January 22, 2007
Basics of CPM - Measuring the Effectiveness of Processes.
The concept of the business process is well established. Most of us understand real performance management comes from how well processes function, with the only real measure of value coming from how well the customer’s needs are met. Businesses earn above Market Rate of Returns (what microeconomics calls “Economic Profits”) by beating the competition and building profitable relationships. You can argue about the social/economic impact Wal-Mart has on society, but there is no way to argue with their success at managing the processes that directly touch the customer. Amazon changed how we buy books. Toyota changed how cars are made. There are many others: Geico, Starbucks, Home Depot, Dell, Google, etc. All these firms focused on their customer facing processes, and then revolutionized their industries.
I don’t think the CPM world focuses enough on process measurement. Six Sigma, which focuses on how well the process (or project, or product, or initiative) meets the needs of the customer is the one main exception. Strategy Maps and Execution plans need to take into account how well processes are currently working, and the level of performance needed to achieve strategic goals.
Jerry Harbour wrote a great little book on process measurement. It is a must read for anyone interested in CPM. The book has a strong manufacturing focus, but the truths are global. He points out that are only a handful of ways to measure processes:
- Time (How Long Does the Process Take to Process 1 unit of Output?)
- Quality (How closely does the Output match Customer Expectations?)
- Cost (How Much Does 1 unit of Output Cost?)
- Throughput (How many units get processed in a given time measure?)
- Efficiency (How many Input units are used to Create 1 output unit?)
These measurement types form the basis of any kind of process measurement. They are core to Six Sigma, Business Processing Reengineering, Lean, TQM, and all kinds of other business improvement methodologies. They also should be key to any CPM efforts around scorecarding, metric development, and target setting. Do not measure a process with only 1 measure…use several to provide a balanced view of process performance.
Filed under: Uncategorized, CPM Theory
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