PROCESS MANAGEMENT MANUAL

Version 1.0 - May 2011

TABLE OF CONTENTS

1 2

INTRODUCTION ............................................................................. 4 PROCESS MANAGEMENT ........................................................... 5

2.1 2.2 What is process management? ................................ .............................. 5 Why is process management important? ................................ ............... 5

ELEMENTS OF PROCESS MANAGEMENT................................. 7

3.1 3.2 3.3 3.4 3.5 3.6 3.7 Introduction ................................ ................................ ............................. 7 Organisational chart ................................ ................................ ............... 7 Primary process ................................ ................................ ..................... 8 Managing process ................................ ................................ .................. 8 Ancillary processes ................................ ................................ ................ 8 Risks (risk aspects) ................................ ................................ ................ 8 Control measures ................................ ................................ ................. 10

4 5 6

STANDARD APPROACH TO PROCESS MANAGEMENT ........ 11 NOTES TO APPROACH TO PROCESS MANAGEMENT .......... 13 THE PREPARATORY STAGE ..................................................... 14
6.1 6.2 6.3 6.4 6.5 Introduction ................................ ................................ ........................... 14 Step 1a: Introduction to process management (current situation) ........ 14 Step 1b: Strategic course ................................ ................................ ..... 14 Step 1c: Process decomposition ................................ .......................... 15 Step 1d: Action plan and Formation of team ................................ ........ 16

THE ANALYTICAL STAGE .......................................................... 17

7.1

Step 2: Process analysis ................................ ................................ ...... 17 Establishing the beginning and the end of the process .................. 18 Establishing the activities embedded in the process ...................... 18 Preparing the process chart ................................ ........................... 18 Identifying actors ................................ ................................ ............ 19

7.1.1 7.1.2 7.1.3 7.1.4 7.2

Step 3: Risk analysis ................................ ................................ ............ 19 Mapping out risks ................................ ................................ ........... 20 Reviewing risks ................................ ................................ .............. 21

7.2.1 7.2.2

CONTROL STAGE ....................................................................... 23

8.1 8.2 Step 4: Identifying control measures ................................ .................... 23 Step 5: Developing control measures ................................ ................... 24 Developing a procedural chart ................................ ....................... 24 Establishing duties, responsibilities and powers ............................ 26 Developing work instructions ................................ ......................... 27

8.2.1 8.2.2 8.2.3

9 10

IMPLEMENTATION STAGE ........................................................ 29 ANNEX 1: RACI CHARTING.................................................... 30

INTRODUCTION

This manual was written as a guideline for ANY organizations interested in learning more about the opportunities for managing and improving business processes in general and how their own organisations can benefit from these opportunities in particular. This manual sets out to define process management and its relevance for an organisation. Section 3 then maps out a number of concepts relating to process management. Sections 4 and 5 address how to approach a process management project. The s tandard approach can also be used to set up a quality assurance system and/or an internal control structure.

2
2.1

PROCESS MANAGEMENT
What is process management?

A pilot can only keep his plane on course and adjust his course to changing weather conditions where necessary if he knows that the plane as such is in good working order. The technical systems need to be managed and controlled. This example also applies to an organisation. An organisation (i.e. the plane) is formed by a group of people (i.e. the pilot) who use tools to perform activities (i.e. technical systems) in mutual collaboration in order to effectively achieve the agreed targets (i.e. the course). The activities that are undertaken are aimed at achieving the set business objectives, which requires them to be managed. An enterprise cannot exist without process management. Process management is defined as: managing and controlling employee activities such that the business processes in which the activities are bundled, are aimed at achieving the enterprises strategic and other objectives. In short, process management entails achieving strategic and other corporate objectives by streamlining business processes. It is not only important to secure that the organisation reaches its targets, but also that it does so properly, i.e. efficiently. In order to do so, any risks associated with the processes must be mapped out to avoid them leading to misunderstandings. In addition, the organisation should develop preventative measures that reduce these risks to a minimum. Such measures could include describing procedures or setting requirements for the education and skills levels of employees. Before describing the different aspects of process management, we will first address why process management is essential for an organisation.

2.2

Why is process management important?

Process management has been at the centre of attention in the past few years. But why? The need for managing processes becomes more pressing commensurate with: - increases in changes due to in-company and external developments; - the rising complexity of internal relations and the business environment (e.g. ecommerce); - employees lack of time to develop good working relations with their colleagues; - the impossibility to exclude all human error; and - a rising need to offer employees as much independence as possible in performing their duties based on decentralisation of decision-making powers. Based on the above, the primary purpose of process management is to state with reasonable assurance that business objectives will be achieved, with emphasis being placed on reasonable assurance since there are always unforeseen risks for which no control measures are taken, whether consciously or unconsciously. There are another few reasons why organisations should consider introducing a process management system:

the system leads to a higher level of transparency of the organisation for every person involved, including managers, current and new employees, the internal auditor, etc.; the system offers more insight into business processes, such that changes and improvements can be implemented more rapidly; the system offers insight into critical business processes and improves an organisations governability by providing access to more facts, thereby reducing the number of discussion points; the system reduces an organisations dependence on one or a limited number of key officers; the system results in fewer errors, i.e. introduces higher efficiency levels; the system fosters alignment among departments and people (i.e. coordination); and the system leads to a more pleasant working environment (provided that it is implemented well, i.e. is sufficiently supported in the organisation).

3
3.1

ELEMENTS OF PROCESS MANAGEMENT

Introduction

For the sake of clarity, we will elaborate on a number of terms and concepts in this section.

3.2

Organisational chart

When asked about the structure of their organisation, employees are likely to present an organisational chart.
Management Board

F&A

Secretariat

Purchasing

Production

Sales

However interesting an organisational chart may be, the information that it contains is limited. The average organisational chart shows what the job titles are, who occupies which position and who reports to whom hierarchically. The following information is not included:  what do the employees do and what are their working methods?  what information and other input do they need to exercise their duties?  what tools (i.e. equipment, computers) do they need to exercise their duties?  which internal and external parties do they consult?  what is the outcome of their duties? This is better expressed in the below figure, which describes an enterprise as an organisation in a state of transformation: assets are input, and activities result in the desired products and services, which are supplied to the customer.
INPUT PROCESS OUTPUT

People Resources Materials Information Raw materials Semi-finished goods Energy

Activities

- Products - Services

The above aspects provide information about the transformation process that an organisation is undergoing. This information is of great relevance because it adds value to the transformation process. After all, an operating margin is created if the added value (in the eyes of the customer) is higher than the production costs. In other words, processes show how an organisation makes its profit. Every organisation operates a range of processes. The most common processes are the primary process (Section 3.3), the managing process (Section 3.4) and ancillary processes (Section 3.5). Risks, which may occur in each of the processes, must be managed using a range of control measures (Section 3.6 and 3.7).

3.3

Primary process

An organisation's core activities take place within the primary process. The organisations raison dtre is derived from the primary process, and its continuity is contingent on this process because value is added here. For industrial companies, it is the production process that qualifies as the primary process, for a financial institution it is the flow of financial resources and for an institute of learning it is the curriculum. The primary process is made up of a number of logically sequenced processes. The primary process is also referred to as production process and the value chain.
Sales Planning Purchasing Production Shipping Services

3.4

Managing process

The objective of the managing process is to structure the primary process and to attune it to market requirements, and to set targets for, and adjust (i.e. steer), the primary process. An example of a managing process is the planning & control cycle of an organisations management.

3.5

Ancillary processes

Rather than adding immediate value, ancillary processes ensure that the primary and managing processes continue to run. Examples of ancillary processes are: - the accounting function; - technical maintenance services; - purchasing of sustainable assets; and - staff recruitment, selection and training.

3.6

Risks (risk aspects)

A risk is an unplanned, negative disturbance of a process that leads to an unplanned output (e.g. poor results, i.e. low effectiveness) or to reprocessing and/or higher consumption of resources (i.e. lower efficiency). In other words, risks are events that potentially prevent an organisation from achieving its targets and objectives. A risk analysis may lead to the discovery of a concentration of certain risk aspects. Risk aspects may stem from the Critical Success Factors (CSFs) that were defined during the organisations strategy formation. For instance, production throughput times may be of crucial strategic relevance in connection with delivery periods to customers. Any risks in the primary process that result in an extension of the delivery period are then relevant (strategic risk) and must be controlled. Other clear risk aspects (besides strategic risks) are financial, operational, hazard and miscellaneous risks. Strategic risks - Business Environment risk: relates to the exposure of the company as a player in a changing environment. - Regulatory environment risk: relates to the companys exposure towards its various regulatory obligations. - Brand risk: relates to the companys ability to manage its reputation towards its stakeholders. - Strategic management risk: relates to the companys exposure arising out of strategic planning analysis, management of its business portfolio (and communication). Financial risks - Price Risk: price risk is the exposure of earnings or book value to changes in market fundamentals / orientations which affect future prices and thus income, expenses or balance sheet values. - Liquidity risk: Liquidity risk is the exposure to default as a result of the inability to meet cash flow obligations in a timely and cost-effective manner (or to turn securities into cash). - Credit risk: credit risk is the exposure to actual loss as a result of the default (or other failure to perform) of an economic or legal entity with which the company does business. - Contract and financing risk: contract structure risk is the exposure to imbalances of the structure of earnings compared to costs having consequences on margins. Financing risk relates to loss or missed opportunities due to relations with financial institutions or clients because of their loan strategy or inability to reach an agreement. Operational risks - Operations risk: relates to the exposure of the company in the achievement of the daily processes of the business. - Organizational risk: relates to the structure of the company and its adequacy to meet the companys activities and processes. - Human resources risks: relates to the quality of management and its ability to sustain and meet business objectives through the empowerment of employees. - Information and Processing management risk: relates to the quality of the information communication and monitoring. Hazard risks

Global location risk: relates to the exposure of the company - depending on its localisation - to catastrophes and site vulnerability. Property and assets risk: relates to the protection of the companys physical and intangible assets in general. It also concerns the ability of the company to continue operations. Liability risk: relates to financial losses arising out of third parties claims consequential to damages.

Miscellaneous risks Specific risks which fall under none of the above categories.

3.7

Control measures

Control measures can be divided into preventative, repressive and corre ctive measures. Preventative measures reduce the chance of risks and their effects occurring, one example being the drafting of a procedural chart. Repressive measures mainly entail establishing whether the preventative measures actually work. They include all manner of checks. After an organisation has established that an error has occurred somewhere in the process, it needs to take corrective measures to rectify this error such that any damage incurred is kept to a minimum. Corrective measures also include a change in procedures. The below figures illustrates how these measures correlate.
Corrective measure

Preventative Prevent t ve measure

Process

10

Repressive measure

Correction

Check

Adjustment, f if needed

STANDARD APPROACH TO PROCESS MANAGEMENT

Although the basic approach to process management applies to every organisation in general, there are major differences among enterprises, their organisational models and the conditions under which they operate. The practical implications of control measures must be in line with an enterprises specific requirements and be geared to the prevailing circumstances. Aspects that have to be taken into account include the growth stage in which the enterprise finds itself, the size of the organisation, the educational background of its employees, the management style, etc. In other words, the method as such offers a frame of reference rather than ready-made solutions. The figure on the next page shows that there are four stages in the standard approach. First off, there is the preparatory stage, which consists of management involvement. This stage is made up of four steps. The management of an organisation should first of all acknowledge the importance of process management. It is crucial in this step to gain insight into the current situation of the organisation. Then the strategic course (which is made up of policy, targets and critical success factors) needs to be clearly defined, after which the organisational processes are roughly charted through process decomp osition. Based on the above steps, a team is put together and an action plan developed. The next phase, which is the analytical stage, serves to further dissect the processes. The processes are then subjected to a risk analysis, the primary objective of which is to identify risks and to review their impact. The advantage of this approach is that it does not create an excess of procedures and work instructions. Control measures will have to be taken only where they are needed (depending on the risks). This approach also leads to support within the organisation. If employees realise that things can go wrong, they also understand why their employer is trying to put things right. This stage fosters understanding for process management. Based on the risk analysis, control measures are defined in the control stage. The best possible mix of control measures must be determined for the enterprise. This will be different for each organisation. The development of control measures is then addressed. This manual describes the three most common types of measures, i.e. definition of procedural charts, allocation of duties, responsibilities and powers, and definition of work instructions. The last stage is the implementation stage. This stage serves to roll out the newly defined procedures throughout the organisation. The foundation for the implementation has already been built in the previous stages, however. The approach to process management (i.e. offering employees the opportunity to provide input) has already led to organisation-wide support for the implementation.

11

STAGE

STEPS

TOOLS

Management Introduction to process management Strategic course Business plan Process decomposition Presentation Kick off process management

1a 1b

Preparatory stage

1c

1d

Action plan and formation of team

Process analysis

Procedural chart Activity/actor matrix

Analytical stage

Risk analysis

Activity/risk matrix

Definition of control measures

Risk management matrix

Implementation stage

Control stage

Development of control measures

Procedural chart D/R/P matrix Work instructions Other controls

Implementation

12

NOTES TO APPROACH TO PROCESS MANAGEMENT

The philosophy of process management is based on the degree of self-activation of management and staff. After all, most knowledge of the processes is embedded in the organisation itself and the employees are the ones who have to work with the processes. The consultants act in a supervisory capacity. There are a number of preconditions that must be met before the project can be kicked off. These preconditions are described in the following section entitled The preparatory stage.

13

6
6.1

THE PREPARATORY STAGE

Introduction

If you dont know where you're going, any road will do. Lewis Carrol in Alice in Wonderland The preparatory stage lays the foundation for a successful project. A wide range of aspects is addressed during the preparatory stage. This does not mean, however, that this stage is necessarily a time-consuming one. The steps that need to be taken in the preparatory stage are summarised under the heading management involvement.

6.2

Step 1a: Introduction to process management (current situation)

Before an organisation initiates the introduction of a process management system, there must be consensus at the highest organisational level about the importance and purpose of introducing the system. Depending on the size of the organisation, middle management should be involved in this step as well. Middle managers play a key role: they not only have to familiarise themselves with the concepts, but they also have to explain them to the people for whom they bear responsibility and communicate that they support the new ideas. Management involvement is an important aspect since the success of a process management project depends mainly on the commitment and participation of, and the example set by, an organisations management.

6.3

Step 1b: Strategic course

In addition to commitment, it is important to form an impression of the organisation and its performance before the project is initiated. Obviously, there is quite a difference between implementing a management system in a chemical company, a law firm or a business undertaking. The aspects that need to be accentuated will be completely different. Corporate culture and organisational form also play a major role in the way in which a management system is built up. For instance, the level of detail of procedures and work instructions will be much higher in a mass production facility staffed by low-skilled employees than in an organisation whose employees have enjoyed higher education. Since every management system must be customised to the organisation for which it is intended, it is useful to highlight these specific aspects in the management orientation phase. With this in mind, we can make use of an organisation's strong points and make allowance for its weak points in executing the project. In this process, regard must also be had for the status of any current management system. Furthermore, there must be no doubt about the mission, vision and strategic course of the organisation. A road-side restaurant that wants to compete on speed, nutritional value and price will need to implement different processes than a luxury restaurant that aims to create culinary fireworks.

14

It is very useful, therefore, if the organisation has defined so-called Critical Success Factors (CSFs). These are factors that play a decisive role in achieving, or failing to achieve, strategic goals; in other words, they serve as a guideline for day-to-day practice but also steer the management and improvement of business processes. Examples of CSFs are:  time-to-market in developing new products;  suppliers delivery reliability;  low purchase prices thanks to high volumes;  ability to recruit and retain talented sales people, and;  access to adequate management information.

6.4

Step 1c: Process decomposition

In order to gain adequate insight into the set of business processes within an organisation and their interrelationships, all processes that are in place must first be described in outline. This need not be time-consuming; any details will be addressed later. It is relatively easy to prepare a rough process chart based on the knowledge of the organisation that has already been accumulated or the information gathered in the orientation stage. The best way to initiate this is by describing the primary process. Tracking of the developing product or service throughout the organisation offers a clear picture of the primary process. By opting for a relatively high abstraction level, all manner of difficult discussions can be avoided (no-one here is capable of describing the labyrinth of processes that we run or we hardly have any processes, we just do what our customers ask of us). After the primary process has been formalised, the activities undertaken to keep the primary process running (i.e. the ancillary processes) are added to the mix. Another process run by nearly every organisation is the managing process, which usually takes the form of a review of periodic figures and measures that are taken where needed. We have included an example of a process chart on the next page. As soon as a blueprint has been prepared of the organisational processes, the organisation must designate a process owner for each process. A process owner is responsible for managing and executing the process as a whole.

15

In addition, targets must be defined at process level. They show the input of the process into the corporate objectives. Targets help to put all the wood behind one arrow and encourage action. In addition, they allow organisations to compare actual and target situations in the interim. Targets commonly have the following characteristics:  they are frequently number-oriented;  they often contain some type of planning;  they are usually adjusted annually; and  they are defined by and in all departments. Process targets must be aligned to both customer and organisational requirements. In addition, they must be based on the SMART principle, i.e. be Specific, Measurable, Agreed, Realistic and Timely.
Planning & Control Managing process Primary process

Sales

Planning

Purchasing

Production

Shipping

Services

Firm infrastructure (e.g. finance, planning) Human Resource Management Technology Development Procurement

Ancillary processes

6.5

Step 1d: Action plan and Formation of team

The fact that a management system is set up with the assistance of an external adviser does not mean that the organisation has outsourced the project. Organisations are urged to have process management projects executed by their own staff as much as possible because they know the score. This has the following advantages:
y y y

employees have knowledge of the processes; the number of consulting hours (if needed) is limited, thereby reducing the fee; and employee involvement boosts organisation-wide support of the project and the implementation of changes.

The last bullet point is of particular importance. Practice shows that the implementation of a process management system invariably leads to changes in an organisation, whether these changes are drastic or relatively minor. Unfortunately, employees tend to resist changes because their work environment is adversely affected, they are fearful of the unknown or simply because the purpose has not been adequately communicated. An adviser will have to make allowance for these threats, for instance by involving employees in the change process, being open to employee initiatives, offering clear and transparent information, etc.

16

In other words, adequate communication with staff is a prerequisite for their acceptance of the change process and facilitating the implementation of the management system. After all, employees have a right to know what is going on. Participation and co-responsibility are key elements in a management system since they allow employees to display their commitment to the organisation and help them structure their respective department, duties and work environment. In order to prevent the development of a system that is not geared to staff perceptions and sensibilities and that they will, therefore, not accept, it is crucial that the responsible persons in the organisation should regularly be kept abreast of the status of the project. This can be achieved by making use of existing consultative structures, such as staff meetings or the employee magazine, for instance. The next step is to prepare a clear action plan, which the management must communicate to employees clearly and effectively. 1. Step-by-step plan: an outline of the activities that must be performed, as well as a list of resources that are required to complete the project, including automated tools. 2. Timing and costs: depending on the number of charts that must be worked out, a reasonable estimate can be made of the number of hours required to be put in by both staff and experts that must be interviewed. Costs can then be estimated based on the question of whether external advisers will be called in and which tools and facilities are required. 3. Time schedule: this refers to the throughput time of the project and the required staffing capacity, including the project start date. 4. Responsibilities: a list of persons who bear responsibility for the project or parts thereof. It is extremely important that the ultimate responsibility is assigned to line management. There are three options for the risk analysis and the development of control measures, i.e. a workshop for each process, an interview for each process or training of process owners , such that they are able to execute the activities entirely independently. The level of support is contingent on: - the size and culture of the organisation; - the degree of staff self-activation; - the available capacity within the organisation; and - the availability of knowledge and expertise in the organisation.

7
7.1

THE ANALYTICAL STAGE

Step 2: Process analysis

After processes have been defined based on process decomposition in the preparatory stage, they are further moulded into a process chart in the analytical stage. The process chart then shows the process steps of a single process. The chart offers information about the following process aspects: - the input into the process; - the activities of the process; and

17

the output of the process (i.e. the product or service).

The following activities must be undertaken to prepare a process chart: - establishing the beginning and the end of the process; - establishing the activities embedded in the process; - preparing the process chart; and - identifying the actors.

7.1.1 Establishing the beginning and the end of the process When establishing the beginning and end of a process, the input (i.e. the beginning) and the output (i.e. the end) of the process are described. The input of the purchasing process is a recommended order list, for instance. The output of this process is an article held in stock and a message to the party that ordered it.

7.1.2 Establishing the activities embedded in the process A process is made up of different activities, which together merge into a product. When establishing the activities embedded in the process, it is useful to keep in mind that all activities result in a partial or intermediary product. Intermediary products in the purchasing process may include internal order forms, product specifications or tenders. The distinctive steps in the purchasing process include internal order, purchase article, receive article, check article and delivery to customer.

7.1.3 Preparing the process chart Below, we have listed a number of useful tools for preparing a process chart: - For the sake of clarity, use verbs and direct objects when referring to activities; - In order to ensure that the process is described as it takes place, have the chart prepared by, or with the assistance of, the people who are directly involved in the respective process; - In the process description, use the standard situation as a starting point, i.e. avoid describing exceptions. They will only complicate matters. Exceptions can always be revisited as a specific risk later if necessary; - Avoid complex feedback or loops in a process chart; - Avoid going into too great a detail in the description of the steps. The process should first be described in outline. Try to divide the process into no more than eight activities. A useful memory aid for establishing whether activities are not described in too great a detail is to remind yourself that the process descriptions are intended for management.

18

The figure below shows an example of a process chart for the purchasing process.
Input: Recommended order list Internal order

Purchase article

Receive article

Check article

Delivery to customer

Output: - Delivery note - Article in stock

7.1.4 Identifying actors The next step is to identify actors. After all, the activities described in the process chart are performed by people, i.e. the actors. An actor is responsible for the performance of certain activities in a process based on duties, responsibilities and powers (D/R/P). The actors are mapped out through the activity/actor matrix. This matrix reviews for each activity which employees are actively involved. This involvement ranges from executive duties to an inquiring role. The rule of thumb is as follows: the more people are involved in an activity, the more coordination is required and the more difficult it becomes to manage and control the process. Please refer to Annex 1: Role & Responsibility Charting (RACI) at the end of this document, to get support on how to define responsibilities for roles.
ACTIVITIES ACTORS Head of Maintenance Head of Engineering THROUGHPUT

Purchase Officer

Stock Manager

PROCESS INPUT 1.1 Internal order 1.2 Purchase article 1.3 Receive article 1.4 Check article 1.5 Article in stock 1.6 Delivery to customer OUTPUT

1. Purchasing process Recommended order list Ir Ir A C C A C A A A Delivery note and Article in stock A A C A Ig C A Ir A Ir Internal order form Purchase order Suppliers packing list Signed-off packing list Stock file Delivery note

Ir Ig

7.2

Step 3:

Risk analysis

19

Accounting

Technician

Operations

Planner

Any activity comes with a certain degree of risk, i.e. there is a chance that something can go wrong with an activity that potentially has adverse effects on the organisations operations or financial performance. Measures must be taken to manage these risks. Before we are able to establish which measures are necessary, however, the risks must be mapped out, after which they need to be prioritised for the benefit of risk management.

7.2.1 Mapping out risks There are many ways to identify the risks that are incurred during the running of a process. What follows are a number of guidelines. - Risks can be divided into a range of risk aspects, which vary from organisation to organisation. Common risk aspects include: strategic, financial, operational, hazard and miscellaneous risks. - The critical success factors and objectives of the organisation were defined in the preparatory stage. Risk is incurred if these objectives are not achieved. Any factors that might result in an organisation not achieving its targets constitute risks. - Another method for identifying risks is to make use of the process objectives that were defined in the process decomposition phase. The same holds true here: any factors that might result in the organisation not achieving its objectives threaten the process. - The questions that should be asked are: What can go wrong in the process? When asking this question, try to formulate the answer as follows: If goes wrong, the consequences will be that - It is useful to include both in-company suppliers and customers in mapping out the risks associated with a process. These are employees that spring into action before or after the process. In-company customers are particularly well aware of the pitfalls and will usually be more than willing to share this information: after all, improved products are in their best interest. - In addition, risks can be identified based on the activity/actor matrix (refer to the previous step). The general rule is: the more actors are involved in the process, the more difficult to manage it is. - Another method for identifying risks is based on the management loop. A process is adequately managed if it comprises activities that are best described by the verbs Plan, Do, Check, Act. These four categories make up the management loop. This management loop should be a recurring factor in every process, or in the process steps. Let us return to the purchasing P process: the internal order of the article constitutes the planning element, the purchase and receipt of the article represents the doing, which is followed by the check and, where necessary, the acting on any shortcomings. This circle must be complete in order for steering and feedback to be possible. Steering is required to manage and control the process. Feedback needs to be given if any shortcomings are identified in the checking phase. If necessary, activities should be added to a process in practice in order to complete the management loop. Practice has shown that the most commonly added activity is the check. The risks identified for each activity can be shown in an activity/risk matrix Below, we . have included an example of such a matrix for the purchasing process.
  

20

ACTIVITIES

RISK ASPECTS Strategic Financial 1. Purchasing process

Operational

Hazard

Miscellaneous

PROCESS 1.1 Internal order 1.2 Purchase article 1.3 Receive article 1.4 Check article 1.5 Article in stock 1.6 Delivery to customer

Overdue order Extension of delivery period Expensive supplier Article error Does not meet specs Coding error Extension of delivery period Overdue delivery

Fire in warehouse Claim of client

7.2.2 Reviewing risks Not every risk turns out to be equally relevant. Some have more serious effects or occur more frequently than others. The chance of a certain risk actually occurring will be decisive of the level of attention it requires. For this reason, risks need to be categorised based on the following criteria in order to be managed adequately: - the impact of the risk on the end result; and - the chance of the risk occurring. Risks can then be divided into major, average and minor risks.
0 ') &(' &%$  

j r
#

risk

j r risk

r risk

r f
" 654 32

In other words, it is relevant first of all to identify a processs critical activities, i.e. those that are associated with the most risk. A critical activity is characterised by: - a high probability of error; and - a great impact on the end result/product.

6! 46 7!! "

21

0 ')

&(' &%$

01 )

 

 

"



t f ri k r risk

j r

Activities are regarded as critical, for instance, if: - they come with many transfer points, each of which threatens to destroy or distort information. - bottlenecks or inconsistencies are identified; - they greatly affect the rest of the total process, e.g. if errors in certain activities have serious consequences for other activities; - they are associated with a relatively major financial interest, or come with a relatively high level of fraud and risk sensitivity; - agreements are made with customers; - they are performed frequently; - they are relatively time-consuming; - they are performed by a range of employees; and - they are extremely complex.

22

8
8.1

CONTROL STAGE
Step 4: Identifying control measures

In the previous step of the step-by-step plan, risks were identified that may have an adverse effect on results. In addition, risks were categorised and prioritised. The risks now need to be limited by introducing and formalising control measures. An organisation should define the best possible mix of control measures. After all, the risk analysis only results in those measures that are strictly required. Any measures taken that are not linked to an identified risk are a waste of time and effort. It is important, therefore, to review any existing control measures. Organisations are recommended to consider which measures continue to be relevant and whether they continue to be useful based on the identified risks. Alternatively, an organisation may opt not to control a risk as a result of a balanced alignment of resources and risks. The costs of the risk when it occurs will then have to be weighed against the costs to reduce it. A consciously accepted risk is referred to as a calculated risk. The risks that need to be controlled must be resolved in collaboration with staff (usually the process owners), e.g. by drafting procedures or setting criteria for the employees educational backgrounds. The selected control measures can be shown in a risk/control measures matrix. What follows is an example.
ACTIVITIES RISK ASPECTS REVIEW RISKS Impact of risk PROCESS 1.1 1.2 1.3 1.4 1.5 1.6 Internal order Purchase article Receive article Check article Article in stock Delivery to customer 1. Purchasing process Chance of occurence CONTROL MEASURES

Common control measures include policy, procedure, D/R/P, work instruction, expertise, computerisation and/or other measures. The table on the next page lists a number of control measures that can be used as a guideline. Below, we will flesh out a number of common measures, i.e. procedures, duties/responsibilities/powers (D/R/P), and work instructions.

23

Control measures Policy plans Budgeting Procedure

Notes/ application Master plan or department plan defining targets and ob ectives Quantification of targets and ob ectives Coordination of activities spread over persons, processes or departments. Routine activities can be formalised in greater detail than creative processes (R&D) or management processes
8 8

Duties/Responsibilities/Powers Work instruction Staff education and experience

Detailing of procedures, including additional requirements for certain activities Practical instructions about how to complete a certain task If standardisation of duties is impossible, controls can be implemented by making requirements of employees who operate the processes (e.g. relating to their education, experience, personal skills)

Authorisation Time sheets Monitoring of throughput times Allocation of direct and indirect costs (Activity-Based Costing) Capacity usage register Product specification Stock management IT Management reporting

Granting of consent for the purposes of monitoring the adequate deployment of resources Monitoring of the efficient use of time Monitoring of the efficient use of time Monitoring of efficiency levels in general Monitoring of the efficient use of assets Information monitoring; proper specification of products Prevention of excessive costs and obsolete stock More efficiency in routine tasks, more information in support of management Timely identification of whether targets and ob ectives are achieved so that corrective action can be taken if necessary. This is also relevant with respect to accountability to higher management echelons
8

Quality care system

Monitoring of the quality of the output and the efficiency of processes in general

8.2

Step 5:

Developing control measures

8.2.1 Developing a procedural chart A procedure formalises how to approach routine tasks for employees of various departments. It sets down activities in the order in which they must be performed. A procedural chart shows the interrelationships between the various parties that are responsible for each process (activity): who does what when. The involvement of the persons and their actions are formalised in a procedure. Procedures structure processes and activities, making the product more predictable. They not only improve control, but also contribute to efficiency. In drafting procedures, an organisation is forced to scrutinise the way in which it structures its activities. In addition, the procedural chart shows who should be involved in the production process. For people who are new to a position or take up a position temporarily (e.g. due to illness of the responsible colleague), formalised procedures help to ease the transition. In order to ensure that procedures are accepted, the employees themselves need to be involved, and actively participate, in the writing process. In this manner, they are able to bring their knowledge of the processes/activities to the table as well.

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Procedure descriptions usually consist of a schematic representation of the activities, forms, files, etc. based on symbols. In addition to a chart, the description often contains a text page that describes the activities to be performed (mostly at work instruction level). Provided that they are sufficiently detailed and complete, work instructions can also be considered separately after the charts and the texts have been worked out. This allows an organisation to use the instruction for one specific activity for training employees in that specific activity. The activity completion of an order form, for instance, is detailed in a work instruction that tells employees which information must be entered on the form. Every activity must be linked to an employee or officer, so that it is clear from the description which employee is authorised or qualified to perform the duties. Procedural charts commonly use symbols. Each symbol refers to an action or duty of the responsible employee or employees. The following table shows a number of symbols that can be used in a procedural chart.
Activity/action Storage

Decision

Link between symbols

Document

Reference to process, department or external party (e.g. customer, supplier)

Monitor: data consulting

Page number

These procedures can easily be prepared using Word, Excel or PowerPoint. The document Matrices Process Management is a tool that allow for an organisation to easily gain insight into a process. In addition, this method of recording procedures is a useful tool in conducting an internal audit.

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The following chart is an example (in Word) of the purchasing activity.

Customer

Order form Purchasing Officer

Check

Purchasing Officer

Enter

Purchasing system

OK? Purchasing Officer Send Purchasing Officer Filing

Order form

Customer

Order form Copy

Supplier

File

8.2.2 Establishing duties, responsibilities and powers A procedural chart describes who does what when. This guarantees that the right persons are involved in the duties/actions. The involvement of a person in the execution of a duty alone is not sufficient to control a process, however. The person executing a duty will have to be authorised to the right level in order to perform his duties properly and should be accountable for the outcome of a duty. This comes under responsibilities and powers. In this step, agreements are made about the responsibilities and powers of the different employees who are mentioned in the description of the procedure (and in the activity/actor matrix). Duties Duties are tasks that must be performed. The duties/actions that are listed in the procedural chart form the basis for the D/R/P tables. Responsibilities Responsibility entails accountability to the management or a colleague for activities performed. An area of responsibility is defined as a delineated topic or field where the organisation aims to achieve results of deliver a performance. We have the following practical guidelines for defining areas of responsibility: - responsibility must be borne for the outcome of activities, rather than of activities themselves; - the degree of detail in which a responsibility is described must be chosen such that the responsibility can be borne by exactly one employee; and - all areas of responsibility must be covered, i.e. it must be possible to hold someone accountable for all relevant performances in the organisation.

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Keeping this in mind, organisations should opt for a wording that shows that the work has already been completed. For instance, they should use the description suppliers qualified rather than qualification of suppliers and inspection plans available rather than drafting of inspection plans. In order to identify who is responsible for what activity, the following questions could be asked: - who are responsible for the outcome or product of the activity? - who is accountable when things go wrong? Powers Powers refer to the right to perform an activity. A Purchasing Officer may be authorised, for instance, to purchase articles for an amount of up to US$ 15,000. The organisation should guarantee that authorisation powers are strictly delineated. Essential powers and responsibilities should be described only. It may be a problem that several people in different positions have the same area of responsibility. The opposite may happen as well, i.e. no-one is responsible for a certain area, creating the risk that the duty is not executed properly, if at all. In both cases, the process owner will have to decide who is responsible.

8.2.3 Developing work instructions Work instructions describe the most efficient method of executing a project and tend to be workstation-oriented. Work instructions are commonly prepared in order to instruct employees or, where extremely critical processes are concerned, to prescribe exactly how an activity must be approached. A detailed work instruction usually indicates which forms, files and other tools are required to perform an activity. In other words, similar to a procedure, a work instruction is a document in which agreements about working methods are set down. The key difference between a procedure and a work instruction is that the latter indicates how a person is a required to perform a certain task. Whilst a procedure mostly describes the coordination of the activities of different persons and/or departments, a work instruction offers concrete guidelines for the way in which a duty or action must be performed. The objective of a work instruction is always to execute a process in a certain manner and to describe the desired outcome. One objective could be to describe what a purchase order should look like. The objective should offer employees clear insight into why it is necessary to adhere to the work instruction. Here, a link can be made with the activity/risk matrix, i.e. what will go wrong if the work instruction is ignored. The question to ask is whether a work instruction should be defined for each activity/process. Fortunately, the answer is no. Work instructions are developed only if they are considered relevant, i.e. when they relate to activities that are routine, yet complex. Work instructions are useful only if an activity must be performed with the utmost care or if the knowledge about the execution of certain duties rests with one single employee (continuity risk). Detailed work instructions may also be helpful for extremely complex duties. Under other circumstances, work instructions will be less relevant. After all, if an activity is simple, it may be assumed that working methods were addressed during 27

an employees training or that the employee has performed the activity before. Work instructions must be geared then to the expertise that is available in the organisation. Furthermore, it is not very useful to write an instruction for an activity that is not part of the daily routine. In such cases, an organisation should rely on the creativity of its management and staff. Below, we have set out a number of practical guidelines for drafting work instructions: - Use the imperative, which is more direct and easier to read. - Actively involve employees in defining the instructions; this will facilitate the implementation of the described consistent working method. - Regularly evaluate whether the work instruction is still in tune with day-to-day practice. - Write work instructions in a language that employees can understand. - Make sure that the work instructions are available in the workplace, e.g. on laminated sheets. In many cases, work instructions will give a step-by-step description of current working methods. A work instruction may take the form of text or a flow chart with notes. The description should include: - what materials are needed for each step; - what tools, equipment and documentation are used in each step; - how and when each step must be performed; - the order in which the steps must be performed; and - the frequency with which a step must be performed.

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IMPLEMENTATION STAGE

The success of a project is contingent on the following factors: - oral and written communication skills of process owners and project supervisors; - a fresh, independent view of processes; - commitment on the part of management; - staff involvement; - feasible time constraints and adequate motivation; and - knowledge of control measures. Below, we have outlined a number of guidelines for a successful implementation: Create wide support in the organisation, including at management level, e.g. by offering as many people as possible the opportunity to participate in the various analyses. Alternatively, you might want to consider organising a kick-off event, such as a party, offer every employee a present or dress the office with new fittings. Appoint one process owner for each process who can be held accountable, so that he or she has an interest in keeping the process running smoothly. In other words, assign responsibilities to people who are in a position to influence working methods. Ensure that communication is adequately arranged, both prior to and during the project. After the implementation of the new working methods, ensure adequate follow-up to the project by identifying potential areas for improvement. Use the management system as a stepping stone for improvements. Another tool for achieving improvements is the internal audit, which is intended to establish whether the procedures are being followed and identify any areas for improvement in the processes.

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10 ANNEX 1: RACI CHARTING

Role & Responsibility Charting (RACI)

Definition Responsibility Charting is a technique for identifying functional areas where there are process ambiguities, bringing the differences out in the open and resolving them through a cross-functional collaborative effort. Responsibility Charting enables managers from the same or different organizational levels or programs to actively participate in a focused and systematic discussion about process related descriptions of the actions that must be accomplished in order to deliver a successful end product or service. Approach Definitions Responsibility Charting is a way of systematically clarifying relationships pertaining to: 1. Communication or actions required to deliver an acceptable product or service 2. Functional roles or departmental positions (no personal names). 3. Participation expectations assigned to roles by decisions or actions. THE RESPONSIBILITY CHARTING THEORY Managers and supervisors are not accountable for everything in their organization. Responsibility charting ensures accountability is placed with the person who really can be accountable for specific work. Often this results in accountabilities for actions being moved down to the most appropriate level. Everyone has some process role in their job. Because of differing perceptions, one persons view of their role may be quite different than anothers. Role perceptions held today will change tomorrow even though the job activities remain the same. There are three (3) basic assumptions in any role. They are: ROLE CONCEPTION: What a person thinks his/her job is and how the person has been taught to do it. His/her thinking may well be influenced by many false assumptions (e.g., misleading titles, training received from a predecessor during his or her last week on the job, etc.) ROLE EXPECTATION: What others in the organization think the person is responsible for, and how he/she should carry out those responsibilities. Others ideas may also be influenced by incorrect information (e.g., the way it was at a former job, priority changes, assumptions, inconsistent messages from leadership, etc.). The role expectation is usually based on the output of results expected from the role. ROLE BEHAVIOR: What a person actually does in carrying out the job. 30

Responsibility charting reconciles ROLE CONCEPTION with the ROLE EXPECTATION and thus, ROLE BEHAVIOR becomes more predictable and productive!. Ideally, what a person thinks his or her hob is, what others expect of that job, and how the job is actually performed are all the same. The RACI process is a tool to lock all elements in place. Working with other process providers provides a real time consensus that clarifies who is to do what, with whom and when. This is of great benefit for overall process performance. A substandard product or process can often be tracked back to a fault in the chart. Common faults in the chart include: an action not included on the chart (that should be), a position failing to perform as assigned or a missing or misapplied responsibility code. The highly visible and collaborative nature of the charting process promotes rapid and effective updates/corrections as well as better understanding by those involved in the work. DIAGNOSING THE NEED The need for managers and supervisors to clarify roles and responsibilities does not end after the Responsibility Charting process is complete; it must be an ongoing activity. Managers need to acquire a sixth sense so they can recognize the symptoms of role confusion and determine when the process needs to be repeated. Perception drift is natural. The identification and elimination of drift is important to the companys overall well being as it relates to cost, service and quality. The symptoms of role confusion are: Concern over who makes decisions Blaming of others for not getting the job done Out of balance workloads Lack of action because of ineffective communications Questions over who does what A we-they attitude A not sure, so take no action attitude Idle time Creation of and attention to non-essential work to fill time A reactive work environment Poor morale Multiple stops needed to find an answer to a question

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ROLES AND RESPONSIBILITIES CHARTING DEFINITIONS

RESPONSIBLE..R The Doer The doer is the individual(s) who actually complete the task. The doer Is responsible for action/implementation. Responsibility can be shared. The degree of responsibility is determined by the individual with the A. ACCOUNTABLE..A The Buck Stops Here The accountable person is the individual who is ultimately answerable for the activity or decision. This includes yes or no authority and veto power. Only one A can be assigned to an action. CONSULTC In the Loop The consult role is individual(s) (typically subject matter experts) to be consulted prior to a final decision or action. This is a predetermined need for two-way communication. Input from the designated position is required. INFORM..I Keep in the Picture This is individual (s) who needs to be informed after a decision or action is taken. They may be required to take action as a result of the outcome. It is a one-way communication.

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ROLES AND RESPONSIBILITIES CHARTING DEFINITION STEPS

1. Prepare a list of roles or people involved in process activities

y y y

Roles can be individuals, groups or entire departments. Can include people outside your department our outside the company (Customers, suppliers, etc.). Roles are better than individual names RACI chart should be independent of personal relationships so the chart would still be valid if all new people filled the roles tomorrow.

2. Develop the RACI chart

y

As a general rule, first assign Rs then determine who has the A, then complete Cs and Is
o For larger groups or more complex issues, an independent facilitator is required o Meeting time can be significantly reduced if a straw model list of decisions and activities is completed prior to meeting.

Hint: The ideal group size is four to ten people

3. Get feedback and buy-in

y y y y

Distribute the RACI chart to everyone represented on the chart but not present in the development meeting Capture their changes and revise chart as appropriate Reissue revised RACI chart Update as necessary on a on-going basis Hint: A follow-up meeting may be necessary if significant changes are made

RACI Charting An Example

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RACI Chart Review

Vertical Analysis
Finding Lots of Rs No empty spaces Too many As No Rs or As Overall pattern Possible Interpretation Can this individual stay on top of so much? Does the individual need to be involved in so many activities? Can some of the accountability be pushed down in the organization? Is this a line position? Could it be expanded or eliminated? Does the pattern fit the personality and style of the role occupant? Does it go against the personality type of the role occupant? (i.e., either too much or too little involvement, etc.)

ROLES / PEOPLE

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RACI Chart Review

Horizontal Analysis
Finding Lots of Rs Lots of Cs Possible Interpretation Will the task get done? Can activity or decision be broken into more specific tasks? Do all these individuals really need to be consulted? Do the benefits of added input justify the time lost in consulting all these individuals? Do all these individuals really need to be routinely informed, or could they be informed only in exceptional circumstances? Job may not get done; everyone is waiting to approve, be consulted, or informed; no one sees their role as taking the initiative to get the job done. No performance accountability; therefore, no personal consequence when the job doesnt get done. Rule #1 in RACI charting: There must be one, but only one, A for each action or decision listed on the chart. Is this because individuals/departments dont talk? Does a lack of communication between individuals/departments result in parallel or uninformed actions?

Lots of Is

No Rs

No As

No Cs / Is

ROLES / PEOPLE

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RACI Closing Guidelines

1. Place Accountability (A) and Responsibility (R) at the lowest feasible level. 2. There can be only one accountable individual per activity 3. Authority must accompany accountability 4. Minimize the number of Consults (C) and Informs (I) 5. All roles and responsibilities must be documented and communicated 6. Discipline is needed to keep the roles and responsibilities clear. Drift happens. RACI has to be revisited periodically, especially when symptoms of role confusion reappear e.g.,
o o o o o o o o o o o o

Concern over who makes decisions Blaming of others for not getting the job done Out of balance workloads Lack of action because of ineffective communications Questions over who does what A we-they attitude A not sure, so take no action attitude Idle time Creation of and attention to non-essential work to fill time A reactive work environment Poor morale Multiple stops needed to find an answer to a question

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