October 30, 2020
We hope you have enjoyed our blog series based on 10 analytical techniques to improve business processes. So far, we have covered 8 analytical techniques in the following blogs.
Activity and Process Cost Analysis
In the last blog of the series, we have focused on 2 important techniques to analyse business processes.
- ACTIVITY AND PROCESS TIME ANALYSIS
ACTIVITY AND PROCESS TIME ANALYSIS
One of the methods of cost reduction is to analyse the time associated with doing an activity or a complete process. There are two categories of time we must take note of:
Execution time per activity: That is the time required to complete a single activity in a process. For example, recording customer data takes 2 minutes.
Delay time: This is the time lag associated with the task in process. There are 2 kinds of delay:
- A delay in a process due to the unavailability of a third party e.g. system or person not available.
- A delay in the process due to not prioritizing the activity E.g. I received an order but I did not act upon it immediately.
There are two informative measurement opportunities. The first is the time per activity and the second is the time of the process.
The time measurement per activity leads to the calculation to answer the question of how much time are we spending on CVA, BVA or NVA activities. For example, the process has 3 NVA activities.
NVA activity one = 2 minutes
NVA activity two = 1 minute
NVA activity three = 4 minutes
That means that in one process alone, 7 minutes of time is wasted. The time measurement for the complete process is called Process Cycle Time. It is easily calculated by adding the time taken for all activities in the process + delay time.
Generally, process cycle time is expressed annually. To achieve this, the frequency of the process must be considered. For example, the process cycle time is 30 minutes and its frequency is twice per week. Hence, on an annual basis, the organisation is spending 52 hours on this process. If 7 minutes of the 30 minutes are dedicated to NVA activities, on an annual basis the organisation is wasting 728 minutes or over 12 hours on non-value adding activities!
Process Efficiency, also known as Process Cycle Efficiency, signifies a level of performance that describes a process. In short, an efficient process uses the lowest amount of inputs to create the greatest amount of outputs.
Process Cycle Efficiency is a measurement, expressed as a number. This number represents the amount of value adding time in a process. The higher the number, the more efficient the process becomes.
The Process Cycle efficiency is calculated by totaling the value adding activities (BVA & CVA) time in the process and then dividing it by the total Process Cycle Time of the process.
In other words, process cycle time = process execution me + delay time
Process Cycle Efficiency is improved by decreasing the cycle time through the reduction of delay time. Let us look at a scenario:
Process Cycle time = 50 minutes
Execution time = 10 minutes
Hence, there is a delay time of 40 minutes in the process.
Divide Execution time by process cycle time. That is: 10/50 = 0.2
To represent the decimal as a percentage, multiply it by 100.
Therefore, the efficiency of this process is 20%.
Hence, if we want the process to be 100% efficient, we need to remove the 40 minutes delay time. As a reference, for transactional processes, that is anything non-manufacturing, 25% efficiency or above is acceptable.
The blog series covered some of the many approaches to improve business processes within your organisation. It is important that before executing any of these, risks and costs are properly calculated to avoid failures and instead get excellent results from the improvement initiatives.