I have had a number of comments regarding the use of Entity Level Business Modeling. So let me try to explain why I use this method of describing the business.

This type of model is used by accounting firms to provide a means for their audit staff to understand the characteristics of a business and assess the risks associated with none performance. We often view our business from an internal perspective and do not consider how external organisations see us as a business. It is important if we need to attract investors, appease the regulatory bodies and convince internal stakeholders to describe our business in a manner that provides a risk assessment on non-performance and the steps management will take to corrective the situation.

What I will try to do is use a Telco example shown below extracted from one of the models I have created to illustrate how the Entity Level Business Model works. After this you can make your judgment as to how usefulness of this approach might be to you.

 

The overview diagram is a succinct way of showing a typical business model illustrating clearly the external factors that impact the internal processes. When reviewing a Business Process Management or Business Intelligence project it is advantageous for the Business Architect to have a clear understanding of the business drivers. This diagram although simplistic provides a good overview and is used to obtain an agreement with the client on their understanding of their business. This can be taken one step further to gain agreement with the customer on the Value Chain.

Once we have the overview diagram and value chain agreed we can then move to a specific level 1 process (End-to-End) and put together the information required to start building the detailed process diagrams. There is a template for doing this which I have described in a previous blog. However, what I will do now is select a level 1 process and show a generic completed template form. The process I have selected is “Customer Care and Billing”

Process Description	The customer care and billing process covers the end-to-end process associated with: 1.       Handling an initial customer order 2.       Fulfilling the order 3.       Generating a bill 4.       Collecting cash for the service provided.  It is also concerned with: ·         Maintaining customer satisfaction to ensure they do not switch to another provider or cease service; and ·         Providing different types of customer services It is important to view the above as one process rather than four separate processes as inefficiencies or problems anywhere along the chain impacts the level of collection and customer satisfaction.
Process Objectives	1.       Meet specific needs and service levels required by new and existing customers 2.       Attract and retain customers 3.       Deliver tailored services through appropriate distribution channels 4.       Meet management information requirements 5.       Prevent fraud and bad debts 6.       Deliver adequate structured billing data on expected media
Critical Success Factor Key Performance Indicator (KPI) Service Order Processing (Obj. 1,2) ·         Span of time to activate the customer ·         Service Order Aging ·         Held order levels and Aging Customer Service Level Quality (Obj. 1,2,3) ·         Customer Satisfaction ·         Churn rate Subscriber Billing Expectations (Obj. 1,6) ·         Change requests  concerned with delivery of Billing Cash Processing (Obj. 5) ·         Days outstanding analysis Installation and Repairs Expectation (Obj. 1,2,3,4) ·         Trouble Ticket Aging Billing Adjustments (Obj. 5,6) ·         Customer billing enquiry levels ·         Customer & Service profitability ·         Churn rates ·         Rate of bad debts / credit adjustments
Input	Key Activities		Output
·         Customer base data ·         Completed Customer Orders ·         Customer Reliability Information ·         Order Change Request ·         Service Information ·         Customer Information ·         Network Availability Information ·         Order/Service Billing Enquiries ·         Cancellation Statistics ·         Network/ Service/Billing Problems ·         Credit Notes Issued ·         Call Data  Recording ·         Legal and Specific Accounting Regulations ·         Payment Data and Methods ·         Accounts Receivable			·         Customer Invoice ·         Held Over ·         Cash Receipt Trouble Ticket ·         Service Order ·         Financial Accounting Entries ·         Updated Network Information ·         Satisfied Customer ·         Fraud Information ·         Service Order Confirmation ·         Active Circuit ·         Service level Statistics ·         Credit Notes
Systems	·         Service Order Processing ·         Message Processing ·         Automatic Call Distribution	·         Billing System ·         Customer Remittance Processing	·         Customer Enquiry and Error Correction ·         Service Provisioning System
Classes of Transactions	Routine ·         Service order processing (SO) ·         Access service requests (ASR) ·         Held order processing ·         Billing and collection ·         Cash application ·         Settlements ·         Billing adjustments (fraud, etc.) ·         Trouble ticket processing ·         Interconnection billing	Non-routine ·         System implementation and upgrades ·         Rating table changes (can also be a routine transaction) ·         Tariff structure changes ·         Settlement process changes ·         Service level changes	Accounting Estimates ·         Bad debt / credit adjustment reserve ·         Earned and unbilled revenue ·         Billed and unearned revenue ·         Accruals for interconnect billing
Risks Which Threaten Objectives		Management Responses linked to Risks
A.      Inadequate service level (Obj. 1,2) B.      Improperly trained customer service representatives (Obj. 1,2) C.      Delays in service and/or repair provisioning (Obj. 1,2,3) D.      Lack of employee personal accountability (Obj. 4) E.       Provisioning errors (Obj. 3) F.       Billing / cash processing errors (Obj. 5,6) G.     Fraud (Obj. 5) H.     Billing delays (Obj. 6)		Þ     Customer interviews (A) Þ     Setting quality targets (B) Þ     Monitoring performance targets (C) Þ     Accountability and responsibility assignments (D) Þ     Reconciliations (E) Þ     Customer credit analysis (F,G) Þ     Monitoring performance targets (H)
Other Symptoms of Poor Performance	·         Deterioration in service order, held order or trouble ticket ageing	·         Undesired levels of customer churn	·         Undesired levels of customer complaints, billing adjustments, etc.
Performance Improvement Observations	·         Strategy consulting ·         Business process management	·         Billing system evaluation and selection ·         Billing system implementation	·         Revenue assurance ·         Controls assessment ·         Call center process consulting

The methodology provides a framework for setting the Process Objectives and linking the Critical Success Factors (CSFs) to both the objectives and Key Performance Indicators (KPIs). This is important as quite often I am asked how to define the operational KPIs, which hopefully now is explained.  Another important consideration is that the main functions groups within the End-to-End process are defined and linked to their Inputs, Outputs and Systems for maintaining the data along with the main transaction groupings.

The risks of non-performance are also discussed and their impact on achieving the objectives along with how management perceive their responses to mitigate the problem. The document also tries to identify the areas to be considered for performance improvement. This can be very useful information when identifying the “Quick Wins” during a Business Process Improvement project.

The information for the input to the “Entity Level Business Model” is captured during workshops with Process Owners and Stakeholders. Usually the workshops will include those process owners and stakeholders that interface to the Level 1 Process under discussion. In preparation for the workshops I consider competitive companies and how they are structured as well as their financial performance. This is useful benchmark data and helps with understanding the businesses competitive pressures. There may also be specific industry frameworks with predefined industry processes that can be considered i.e. SCOR (Supply Chan) and eTOM (specifically for Telcos).

Through the use of the Entity level Business Model I am able to establish the 3 main categories of processes:

1.       Strategic Management Processes

2.       Core Business Processes

3.       Resource Management Processes.

These process categories can be represented in a Value Chain Diagram which illustrates how all the process within an organisation affect profit and create value.  In conjunction with the Value Chain, I would recommend the use of a Benchmarking Framework such as APQC – Process Calcification Framework (PCF).  This is particularly useful for Business Process Management as it provides a standard Nomenclature for distinguishing process categories and their decomposed components.

At the outset of all BPM projects participants should agree a standard convention and nomenclature. It provides a means for all BPM developers and project participants to establish a consistency throughout the project and set a baseline on which future enhancements and improvements can be measured. 

To provide a basis for establishing a Unique Identifier the APQC Process Classification Framework (PCF) provides a standard nomenclature framework of unique identity numbers down to the activity level that is divided into 4 levels.

1.       Category: The highest level within the PCF is indicated by whole numbers (e.g., 8.0 and 9.0)

2.       Process Group: Items with one decimal numbering (e.g., 8.1 and 9.1) are considered a process group.

3.       Process: Items with two decimal numberings (e.g., 8.1.1 and 9.1.2) are considered processes.

4.       Activity: Items with three decimal numbering (e.g. 8.3.1.1 and 9.1.1.1) are considered activities within a process.

Most Business Process Tools require that each element has a unique identifier, which is usually assigned by the software. However, in my opinion it is better to adopt a standard such as APQC – PCF as it provides a classification system for grouping processes and activities and for establishing a performance framework on which to identify areas of improvement and manage future changes.

I have successfully used this framework recently on a WebSphere Business Modeler project, in conjunction with IBM’s Business Component Model. It proved to be an invaluable tool in lining up the business processes and activities to the Component Model structure.

I came across the use of Entity Business Models when working for KPMG Consulting. They were used by the Audit Business in support of the audit process to evaluate audit risk, understand the issues and risks arising and to be better prepared to discuss the detailed operations of the business. The Business Models were generic to a specific Industry sector providing a starting point for investigating and understanding a particular client business.

The business model template is used to document a client’s business and for making comparisons and contrasts. The design of the template was to support getting answers to the following questions:

• Do the strategies and the business relationships of the organisation address the external forces in the industry?
• Does the design of the business processes support the organisations strategic objectives?
• Has management developed a comprehensive understanding of the business risks that could prevent them from achieving its strategic/business process objectives?
• Are management’s assumptions about the significance of those risks reasonable?
• Does the design of the control framework adequately address the risks identified?
• Has management derived a set of critical success factors and key performance indicators that monitor objectives and management of the risks?

When engaged in a number of Business Process Improvement projects I found the template most useful. It provided a framework for discussing a client’s business processes and speeded up the identification of Key Performance Indicators (KPIs) and their corresponding Critical Success Factors (CSFs). This methodology provides an excellent way of describing the decompositions of performance metrics and how measures are used to determine the performance of key business processes. Also it presents a consistent way of documenting the discussions with the process owners and key users and obtaining consensus on the outcome of the deliberations.

Entity Level Business Model

The entity-level business model is used to describe the inter-linking activities carried out within a business entity, the external business drivers and stakeholders that bear upon the entity and the business relationships with persons outside the entity. The items included in the entity-level business model include the following components:

1. External Business Drivers and Stakeholders – are those outside factors, pressures etc that can prevent an entity from attaining its objectives.
2. Markets - are the segments of an industry that are applicable to the entity
3. Business Processes - is a structured set of activities within an entity, designed to produce a specified output.  A business process emphasis howwork is performed rather than whatis done. It is also structuring of work activities across time and place to transform inputs, such as information, materials and resources, to outputs, such as the products or services for customers or other users. Processes are usually linked with the outputs of one process being the inputs of another process and can be subdivide into three main groups:
1. Strategic Management Processes – defines the organisations mission and the overall business objectives.
2. Resource Management Processes - are business processes that provide appropriate resources to the other business processes.
3. Core Business Processes - are the processes that develop, produce, sell, and distribute an entity’s products and services. These processes do not follow traditional organisational or functional lines, but reflect the grouping of related business activities.
4. Alliances and Relationships with Suppliers - are the types of relationships with third parties that entities in the industry may establish
5. Products and Services – are the significant products and services typically offered by organisations within the industry
6. Customers - are the significant types of consumers within the markets in the industry that organisations may choose to focus on.

Process Template

The business process template is used to provide a consistent means of documenting the Strategic Management, Core and Functional Business Processes within an organisation. A number of standard templates are available for different industries providing a means of stimulating the discussion and speeding up the documentation process. Below is a list of the key areas covered by the template:

1. Process Description - provides an overview of the entire process and provides focus for the process analysis.
2. Process Objectives - are statements that define the direction needed to be taken with respect to the process.  Objectives often relate to items such as customer satisfaction, efficient use of resources and compliance with applicable regulations.
3. Critical Success Factors (CSFs) - are the prerequisites and areas of dependency for a process to be successful.
4. Key Performance Indicators (KPIs) Linked CSFs - are the quantitative measurements, both financial and non-financial, of the process’s ability to meet its objectives through trend analyses within a company or benchmarking against a peer of the company or its industry. 
5. Inputs - represent the elements, materials, resources, or information needed to complete the activities in the process.
6. Activities - are those actions or sub processes that together produce the outputs of the process.
7. Outputs - represent the end result of the process i.e. the product, deliverables, information or resource that is produced.
8. Systems - collections of resources designed to accomplish process objectives. 
9. Risks that Threaten Objectives - are the risks which may threaten the attainment of the process’s objectives.
10. Managements Responses Linked to Risks - are the policies and procedures, which may or may not be put in place, that help provide assurance that the risks are reduced to a level acceptable to meet the process’s objectives.
11. Symptoms of Poor Performance - are areas for performance or process improvement.