What is a business process and why is it crucial for your operations?

It is essential for any company to have their processes well defined and mapped out. Examples of business processes are procure to pay and order to invoice.

Many businesses don’t invest enough their time and resources in creating process schemes, not to mention systematically improving them. This is a mistake. Businesses in all sectors should give it high importance. The main benefits of having business processes well defined are efficiency and productivity.

The compliance rate of your internal processes determines your company’s success. The higher the compliance outcome, the greater the clients’ satisfaction rate, lower costs, optimized profits and even reduced risks of fines and penalties (e.g. mitigating legal noncompliance through process optimization).

Elements of a business process

Each business process should represent a certain system that the company, or a specific team, is executing. The basic scope should include elements such as:

• steps/activities in a chronological order
• inputs & outputs
• responsibilities

More complex business processes can include other dimensions, like: occurrence, time, location, design, validation method and KPIs.

Why do business processes fail?

Processes help streamline the business and drive the organization towards its goals. Sounds simple enough, so why do (some) processes fail:

• Unclearly defined process.
• No alignment to company strategy.
• No alignment to department objectives.

How to prevent process failure

It is crucial that a specialized team, either internally trained or outsourced, is dedicated to the gathering of information, and carrying out interviews to map the processes.

For an optimal mapping and implementation of a process, sufficient resources have to be assigned to assure its correct development and deployment.

Once the process is in place, compliance must be monitored. The two main aspects that need monitoring are the activities and the data. The activities represent the steps the process goes through. Within the activities we generate input and output of data. There are 3 requirements for these data:

1. Sufficient data: there should be enough information to perform current or the future activities.
2. Correct data: make sure the source and data are trusted.
3. Availability: Data within the scope should be accessible to different stakeholders.

Influence of risk

Within the scope of business processes, we recognize two main risks:

• Legal compliance risks
• Operational risks

Legal compliance related risk are errors generated while following a regulatory framework and established laws set by the external parties for the industry, or even to a company specific.

Operational risk, however, is a failure to follow a set of rules or targets imposed and defined by the company itself.  Operational risks can affect e.g. human resources, manufacturing, warehousing, customer experience etc.

Risk should be addressed by rules-based compliance. Any process that is pre-defined and standardized represents the desired behaviour to be executed. Rules put a constraint on the possibilities to execute certain tasks or activities limiting your risks. In simple words, rules dictate what can or cannot be done.

Ideally these rules should be described from the start as this will allow for a proper deployment of the process.

Compliance approach

All of the above make up what we call a compliance scheme.  A compliance scheme requires a holistic strategy. This crucial approach will likely involve cultural changes, creating awareness around the importance of compliance and encouraging a risk-reducing behaviour.  

Additional time may have to be dedicated to the governance activities, including prior employee training, as well as alignment with other strategic initiatives.

There are two types of internal controls that can be implemented: detective or preventive.

The detective approach focuses on the events and errors that have already occurred. This is sometimes called the corrective compliance.

The preventive compliance relates to, as the name states, preventing an error from occurring or affecting the rest of the process. An example of this type of checks includes the authorization for processing data (eg. a manufacturing order or a quotation).

Remember, there must be business processes created for the control performance itself.

Integrated framework is key

Deploying business processes in your company requires a dimensional approach. First thing is to use a standardized process with pre-defined rules to constrain and optimize process behavior. Another layer to this framework should incorporate the governance process that will validate behavior.

In modern compliancy there is a tension between the digitalization, innovation, and regulation, but using the correct tools will allow for a smooth adaptation to change and more importantly, progress.

An ERP system could have great added value for the process execution, as the system will carry out the activities automatically. Which increases the efficiency and improves the process compliance.

Visibility is another great advantage of ERP systems for process control. It helps visualize all the steps as well as the data. The ERP creates an integrated database for all operational information of the business. Moreover, since it is centralized, it can be updated in a consolidated manner and appropriately used for the processes and complance activities where necessary.

Process mining solutions

If your processes are digitalized through a stand-alone software solutions or an ERP system, you can install a process mining program to help you with mapping and optimizing. Using this tooling can bring several advantages at the information gathering stage, such as increased transparency, accuracy, and time efficiency. If you decide to use process mining on a bigger scale, it will become a close partner when it comes to compliance and risk management. It will offer continuous monitoring as well as automatically identifying deviations and errors. This will make your compliance process more agile and will foster a culture of continuous improvement.

Examples of the companies specialized in process mining software are: Celonis, Uipath and IBM.

Final thought

Business processes and the compliance governance should be integrated into one scheme and work as a system. Auditing the process results is highly benefitial to a business as it reduces the risks of errors, especially if the control approach is preventive.

Whether it is done manually, or automatically through an ERP system or other digital tools, the checks must be consistent. At the implementation stage this will allow for generating a risk minimizing culture in your company and assure a continuous improvement of the operational behavior during the execution.