Business Process Improvement – Estimating the Cost of a Business Process

To measure any accomplishment, you need to know where you started. Whether you want to lose weight or run a marathon, you need to establish a baseline to know how much you have improved. How much do you weigh today, or how quickly do you run a marathon today? In BPI work, to establish an improvement target, you first need to know how long a process takes and what it costs.

After you draw a process map, you understand the activities involved and you can estimate how much time is required to complete each step, known as the process time. You often hear two types of time related to BPI:

  • Process time is the time required to complete a single activity.
  • Cycle time is the time required to complete an entire process, from its first to its last step. You may also hear this referred to as elapsed time.

Identifying the process time will help you to summarize the labor required to deliver the business results. When you include the employee and overhead expenses in your BPI projects, you start bringing a financial dimension to your work.

Once you estimate how long each activity takes, you need to identify the annual volume, decide the FTE (Full-time Equivalent) calculation to use, and apply the employee salary and benefit rates to the time estimates. Since many employees are not dedicated to a single business process, the FTE calculation allows you to account for portions of an employee’s time. At the end of this analysis, you will know if a business process consumes 2.5 FTEs, for example, and costs $450K per year.

Once you have drawn the process map and estimated the associated time for each activity, validate this information with any interested parties (e.g., stakeholders, employees who do the work, sponsor, etc.). Performing this review validates the baseline for your improvement target and eliminates the possibility of any future challenges. You want to be sure that everyone involved agrees with the labor used today so that improvements gained are not placed in question. Validating this information provides you with a solid foundation to start the next step, the actual improvement phase.

Estimating process and cycle time and their associated cost is the fourth step to improving the effectiveness, efficiency, and adaptability of your business processes, and validating the information (both the map and estimated times) is the fifth step.

Copyright 2009 Susan Page