Process-Based Management

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Process-Based Management

• City XXX Public Utilities
• February 22, 2001

2
Todays Objective

• To Reaffirm
• The Need for Change in the Way XPU Manages Its
  Business
• The Preference of XPU for
• Process-Based Management
• Process-Based Information Tools
• A Path Timetable That Has Initial Process-Based
  Solutions Implemented in 2002

3
Todays Agenda

• The Case for Change at XPU
• Why Process-Based?
• Insights from a Real Life Project
• XPUs Roadmap

4
The Starting Point XPU Decides It Must Change

• 1996 Annual Report ...an internal transition
  designed to prepare staff and the Utility Board
  to operate the electric utility in an environment
  of increasing options for our electric
  customers.
• 1997 Annual Report XPUs efforts in the coming
  years will be to prepare for operating in a
  competitive market.
• 1999 Strategic Plan Focus on FINANCIAL
  AWARENESS at a departmental level to drive us
  toward competitive rates.

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Then how do you decide?
what to change? . . . what to do differently?
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One Useful Model
InformationTools
BusinessDecisions
InformationforDecisions
BusinessIssues
What Needs Changed?
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Identifying Needed Changes
Changing Business Issues are a Given the Cause
of XPUs Dilemma
XPU Wants More Business Decisions To Be Made by
Managers
XPU Needs New Different Decision Support
Information
XPU Needs New Different Tools to Provide That
Information
Well Look at Each of These in Turn
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Engaging XPUs Managers
Role of an XPU Manager Change
Do Functional Work
Manage the Department Supervise Work (Organize,Plan, Monitor, etc.)
Manage People (Motivate, Discipline, etc.)
Manage Resources (Workload, Operating Budget)
Participate in XPU Business Mgmt(Collaborative Communicate Financial Impacts) Participate in XPU Business Mgmt(Collaborative Communicate Financial Impacts)
Other Other
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Another Useful Model

• Three Time Perspectives of Business

Yesterday Results Perspective
Tomorrow Strategic Perspective
Today Operations Perspective
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Three Kinds of Issues Decisions
Yesterday Results Perspective
Tomorrow Strategic Perspective
Where is the best opportunity to improve our
process?
Today Operations Perspective
Should I invest in this XPU bond?
What should I charge for this new service?
These Require Three Different Kinds of Information
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Three Kinds of Information Tools
Yesterday Results Perspective
Tomorrow Strategic Perspective
Today Operations Perspective
What Tools Does XPU Have in Place Today?
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XPUs Existing Information Tools
Yesterday Results Perspective
Tomorrow Strategic Perspective
Today Operations Perspective
Little or NoInformation Available
Even LessInformation Available
SAP Financials
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Review Needed Changes
XPU Wants More Business Decisions To Be Made by
Managers
XPU Needs New Different Decision Support
Information
XPU Needs New Different Tools to Provide That
Information
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Todays Agenda

• The Case for Change at XPU
• Why Process-Based?
• Insights from a Real Life Project
• XPUs Roadmap

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LCs Process-Based Approach

• Promote Process Thinking in All Aspects of
  Business Management
• Explicitly Use the Process Model of Business for
• Process-Based Management Techniques
• Process-Based Information Tools

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What is the Process Model?

• Any endeavor can be described in terms of input,
  activity output.

Tangible inputs are converted (via the endeavor)
to tangible outputs.
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The Process Model Resources
The cost of people, supplies and assets are
viewed as organizational resources that are
consumed by the activity.
Resources (Budget) Peoples Time () Fuel
Depreciation
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The Process Model Outputs

• Output is expressed in terms of measurable units
  
• KiloWatt Hours (kWhs) of electricity
• The cost of a measurable unit is the ratio of
  its activity cost and the quantity of the
  measurable units completed
• Cost per kWh of electricity
• Outputs are consumed by products services,
  market segments, and so on...

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Process Model Summary
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Why Process-Based?

• The Process Model, Its Tools Techniques
• Enable Cost Management to be Practiced Throughout
  the Organization and Thats Good!
• They Describe the Organization in the Language of
  People Who Do the Work
• They Establish a Real-Life Causal Relationship
  Between the Work People Do and Cost
• Systematically Integrate Seemingly Independent
  Functions and Activities and Thats Good!
• They remind employees that the activities of
  disparate departments are interdependent, even if
  organizational charts suggest otherwise.
• No Other Cost Management Model Does This

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Todays Agenda

• The Case for Change at XPU
• Why Process-Based?
• Insights from a Real Life Project
• XPUs Roadmap

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State/DOTs Challenge
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The Govs Challenge Pool . . .

• Commissioners Contribute to the Pool via
  targeted cuts to least valuable programs/services
• Participation in Challenge Pool earns them the
  opportunity to obtain NEW funding, greater than
  their pool contributions, to add or improve
  existing services
• Election not to participate in pool earns them
  automatic budget reduction

What to Change?
How?
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Requirement for Good Information

• Information is
• Data
• Endowed with
• Relevance
• and
• Purpose.
• Peter Drucker, 1990

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State/DOT Start with the End in Mind

• State/DOTs Purpose
• Identify CQT
• Manage CQT
• Improve Competitiveness
• Focus on Continuous Improvement
• Deploy Resources Effectively
• Measure CQT

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Activity Based Solutions

• What is the annual cost of Construction
  Management?
• What is the cost of a typical bridge design?
• How much does it cost to prepare a complex
  PSE package?

• Q - Whats ABC Used For?
• A - Get Relevant Info. To support strategic
  decisions, such as
• Are we competitive, OR not?
• Are our resources deployed effectively, OR not?
• Should we invest in ABM to support the Challenge
  Pool requirements, OR not?

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Program Support

• Develop Activity-based Models
• Institutionalize the Process
• Roll-out Additional Activity-based Tools
• Focus on Activity-based Continuous Improvement,
  and
• Integrate with Business Planning

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Level 1 Process Info Process Map
1 2 3 4
Activity 1
Activity 2
Activity 3
Activity n
Activity Name Descriptive Text
Task n
Task 1
Task 2
Task 3
Task 4
Task 5
Task 6
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Level 2 Process Info Activity Dictionary
1 2 3 4
Activity 1
Activity 2
CLICK HERE!
Activity n
Activity Name Descriptive Text
Task n
Task 1
Task 2
Task 3
Task 4
Task 5
Task 6
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More Level 2 Info Resource Usage
1 2 3 4
Activity 1
Activity 2
CLICK HERE!
Activity n
Activity Name Descriptive Text
Task n
Task 1
Task 2
Task 3
Task 4
Task 5
Task 6
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Example of Results An 80/20 Analysis
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Example Cost/Unit of Primary Outputs
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Example Secondary Activities
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Example Hours/Unit
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Activity 5A Closer Look
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EC5Repair Electronic Equipment

• Normalization Criteria

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EC5Repair Electronic Equipment

• Normalization Factors X 2.8

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EC5Repair Electronic Equipment

• Hours Per Output Type

1.0 FactorX 2.8 hrs./ (n) unit
1.0X
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EC5Repair Electronic Equipment

• Dollars Per Output Type

1.0X
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EC5Repair Electronic Equipment

• Actual Quantities per Output Type

5028
1025
201
0
0
0
858
663
150
81
80
2
660
111
24
14
13
0
8910
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EC5What if Demand Increases?

• Projected Quantities per Output Type

5028
1025
201
0
0
0
858
663
150 gt 250
81
80
2
660
111
24
14
13
0
Suppose projected demand is for 100 more Repairs
of the variety indicated above, in red. Assuming
no other changes, resource requirements would
increase by approximately (100 qty 317/ea
32 K).
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EC5Kinds of Resources per (n) Output
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Status of Develop Activity-based Models
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ABM Rollout in Program Support

• Major Milestones

Complete AB Models
Institutionalize
Do ABM Cycle 1
Institutionalize ABM
Jan
Feb
Mar
Apr
May
Jun
July
Aug
Oct
Nov
Dec
Sep
Jan
Feb
Mar
Apr
May
Jun
2001
2002
FOR MORE INFO...
State/DOT deployment of Activity-based models
nearing completion. Institutionalization of
model-building process and usage is ongoing. ABM
Cycle 1 is in early planning stage.
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ABM - A Systematic Process
ACT
ACT
CHECK
Identify improvement opportunities
PLAN
Develop action plans
DO
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A New Focus
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Todays Agenda

• The Case for Change at XPU
• Why Process-Based?
• Insights from a Real Life Project
• XPUs Roadmap

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Summary of 2002 Project

• Phase 1, Cost Center Process Analysis
• Interlude Collect Cost Center Data
• Phase 2, Modeling
• Cost Center Models
• Total Utility Models
• Phase 3, Training Sustenance
• Teach XPU How to Maintain Models
• Teach XPU How to Do Workload Analysis w/Models
• Teach XPU to Use Process Models in Budgeting
• Teach XPU to Use Models to Cost Something

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The Overall Roadmap
Process Controls
Strategic Information
ABC info for strategic decisions
Develop ABC Information
Evaluate Performance
Cost, Quality, Time (CQT)
Resource Controls
Activity Based Planning Analysis
Process Improvements
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Preparing for 2002

• Exec. Mgt. Discovery Sessions
• Helps Exec. Mgt. to understand and internalize
  Process-Based thinking
• Helps Exec. Mgt. to knowledgably advocate
  Process-Based solutions to their organizations
• Some sort of all hands communication / training
  session in 3rd or 4th quarter