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Forschungsarbeit

Value-Based Process Improvement

By Manuel Bolsinger (01.09.2011)

In May 2003, Nicholas G. Carr published his widely debated article “IT Doesn’t Matter” in the Harvard Business Review. In response, Howard Smith and Peter Fingar published the book “IT Doesn’t Matter—Business Processes Do”, in which they critically analyze Nicolas Carr’s article. In this book they make the following statement: “Business processes are the main intellectual property and competitive differentiator manifest in all business activity, and companies must treat them with a great degree of skill and care.” In 2005, the Gartner Group started to do worldwide surveys on a yearly basis, interviewing CIOs on their behaviors and beliefs. The recent survey “Reimagine IT: The 2011 CIO Agenda“ interviewed more than 2,000 CIOs and found that since 2005 “improving business processes” has been and is a primary business expectation of IT as well as a top business priority of the CIOs.

These publications show the importance of business processes for companies in the past and especially for the future. As the survey of Gartner shows, companies still face the challenge to improve their processes, which can be accomplished through the change of existing processes (redesign). Redesigns are part of business process management (BPM), “which is the epicenter of IT going forward” according to Howard Smith and Peter Fingar. In BPM, the most common criteria to evaluate the improvement of processes have been and continue to be: cost, time, output quality, and customer satisfaction. Thus, although “improving business processes” seems to be a primary business priority, there is no objective definition of “improvement” within the context of business. This emerges as the first step in achieving the goal of “improving business processes”.

Since the 1990s, managers have been striving to “improve” companies by increasing their value, using a value-based management. Hence, in order to improve a process from a business view, “improving business processes” is defined as the change of an existing process (redesign) with the goal of increasing the value of a company. This must be the objective of a value-based process management that incorporates value-based management into the area of BPM.

The aim of this thesis is to develop a value-based approach (cp. figure 1) to support decisions on how to improve a process with the goal of increasing the value of a company (value-based process improvement). Such an approach can be used when it is necessary to redesign an existing process, for example due to new regulations, to decide how to change the process considering the goal of a company. This is done by comparing the different changes in the value of a company caused by different possible redesigns (process alternatives). The process alternative that causes the greatest increase in the value of a company (or decreases it the least if a certain change of the process is required) is the best process alternative to be used.

 

Figure 1: Value-Based process improvement[Bildunterschrift / Subline]: Figure 1: Value-Based process improvement

The thesis presents seven aspects ((1) to (7) in figure 1) to help to achieve this aim, which are the key elements that this thesis adds to the existing research in the area of value-based process management:

(1) The thesis presents a way to determine the value of a company, considering the risk attitude of a decision maker. This value of a company is an aggregation of the values that each process contributes to this company value. It connects each process with the company value, in order to determine, how a process affects this value.

(2) The value that a process contributes to the value of a company (value contribution of a process) is calculated as the risk-adjusted expected net present value of the cash flows that result from executing the process.

(3) A redesign affects the value contribution of a process, which then affects the value of a company. Based on the change of the value of the company, the thesis proposes to choose the alternative that increases the value of a company the most (or decreases it the least).

(4) Since there are many processes in a company, one also needs to take into account the affects of a change in one process on another process. Thus, the thesis presents a possibility to consider dependences among processes, when deciding between alternatives.

(5) There are not only dependences among processes, but also dependences among the activities within a process. This is considered in the approach of the thesis as well.

(6) In order to determine the value contribution of a process, the thesis takes a look at financial quantities (FQ) e.g. cash flows that are caused by processes. The thesis presents an approach on how to determine the expected value and variance of financial quantities of a process analytically, which are needed to calculate the value contribution of a process.

(7) In the end, the thesis also presents approximations of the probability distributions of certain financial quantities, like the stochastic net present value of a process.

These contributions connect the business view at the company level with the activities of a process (activity level) using methods from the areas of decision theory, probability theory, graph theory, process management, computer science and finance to provide a usable approach for value-based process improvement. Furthermore, an algorithm was implemented in Java, in order to determine the expected value and variance of financial quantities of a process automatically.


Manuel Bolsinger
* 1982, Heidenheim an der Brenz

Stations
  • since Sept. 2010
  • Ph.D. student at the Research Center Finance & Information Management, University of Augsburg, Germany
  • Oct. 2007 - July 2010
  • Elite Program „Finance and Information Management“, TU Munich and University of Augsburg, Germany; Master’s Thesis: „Value-Based Process Improvement”
  • Aug. 2006 - July 2007
  • Applied Mathematics, University of São Paulo, Brazil
  • Oct. 2003 - Sept. 2007
  • Business Mathematics, University of Augsburg, Germany; Bachelor’s Thesis: „SEMPA - An algorithm for conditional planning of process activities”

Scholarships
  • 2007 - 2009
  • IBM-Scholarship within the program „Finance and Information Managament”

Publications
  • • Manuel Bolsinger, Marc-Andre Bewernik, Hans Ulrich Buhl (2011): „Value-Based Process Improvement”. In: Proceedings of the 19th European Conference on Information Systems (ECIS), Helsinki, Finland, June 2011 (forthcoming)
  • • Bernd Heinrich, Manuel Bolsinger, Marc-Andre Bewernik (2009): „Automated Planning of Process Models: The Construction of Exclusive Choices”. In: Proceedings of the 30th International Conference on Information Systems (ICIS), Phoenix, Arizona, December 20