Date/Time When did each event occur?
Internal and external agents What roles are
performed and who/what agents perform the roles
in executing each event? Resource(s) What kinds
of resources were involved and how much was
used?. Location Where did the event occur? Risks
What can go wrong in executing the event?
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Step 1 Understand The Organizations Environment
and Objectives

• REAL modeling is an aid in analyzing an
  organization and its activities.
• Collect data and insights about the
  organizations objectives, industry, value chain,
  strategies, product lines, and customers.
• Pay attention to the organizations people,
  structure, technologies, and measurements.
• A better understanding of these factors will
  enhance your ability to evaluate business
  processes and identify processes and events that
  are not valuable, not competitive, and/or not
  meeting the objectives of the organization

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Understanding the Business Environment
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Step 2 Review the Business Process and Identify
the Strategically Significant Operating Events

• Begin by dividing the organization into its
  business processes. What happened? How and
  Why?
• REAL graphical modelinclude the strategically
  significant operating events that comprise a
  business process. (the ones that the organization
  wants to plan, evaluate and execute/or control)
• Begin your REAL graphical model by representing
  events as rectangles with a descriptor inside
  the rectangle. Select terms that accurately
  describe each operating event. We suggest using
  an active voice to name events.

Receive Customer Order
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Using the Worksheet
ReceiveCustomer Order
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Exhibit 2-5 McKells Retail Model Step 2
McKells Retail Store has hired you to analyze
their sales/collection process. Customers can
purchase a variety of merchandise from McKells
store. Each sale involves a customer assisted by
a salesperson. The customer can buy one or more
items of merchandise. McKells sales force
randomly assists customers (McKells does not
assign customers to specific salespersons)
and each sale occurs at a specific register
(McKells has several registers). Individual
items of merchandise are not uniquely identified.
This means that McKells does not assign a unique
identifier to each white T-shirt sold, or each
pair of size 9 white tennis shoes. The
customers are allowed to pay with cash, check, or
credit card.
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Step 3 Analyze Each Event Listed In Step Two To
Identify The Event Resources, Agents, And
Locations

• Describe essential characteristics of the
  eventsthe characteristics which
• if omitted, would render an inaccurate or
  incomplete description of the event.
• form the basis for generating outputs for
  information customers to plan, execute, control
  and evaluate organization activities.
• What kinds of resources were involved?
• What roles are performed and who/what agents
  perform the roles?
• Where did the event occur? (location)

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Exhibit 2-6 McKells Retail Store REAL Model
Step 3
Salesperson
Merchandise
Sell Merchandise
Register
Customer
Receive Customer Payment
Cash
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Step 4Identify The Relevant Behaviors,
Characteristics, And Attributes Of The Events,
Resources, Agents, And Locations

• At what time or sequence in the process should
  the event occur?
• What are the exceptions to the normal ordering
  of events in the process?
• What is the proper authorization or approval to
  execute this event?
• What is a reasonable amount of resource
  associated with this event?
• What are the acceptable locations for executing
  this event?

• What is an acceptable time period between events
  in a business process?
• How might the order of events vary by customer?
• Does the location from which goods are shipped
  matter?
• How many salespeople are assigned to each
  customer?
• Should a sales order clerk have custody of cash?
• Can a customer have two different addresses? Why
  or why not?

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Sequence of Events
Receive payment
Provide Credit
Cash inAdvance
OR
Ship merchandise
Business Policies

• Constructing a building
• Excavate Construction Site
• Pour Foundation
• Lay Floor
• Frame Building
• Side Building
• Install Rough Plumbing
• Install Rough Electrical

• The sequence of events may also be a function of
  the physical characteristics of the event. In
  this case, construction techniques, local
  regulation, and laws of nature determine the
  event sequence.
• Sometimes the sequence of events is dictated by
  customer preference.

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Event Risks

• An operating event occurring at the wrong time
  or sequence,
• An operating event occurring without proper
  authorization,
• An operating event involving the wrong internal
  agent,
• An operating event involving the wrong external
  agent,
• An operating event involving the wrong resource,
• An operating event involving the wrong amount of
  resource, and/or
• An operating event occurring at the wrong
  location.

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McKell's Retail Sale Store Case
CheckpointBusiness Rules

• Each sale takes place at a specific register
  (location).
• Each sale involves only one customer (external
  agent).
• Only one salesperson (internal agent) is
  responsible for each sale.
• Each sale involves one or more items of
  merchandise (resource).
• McKell's merchandise items are not uniquely
  identified. Each instance of Merchandise refers
  to a type or class of Merchandise (e.g. size 12
  white T-shirt, or size 9 white tennis shoes, or
  size 5 leather gloves).
• The salesperson and customer do not have a direct
  relationship, because McKell does not assign
  customers to specific salespersons. The customer
  and salesperson are related only through the
  sale.

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McKells Retail Store Case CheckpointBusiness
Rules

• While analyzing this event, you may document
  several additional rules, such as
• Sales can only involve merchandise, not fixed
  assets.
• Sales cannot involve more merchandise (quantity)
  than McKell has on hand.
• Sales cannot involve merchandise McKell does not
  offer.
• Each sale must take place at only one register
  and the register identification must match a
  register identification on record.
• Each sale must include only one salesperson whose
  identification matches a salesperson
  identification on record.

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Step 5Identify And Document The Direct
Relationships Between Resources, Events, Agents,
And Locations

• Draw a line from each event to each resource,
  internal agent, external agent, and location
  associated with that event. On the line, add a
  meaningful term or phrase that describes the
  relationship between the objects. See Exhibit 2 -
  7 or 2 - 8.
• Graphically display events that are related to
  other events to show the required sequence of
  events in a business process. Draw lines from
  event to event in the correct sequence
• Document direct relationships between pairs of
  agents, locations, and resources that exist
  independently of an operating event. Connect the
  pairs with a line.

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Exhibit 2-7 Template Without Diamonds
Internal Agent
Resource
Event
External Agent
Location
Internal Agent
Resource
Event
External Agent
Location
Place Relationship Descriptions on the Lines
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Exhibit 2-8 Template With Diamonds
Internal Agent
Resource
Event
External Agent
Location
Internal Agent
Resource
Event
External Agent
Location
Place Relationship Descriptions inside the
Diamonds
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Exhibit 2-9 McKells Retail Store REAL Model
Step 5
Merchandise
Salesperson
Sell Merchandise
Register
Customer
Receive Customer Payment
Cash
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Identifying Direct Relationships

• Example
• A sales/collection business process that consists
  of three events
• Take Customer Order, Sale Inventory, and Collect
  Cash
• Step 1 Relationships between the event(s) and
  related resources, agents, and locations
• Related Objects Related Objects
• order - inventory order - salesperson
• order - customer sale - inventory
• sale - customer cash receipt - cash
• cash receipt - customer

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Identifying Direct Relationships (cont.)
Example A sales/collection business process that
consists of three eventsTake Customer Order,
Sale Inventory, and Collect Cash Step 2
Relationships between directly related events
(e.g. consecutive or sequential events that occur
during the business process) Related
Objects order - sale sale - cash receipt Step
3 Relationships between any resources, agents,
or locations that have a direct relationship
independent of any event occurring. Related
Objects salesperson - customer
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Step 6Validate The Real Business Process Model
With Business Persons

• Those who understand the details and objectives
  of the business process and events being modeled
  should perform the validation.
• Validation sessions should result in either the
  confirmation of the models accuracy or
  modification of the model.
• Modifications typically involve decomposing one
  or more operating events into more detailed
  operating events, or combining events.
• Once a REAL model is created, does it need
  updating or maintenance? Yes. The nature of
  business processes and events can change over
  time. More importantly, in todays fast paced
  world, the nature of business processes and
  events often must change with time.

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Linking Processes

• Understanding the relationship between individual
  business processes is very important.
• Collectively business processes result in the
  acquisition of goods and services, the conversion
  of acquired goods and services into goods and
  services for customers, the delivery of the goods
  and services to customers, and the collection or
  payment from customers.
• Business processes are linked together in two
  ways
• by sharing common resources or
• by an event in one process triggering an event in
  another process.
• For example, consider the simple model presented
  in Exhibit 2 - 11.

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Exhibit 2-10 Partial REAL Diagram for Linked
Business Process Example
Receive goods from vendor
Ship goods to customer

-
Inventory
Pay vendor for goods
Receive customer payment

-
Cash

Acquire financing
Acquire human resource
-

-
Human resource
Pay for human resource
Repay vendor
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Appendix Two Further Practice Using REAL
ModelingCherry Bee, Inc.

• Cherry Bee, Inc. is a small bee keeping operation
  located in Preston, Idaho. Each spring Marc, the
  owner, hires several beekeepers to manage and
  care for the hives owned by Cherry Bee. Marc
  pays these hive workers weekly during the spring,
  summer, and fall.
• Marc purchases new supplies and materials for
  hive workers to use. The beekeepers go to the
  fields to check each hive, medicate each hive,
  clean any dead bees out of the hive, and add
  sugar water if the supply of honey in the hive is
  low.

Business Events
Hire Workers
Pay Workers
Purchase Supplies
Check hives
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Appendix Two Further Practice Using REAL
ModelingCherry Bee, Inc.

• Twice during the summer, hive workers extract
  honey from the hives. Then they go into the
  supply barn to strain the honey and package the
  finished product in a variety of different sized
  containers. The finished honey is placed on
  shelves in the storage room. In the late fall,
  hive workers again check each hive, give them
  more medicine, and wrap the hives in black
  plastic to keep them warm during the winter.
• Throughout the year, customers purchase honey
  from Marc at the Cherry Bee Store. Some
  commercial customers purchase the honey on
  account, while most customers pay cash. Marc
  purchases the supplies both on account and with
  cash from local vendors. The medicine, sugar,
  and black plastic are kept in the supply barn
  along with other supplies and materials, as well
  as the honey inventory.

Extract honey
Strain honey
Package honey
Store honey
Sell honey
Receive Payment
Pay for Supplies
Store Supplies
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Exhibit 2-11 Cherry Bee Business Processes
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Cherry Bee Business Process Model Matrix
Internal Agents
External Agents
Event
Resources
Hire workers
manager (Marc)
Potential workers
human labor
cashier (Marc), hive workers
Pay workers
cash
purchasing agent (Marc)
materials supplies
Purchase mat. supplies
vendors
payables clerk (Marc)
Pay for mat. supplies
vendors
cash
Store mat. supplies
materials supplies
hive workers
hives, mat. supplies
hive workers
Check hives
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Cherry Bee Business Process Model Matrix
Internal Agents
External Agents
Event
Resources
Store mat. supplies
hive workers
hives, mat. supplies
hive workers
Check hives
hives, mat. supplies
hives, mat. supplies
Extract honey
hive workers
Strain honey
hive workers
hives, mat. supplies
Package honey
hive workers
packaged honey
Store honey
store worker (Marc)
packaged honey
Sell honey
store worker (Marc)
customers
packaged honey
Collect payment
cashier (Marc)
customers
cash
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Cherry Bee Business Process Model Matrix
Locations
Business Objectives
Event Trigger
Cherry Bee store
Hire skilled, dependable workers at a fair rate
...
need for labor
Pay only for services received, pay in a timely
manner....
payment for services due
Cherry Bee store
Have mat. supplies on hand when needed, pay
lowest prices..
need for mat. supplies
vendor store
at Cherry Bee or vendor store
Pay for supplies in a timely to maintain vendor
goodwill...
purchase of mat.supplies
Store materials supplies in a safe, convenient
location
purchase of mat.supplies
supply barn
Make sure hives are healthy and prepared for
production..
beginning of Spring
field
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Cherry Bee Business Process Model Matrix
Locations
Business Objectives
Event Trigger
Make sure hives are healthy and prepared for
production..
field
beginning of Spring
Extract all the honey at the right point in time
without waste..
field
hive full of honey
supply barn
Produce clean honey for sale...
Extracted honey
Package honey in containers that promote a long
shelf life...
supply barn
honey was strained
Store honey in a safe, convenient location
until needed at store...
honey was packaged
supply barn
Sell quality honey for a fair price as quickly
as possible ...
customer enters store
Cherry Bee store
Collect payments from customers in a timely
manner ...
Cherry Bee store
sale of honey
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Cherry Bee REAL Models
Labor Acquisition/Maintenance/ Payment Process
Human Labor
Hire workers
Marc
Cherry Bee Store
Pay workers
Hive Workers
Cash
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Cherry Bee REAL Models
Supplies and Materials Acquisition/ Maintenance/
Payment Process
Supply Barn
Hive workers
Store mat. supplies
Materials Supplies
Marc
Vendor Store
Purchase mat. supplies
Cherry Bee Store
Vendor
Pay for mat. supplies
Cash
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Cherry Bee REAL Models
Sales/Collection Process
Packaged Honey
Sell honey
Marc
Cherry Bee Store
Collect payment
Customer
Cash
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Cherry Bee REAL Models
Conversion Process
Check hives
Hive
Field
Extract honey
Materials Supplies
Hive Workers
Honey in Process
Strain honey
Package honey
Supply Barn
Store honey
Packaged Honey
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REAL Model of a Service Process
Customer Calls
Submit Bid
Customer Representative
Services
Enter Contract
Customer
Provide Services
Janitor
Cash
Receive Payment
Customer Payments Clerk
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REAL Model of a Not-For-Profit Organization
Victim Arrives
Receptionist
Shelter
Interview Victim
Interviewer
Room
Assign Room
Clothing
Issue Clothing
Inventory Clerk
Issue Personal Care Items
Personal Care Items
Food
Provide Food
Personal Counselor
Help set goals, identify resources
Goals, Resource Sources
Victim
Victim Leaves
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REAL Model of a Steel Manufacturing Process
Coal
Baker
Bake
Fuel
Coke
Blast Furnace
Iron Ore
Blast
Blast Furnace Op.
Limestone
Pig Iron
Finishing Furnace
Mix
Oxygen
Finishing Furnace Op.
Alloys
Steel Ingots
Rolling Mill
Mill
Finished Steel
Milling Operator
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EVOLUTION OF AIS MODELING
Stage 1 Manual Systems
Stage 2 Automated Systems
Stage 3 Event Driven Systems
Bias Support Planning, Controlling Evaluating
Activities for Various Information Customers
Bias Generate financial statements
Bias Generate financial statements
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Changing the Design Focus is built on three
underlying premises



Today's users expect a more complete and accurate
representation of reality from which to draw
information.
We are no longer constrained by the human
inability to record, maintain, and report large
volumes of details about business events.
Information technology enables the design and
implementation of semantically modeled systems -
systems that more closely resemble reality.
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A Model of Business Events

• What happened?
• When did it happen?
• Who was involved?
• What resources were involved?
• Where did it occur?

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REAL Business Process Models A Basis for
Defining the Data Repository
Catalog Center
Salesperson
Customer Places Order
Merchandise
Customer
Ship Merchandise
Carrier
Distribution Center
Package
Shipping Clerk
Receive Payment
Cash
Customer Payment Clerk
Customer Returns Merchandise
Returns Clerk
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An Event-Driven Data Repository
CATALOG-CENTER(Center, Name, Address,
Telephone, ... MERCHANDISE(Item,
Item-Description, Color, Size, .., Current-Cost,
Current-Price, QOH... CUSTOMER-PLACES-ORDER(Order
, Time, Center, SP, Customer,
Shipment, Ship-to-Instructions, Confirmation,
Tax, ... SALESPERSON(Salesperson-ID, Name,
Address, ... Commission-Rate, Marital-Status,
... CUSTOMER(Customer, Name, Address, Phone,
... SHIP-MERCHANDISE(Shipment, Time,
Customer, Packer, Carrier,
Ship-Clerk, Dist-Ctr, Pmt-Receipt,
CARRIER(Carrier, Name, Address, Rate,
Performance-Score, ... SHIPPING-CLERK(Ship-Clerk,
... DISTRIBUTION-CENTER(Dist-Ctr, Name,
Address, ...
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An Event-Driven Data Repository
PACKAGE(Package, Weight, Shipment,
Shipping-Cost CASH(Acct, Description, Balance,
... RECEIVE-PAYMENT(Pmt-Receipt, Time,
Customer, Cust-Pmt-Clrk, Acct, Amt,
... CUSTOMER-PAYMENT-CLERK(Cust-Pmt-Cler,
... RETURN-MERCHANDISE(Return, Customer,
Returns-Clrk, Center, Time,
... MERCHANDISE-ORDER(Item,Order,
Qty-Ordered, Order-Price, Order-Cost,
... MERCHANDISE-SHIP(Item, Shipment,
Qty-Shipped, ... MERCHANDISE-RETURN(Item,
Return, Qty-Returned, ...
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IT The Enabler
Posting Machines Check Writers
General Ledger and Sub-Systems