Business Process Costing

1. BUSINESS PROCESS MANAGEMENT
SESSION 3 – PROCESS COSTING
<V1.0>

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Contents
• Recap of Session 2
• Process Modelling
• Process Costing
• Lets have some fun

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Recap of Session 2

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Process Decomp
• Process Decomposition is the break up of a process to
activity level
• Every project should have a Process Decomp
• Process Decomp helps at later stages when improvisation
has to be implemented
• Process Decomp keeps a running score of all the
processes under a function

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Flow Objects
• Flow objects define the behavior of the
Name
process
• Flow Objects are
• Activities – are the actions that are carried out Activity
as part of business
Name
• Event – are the process triggering objects that
affect the flow of the process and have a
cause and a result
Event
• Gateways – are the controlling objects that
diverge or converge the flow Name
Gateway

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Artifacts
• Artifacts are
• Group – to put similar activities under a Group
group
• Annotations – are used to proved additional
text information Text Annotation
• Data Objects – are used to show how data
is required or produced at each step

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What is an Event
• An Event is something that happens during the course of a
business process and affects its execution
Event
• An Event has a CAUSE and an IMPACT
• All activities are triggered by an Event. for example purchase
order received. This is an Event

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Connection Objects
• Connections are used to connect
two or more objects in a process
• Connection Objects are Sequence
• Sequence Lines – to show in which Flow
order the activities are performed
• Associations – are used to associate a Association
role, text, artifact to a flow object
• Message Lines – represents how
message flows between the objects
Message Flow

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What is an Function
• Functions indicate the tasks or activities that are carried out in
the business process.
Function
• Functions have inputs (material or information) and outputs
(different material or information) and usually utilize
resources. Thus, they are carried out by either people or
systems.
• Functions should not convey unambiguous information to the
reader; it should be specific and convey the right information.
The usage of short forms such as ent. instead of enter should
be avoided.

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OR Operator
OR Following a Function OR Preceding a Function
Single Input – Multiple Output Multiple Input – Single Output
OR Decision OR Trigger
One or many possible paths will be Any one Event, or combination of Events,
followed will
as a result of the decision trigger the Function

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XOR Operator
XOR Following a Function XOR Preceding a Function
Single Input – Multiple Output Multiple Input – Single Output
XOR Decision XOR Trigger
One, but only one, of the possible paths One, but only one, of the possible Events
will will
be followed be the trigger

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AND Operator
AND Following a Function AND Preceding a Function
Single Input – Multiple Output Multiple Input – Single Output
AND Branch AND Branch Trigger
Process flow splits into two or more All Events must occur in order to trigger
Parallel the
paths following Function

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Important thing to remember
Change is DIFFICULT to accept
Account for CHANGE MANAGEMENT
This helps to reduce resistance to any change

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Process Modelling

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Why Process Modeling
• Communication between people
• Training and Learning
• Persuasion and selling
• Analysis of business situation
• Compliance management
• Knowledge management

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Process Activity Questions
• How do we do it
• Why do we do it
• What is the output
• How many outputs
• How long does it take
• Where does the output go
• Who reviews it and when
• Who performs each activity
• What generates the process/tasks
• What are the KPI’s
• Who are the customers of the process
• Who are the suppliers of the process
• What decision are made in executing the process
• How are exceptions handled
• What is the nature or frequency of errors / problems

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Why Simulate Business Model
• Advantages of simulation Persuasion and Selling
over testing in the real Simulating results of
world: proposed solution
Cause and Effect
• Speed
Simulation
• Low cost
• No disturbance of current Verification and
operations Validation
Are we doing the right
thing
Are we doing it right

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Types of Simulations
Visual Depiction
Using process flows during simulation and validation
of logic
Numeric Simulation
Process Management
Cycle Time
Capacity Analysis
What If analysis

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Process Modeling Techniques
• Individual Interviews – gathering information from the
actors of process steps
• Facilitated Sessions – gathering information from a group
• Top Down – documenting processes from a Process level
• Bottom Up – documenting processes from Activity level

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Understand the BUSINESS NEED

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Process Metrics
• What do we measure
• Time – value, cycle, waiting, productive , non productive
• Volume – transactions per day, per hour
• Costs – fixed, variable
• Equipment used – cost
• Value add –
• Real value
• Business value
• Non value like time wasted on cigarette / tea breaks

23. Value Stream Mapping

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DON’T COMPLICATE PROCESSES

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Order Fulfillment VSM

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Process Costing

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Why Costs
• Everything boils down to How Much Does It Cost US
An improved process should cost LESS and execution should be
FASTER
Calculate costs using the following information
• Duration of a process step
• Cost incurred at the step
• Compared to AS-IS processes, TO-BE processes are
expected to bring improvisation in
• Time
• Costs
Improvements can be identified using analyzing TIME/COST .

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Factors Affecting Process Costs
• Process Time
• How long does a process take from a resource capacity point of
view
• Process Costs
• What costs accrue during the execution of a process or of entire
process chains aiming at the creation of products or services
• Resource Requirements
• How many resources are required for performing the relevant
processes
• What is the degree of utilization of available resources

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Cost Determining Attributes
• Processing Time –
• Minimum, Average and Max processing time
Orientation Time –
• Minimum and Average orientation Time
Wait Time –
• Minimum and Average wait Time
Frequency –
• Daily / Weekly / Monthly / Annual

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Costs Attributes
• Min, Average and Max Total Costs
• Min, Average and Max Material Costs
• Costs related directly associated with processing and use of material
Min, Average and Max Personnel Costs
Min, Average and Max Operational Costs
Min, Average and Max Overheads
These are costs not directly allocated to an account
Min, Average and Max Depreciation / Maintenance Costs
Min, Average and Max Interest Costs

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Steps To Calculate Process Cost
• Create a Level 5 Activity List
• Capture information – Manual / Automatic step
• Capture the RASCI for the step
• Capture information like
• Effort
• Rework
• Wait time between two steps
Calculate Effort + Cost for every step
Create Cost – Effort Matrix
Compare Costs per step with SLA

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Process Costing
Process Costs
Raw Material Directly
Direct Material
traceable to the process
Labor and Overheads
Conversion Costs directly traceable to the
process
• Calculate DM per unit Steps
• Calculate Conversion Costs per unit 1. Analyze flow of physical units
• DM + CC = Total Cost Per Unit 2. Calculate unit costs
• COGS = Total Cost Per Unit x Units 3. Determine Total Cost to Account
Sold

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Keep your processes SIMPLE

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Lets have some fun

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Business Functions In Manufacturing
Let’s list down the various departments in a Factory
Production Finance
Purchase / HR
Procurement Accounts – AP / AR
Sales Marketing
After Sales
R&D
Shipping
Warehousing
Distribution
Operations

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Calculate the OPTIMUM Production Schedule
Explain WHY your approach is the right one

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Lets See The Scheduleunit
Cost per
of RM = 65 Time Taken Stock Recd
RM to produce from Prev
Week 1 Needed EACH unit Function
Day 1 SETUP TIME F
Time A
00:00:0 15 0 15 12 20
0
C 0 0
T
120 O
Cash R
0 7 0 14 10
10000
60 Y
Fixed
Costs
11000 30 F
L WIP Stock
0 O 10 0 40
O
R Sales Price
Calculate the Optimum
per unit of
production process to Produce Market FG = 180
20 Units with least wait times Demand


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Lets Schedule
Labor Set 9:00 9:30 - 10:00 10:30 11:00 - 11:30 12:00 12:30 13:30 14:00 14:30 15:00 15:30 16:0 16:30 –
- 10:00 – – 11:30 - - - - - - – – 0– 17:00
up 9:30 10:30 11:00 12:00 12:30 13:30 14:00 14:30 15:00 15:30 16:00 16:3
Tim 0
e
15
120
60
30

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Please contact:
Session 4
ARIS - Introduction Naval Vithalani
tonaval@yahoo.com
Thank You