Future with BPM: Cost Vs Benefits & Strategies

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A Prominent factor of international business today is its strategic direction.  Global firms are competing with a wider variety of business and operational strategies and with more complex operational strategies today compare to 12 years before.

This makes more challenging for global operation to deploy same model for its internal business where economic and market conditions are different. This can resolved by providing a unique national strategy and dedicated modification of key activities for each major country; this facilitates customizing the business around each countries market.

A global business and operational strategy world is considered as signal market where corporate goals are common. This brings international operations to tough spot of performing as stand-alone entity.

Under global operational strategy to concentrate geographically located activities in a way that captures most of the available economies of scale and factor cost advantages.

BPM  Vs ROI

BPM considers processes to be strategic assets of an organization that must be understood, managed, and improved to deliver value added products and services to clients. The need of optimization and streamline the operational activities for global companies are historical.

Here are some  of the facts:

  • There is no clear formula or mathematical model available for exact mapping of cost associated with BPM/Dependent projects and  ROI. Benefits are multi dimensional compare to single direction.
  • ROI is a critical factor for any larger corporation/ senior management  to know before approving any BPM related investment as its not in critical path of company success.
  •  Major corporations/companies understand the needs/benefits of optimal strategies for operating models to save cost. But don’t want to invest on BPM due to unknown ROI.
  • There are initial up front cost associated with BPM installation and adopting this model.

Determining ROI & NPV for BPM : Tracking direct benefits in terms of cost saving for short term (1 Year) and long term (5 year) period.

  •  Improvement to operating structure/efficiency due to BPM,
  •  Reduction in day to day breaks, failures, rework compare to previous year,
  •  Optimized staffing model consist of reallocation of roles and responsibilities( globally or low cost area) as Business Process Modeling exercise
  • Reduction in risk exposure with more control points determined with help of BPM
  • Standard and enhanced End – 2 – End detailed process maps to reflect companies’ policies and procedural (Direct saving on External/internal audits & Time spend on audits with reduced exceptions).

Tracking In-direct Benefits in terms of cost saving

  • Due to more standardized documentation and process mapping, Ease of change management or future enhancements as indirect benefit
  • Centralized location of Policies & Procedures with details End - 2 - End mapping for cross reference.
  • Direct contact and interaction with IT and business staff due to seamless integration.
  • Ease of brining “New client on-board” and developing new strategies to accommodate need of clients.
  • Centralized Business analysis & Project Management efforts with more control.
  • Expansion of BPM model to other department with minimal efforts and reduced external expertise.
  • Regulatory and compliance benefits and support to compliance certifications.

Sample ROI Model calculation

  1. Direct Financial Impact (Gain/Loss) - After BPM
Saving on Activities due to .. Approximate Saving (+/- 20% ROE)
%/Month 1  Equiv of
Staff/Yrs
2
$ Approx 3
   
End -2 End Documentation 10% 0.2 16000
Efficiency on GAP Remediation 15% 0.3 24000
Process Automation 20% 0.4 32000
Smooth Handovers (Reduced rework) 10% 0.2 16000
 Reporting Automation 10% 0.2 16000
Billing Automation 15% 0.3 24000
Work Flow Events Automation 20% 0.4 32000
Regulatory Fines/Expenses 15% 0.3 24000
Project Management 20% 0.4 32000
   
Overall Improvement 135% 2.7 216000

  1. In-Direct Financial Impact (Gain/Loss) – After BPM
Saving on Activities due to .. Approximate Saving (+/- 20% ROE)
%/Month 1  Equiv of
Staff/Yrs
2
$ Approx 3
   
Standardized approach & Procedures 10% 0.2 16000
Standard error codes 5% 0.1 8000
Streamline Alerts & Notifications 10% 0.2 16000
Ease of Change management 15% 0.3 24000
IT Interaction and Modification 15% 0.3 24000
SLA & Audit support 10% 0.2 16000
Employee Satisfactions 10% 0.2 16000
Reduction in External BPM SME 30% 0.4 32000
   
Overall Improvement 105% 1.9 152000

  1. Next 5 Year analysis
Years BPM
Investment($)
4
Approx Exp. ($) Direct Impact
Savings
Net Benefits (Excl. indirect Benefit) $
Licenses FTE (Consult)5 (4K + FTE*85K)
1 4000 2 164000 216000 52000
2 4000 0.75 64000 216000 152000
3 4000 0.5 44000 216000 172000
4 4000 0.1 12000 216000 204000
5 4000 0.1 12000 216000 204000
    Total Invest 296000  Total Saving 784000

  1. ROI Calculation:

Total Investment=  296000         (Over 5 years)Total Saving (Excluding in-direct savings) = 784000IRR (Companies rate of return)   = 6% (Usually between 6 % - 8%)

Gain or Loss on Investment ($) = 488,000           Term =5

ROI (%)  = 164.9%

        

Simple Annualized ROI (%) = 33%

Based on above case study, this example presents a comprehensive view of rate of return on investment by incorporating BPM with business and operation. Here it clearly shows that “Direct Impact or saving” are greater in time and more strategic to incorporate BPM in addition to “in – direct benefits”. The overall approval for any company/ department can be quantified / justified based on above calculation by plugging in their numbers.

Adoption and Best Practices

Its always advisable to incorporate BPM for detail analysis and integration of operation - technology is to take “incremental approach” at enterprise level.

Biggest obstacle for adopting BPM are “Culture, resources, funding” because for larger organization where multiple division need to coordinate for initial roll-out.

This is being found very beneficial for financial organization to adopt BPM strategies from most troublesome, complex or distributed business area to start with smaller approach to see the impact. Because BPM modeling provides very quick and direct visual perspective of gaps and Issue areas of larger financial processes. This helps managing business planning, reporting , integration and activities associated through closed loop.

Sample Business Architecture Model

References & Assumptions

* ROE: Rate of Error* 1 – % saving in terms of HRS converted to approximate per month distribution.* 2 – Saved Time per Year approximate resource saving (Considering standard 40 -50 Hrs/week)* 3 – 1 FTE – Approx salary nearly 80K /Year * 4 -  BPM Licenses( Multiple) approx 4 K (Enterprise level could be cheaper)* 5 – BPM FTE Cost from vendor for installation and training (Approx 30 -40 Hrs/Week)* IRR - Normally its 6 % - 8 %* Used google.com - Web Search for secondary information

Vinod Jain, Transformation Strategist

Vinod Jain, is VP - Transformation strategist and responsible for handling Business & operational strategies, optimization and transformation projects.

Vinod holds M.B.A in Finance and Marketing from Fordham University, NY, M.S in Computer Sc. From FDU. NJ, PMP and other awards. He recognized by "Omicron Delta Epsilon" (American & International Honor society in economics) and Who's Who among American Universities. Please note these are my personal opinions and does reflect the views of my employer.

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