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James Brimson in his book "The Handbook of
Process-based Accounting, Leveraging Processes to Predict Results
published by American Institute of Certified Public Accountants, defines
process characteristics as:
- "Flow: sequence of processes and activities
of a process
- Resource Consumption: average amount of
resources consumed in producing one unit of output
- Cycle Time: time taken by process to
transform an input in an output. Cycle time is directly related to
process velocity, about of process to create free cash flow
- Effectiveness: How well a process meets its
cost and performance targets
- Storehouse of Value: value inventory
created for future operations
- Process Value Creation: gauged by excess of
life cycle revenue over cost"
Flow simply means the order of operations
or activities within a process. A company may close sub ledgers before
reversing their accruals from the previous month.
Resource Consumption is materials,
wages, energy, information consumed in producing one unit of output.
Cycle Time is total time taken to
transform one unit of input into one unit of output. This is the total cycle
time and not just the process time. For example, it may only take 2
minutes to actually approve an expense report and have the computer
automatically generate payment. However, it may take a week to get someone
to look at your expense report. In this example, the process time would be 2
minutes, but the Cycle time would be one week. Your internal customer is
concerned with the cycle time. You may be concerned with the process time as
one way to reduce the cycle time.
Effectiveness: how well does the
process meet its targets for cost, time, and quality. A five star
restaurant may have higher quality meat than a fast food restaurant. So the
performance targets for the 2 different types of restaurants will be
different. However, both types of restaurants may have a similar target of
99% customer satisfaction.
Storehouse of Value: every process
either creates or destroys value. An accounts payable systems that misses
vendors discounts due to late processing or that does not catch double
billings would destroy value. Meanwhile an accounts payable process that
catches double billings and takes all appropriate discounts would create
value for the organization.
Likewise two improvement processes may cost the same. However, one
process may increase revenue more or reduce expenses more or increase
customer satisfaction more and thus increase revenue. Just looking at cost
does not provide the total picture of value.
Process Value Creation: process value
creation must be measured over its life cycle. Process value creation is
accomplished a number of ways:
- "Achieving targeted outcome...
- Rapidly creating positive cash flow...
- Minimizing process variation...
- Rightsizing...
- Matching process capacity to customer requirements."
Call John Antos, Jim Brimson or Pat Dowdle at
972-980-7407 to find out more about Process Management.
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