Republic of the Philippines

BATANGAS STATE UNIVERSITY

Rajah Matanda St., Brgy. Bagong Sikat, Lemery Batangas

COLLEGE OF ACCOUNTANCY, BUSINESS, ECONOMICS

Business Administration Department

BPO 201
FUNDAMENTALS OF BUSINESS
PROCESS OUTSOURCING I
_________________________________
SELF-LEARNING MODULE FOR UNDERGRADUATE STUDENTS

DENNIS T. VILLANUEVA, MBA

Instructor I
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This module on Fundamentals of Business Process Outsourcing I provides students with

an overview of the outsourcing industry, including the rationale for outsourcing, critical factors
which affect different outsourcing industries, and the processes involved in engaging in,
operating and maintaining an outsourced service. The course also introduces different tools and
methodologies used in outsourcing operations, and provide the students with opportunities to
apply these tools in simulations at a computer laboratory or “Game Lab.”
The course enables students to recognize areas of opportunities in outsourcing, as well as
to analyze and assess how changes in technology, regulation and business environments may
affect current industries. It also increases the students' awareness of the different processes
critical to maintaining outsourcing engagements, such as maintaining client relationships in the
context of a service culture, and the effective management of costs and resources.

INTENDED LEARNING OUTCOMES

1. Define and explain what is outsourcing.

2. Name and define two types of outsourcing.
3. Describe the attributes of a client and the service provider.
4. Define transition management and its sub-topics.
5. Define and explain operations management and its importance.
6. Explain what continuity management is and its procedure.

INTRODUCTION

LEARNING OBJECTIVES
1. Define and explain what is outsourcing.
2. Identify the reasons why company outsource.
3. Identify functions and services that is being outsourced.
4. Enumerate the advantages and disadvantages of outsourcing.

1.1. The IT-BPM Industry Overview

In 2010, The Philippine Information Technology and Business Process Outsourcing (IT-
BPM) industry garnered recognition from around the world. The UK’s National Outsourcing

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Association determined the country #1 in business process outsourcing service in its Global
Business Trends report.
The word is definitely out – the Philippine is a major player in global IT-BPM.
The opportunity remains for the Philippine IT-BPM industry to capture a bigger share,
given the global offshoring services market is seen to more than double by 2016. The industry
has the potential to bring USD25 billion in revenue, and employ 1.3 million individuals by 2016.
Offshoring and Outsourcing (O & O) is perhaps one of the most unique developments in
business and industry. Firms now adopts truly global scope with the opportunity to situate their
Operations across the world.
Outsourcing is said to have first flourished in the run-up to the beginning of the second
millennium. IT processes and Operations were migrated to India as some American and
European companies focused on dealing with the Y2K problem.

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1.2. Introduction to the IT-BPM Industry

Every time we buy something from somebody rather than producing it ourselves, we
have essentially ‘outsourced’ the production of that good or service.
Contracting of a service provider for the delivery of a process or service.

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1.3. Why Companies Outsource?

• Capacity Management
- Need to acquire / buy / hire (temporary_ capacity
- Demand chasing (one day 50 employees needed, next day only 10 are needed)
• Lower Cost
- Replace expensive local or in-house resources with less expensive resources
from external service providers
- Tax differential or government incentive programs in other locations leading
to lower cost
• Better Performance
Use of specialized external providers which can deliver service with better
quality, innovation, in new platform
- Sales force providing web-based sales management
- PeopleSoft providing employee-facing tools
• Faster and Continuous Service Delivery
- Greater output from work being done around the clock
- Offshoring market research support to locations in reverse time zones
- Offshoring processing of bills of lading to centers in other time-zones to
complete task faster
• Part-based Activities
- Automobile components
- Cruise-ship rooms
- Airplane avionics
- Desktop build and configuration

1.4. What is Being Outsourced?

- Support or Auxiliary Services
* Cafeteria
* Janitorial Service
* Copy Center

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* Building Maintenance
* Trucking / Shipping
* Security
* Payroll
* Legal
- Routine activities or activities that can be automated at larger centers
* Small banks outsourcing check processing to larger banks, riding on ATM
base multi-bank network
* Small vendors using Amazon.com as data center, marketing, and payment
processing platform
* Banks using common / multi-bank core banking services of large
technology providers
- IT services
* Application development
* Application maintenance and management
* Production / Data-Center Operations
* Production technical / systems support
* Helpdesk
* Software as Service (SaaS) : shared application software
* Cloud services : shared data storage facilities, database management

1.5. Importance of Systems Thinking

Advantage
- Employer as well as Employee
Disadvantages
- Employer as well as Employee
Advantages of Outsourcing – Employee Perspective
- The service provider (BPO company) determines most efficient number of
resources, process, and supervision to achieve output
- Service provider may have more expertise / capability than the buyer
- Buyer can leverage economies of scale of the Service Provider

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Advantages – Employee Perspective

- “Work Abroad, Live here”
* Be near your friends and family
* Work in the country and support Philippine growth
- Professional Growth
- Financial Independence
- Employee Assistance
- Enjoy your favorite food

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Disadvantages of Outsourcing – Employer Perspective

- Cost can be higher
- Buyer does not have full control of resources doing work

“Disadvantages” – Employee Perspective

- Shifting schedule (possibility to work at night)
* Gives you the opportunity to pursue your passion and interest during the day
- Dealing with irate customer

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* There is training support on how to deal with irate customer

* There is also floor support
* Companies provide facilities and activities to help you unwind

Learning Assessment
Answer the following questions comprehensively.
1. Identify what is outsourcing.
2. What are the five (5) types of outsourced services as presented
in the IT-BPM industry snapshot of the Philippines?
3. Name three (3) reasons why companies outsource.
4. Enumerate five (5) functions that can be outsourced.
5. Give two (2) advantages and two (2) disadvantages of
outsourcing from an employer perspective.
6. Give two (2) advantages and two (2) disadvantages of
outsourcing from an employee perspective.
Note: The assessment will be done through Google forms in which the link will be uploaded to
the Google Classroom assigned for the class.

➢ Book
• Wiley, John E., Essentials of Outsourcing , McGraw Hilll Publishing, Inc., 2006.
• Fundamentals of Business Process Outsourcing 101 (Teacher’s Guide)

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FUNDAMENTALS OF OUTSOURCING

LEARNING OBJECTIVES
1. Name and define the two types of outsourcing.
2. Enumerate the different outsourcing strategies.
3. State the common types of activities, tasks, and processes that
get outsourced.
4. Identify what are the key technologies and trends in
outsourcing.

2.1 The Two Types of Outsourcing

Third-Party:

- Owned by a service provider, a local entity or part of a global group

- Providing services to clients of the service provider
Shared Service Center:
- Wholly-owned by the mother company
- Providing services entirely to affiliates and subsidiaries, or more rarely to
clients of the mother company

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2.2 Strategies for Outsourcing

- Multisourcing
- Crowdsourcing
- Onshoring
- Nearshoring
- Offshoring

Strategies for Outsourcing – Multisourcing

Multisourcing – Multiple vendors for client’s outsourced project

Example:

- GM’s Brazilian e-commerce site. Vendors: Oracle, AT & T, Microsoft, Cisco,

EDS (now HP Enterprise Services), IBM
- GM’s 2007 / $7.5B IT outsourcing contract with EDS (now HP Enterprise
Services), IBM, Capgemini, and Wipro Ltd.

Strategies for Outsourcing – Crowdsourcing

Company puts out a call for a project; best solution / submission is accepted and
contracted.

Crowdsourcing: “…outsourcing to an undefined, generally large group of potential

offerers in the form of an open call.” (Jeff Howe)

Strategies for Outsourcing- Onshoring

Onshoring : Vendor in the same home country client

Advantages :

- Allows immediate response : product designers in same country respond to

market feedback quickly
- Local contractors have same market knowledge, culture, language,
communication style; minimizes culture issues

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Disadvantages :

- Risk of inadequately selected, trained, supervised staff – i.e. less skilled

because contractor staff are lower paid
- Risk of higher attrition (lower business acumen / process knowledge) than
internal staff; less motivation to deliver quality

Example: New York bank contracting start-up security service firm in New York

Strategies for Outsourcing – Nearshoring

Nearshoring : Vendor is a country “close” (geographic and/or cultural proximity) to

client’s home country

Advantages:

- Fee-for-service variability rather than fixed compensation costs

- Significant labor cost arbitrage

Disadvantages:

- Additional coordination costs, sourcing management, communications

- Transfer pricing/tax margin requirements

Example: Hong Kong retail firm offshoring garments manufacturing in Manila

Strategies for Outsourcing – Offshoring

Offshoring – Vendor and client in different countries

Advantages:

- Allows company to focus on core business

- Fast ramp-up / down at reasonable cost
- Opportunity to expand into new areas cost effectively

Disadvantages

- Data privacy / confidentiality issues

- Lack of right business acumen / right market knowledge

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- Cultural differences leading to delays and miscues

- Risk of high attrition in service provider, weak staff selection / training
2.3 What to Outsource – 2 Types
Core Activities-Tasks-Processes:
- Primary process or product of the business
- Tasks that deliver the primary product, the unique value proposition of the
company
- “Essential, defining activities of an organization”, what it needs to keep
enhancing to improve competitive advantage
Non-Core Activities-Tasks-Processes:
- Support activities, processes, functions
2.4 What NOT to Outsource
Core Activities-Tasks-Processes
- Design
- Product Development
- Process
- “Recipe”
2.5 What to Outsource
Well-defined/documented tasks, standard outputs
Examples:
- IT Development: programming, documentation, unit and integration testing,
implementation of new systems, conversion to new platforms
- IT Maintenance: application maintenance, helpdesk, network support
2.6 Typically Outsourced Activities-Tasks-Processes
- Business Process Outsourcing (BPO)
- IT Outsourcing
- Support Function/s
- Routine activities or activities that can be automated at larger centers
- Seasonal Requirement/s
- Part-based Activities

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2.7 Key Technologies that Support Outsourcing

Video conferencing:
- HP – Halo (8.5 min. video)
- Cisco – Telepresence
- Sun – MPK20 : Project Wonderland
Web-based conferencing and workflow tools:
- WebEx
- MS Windows Meeting Space
- MS Sharepoint
- Google Applications

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2.8 Fundamentals of Outsourcing

Learning Assessment
1. What are the two (2) types of outsourcing?
2. Enumerate and briefly explain the five (5) outsourcing strategies.
3. What are the typically outsourced activities / processes / tasks?
Enumerate.

Note: The assessment will be done through Google forms in which the link will be uploaded to
the Google Classroom assigned for the class.

➢ Book
• Wiley, John E., Essentials of Outsourcing , McGraw Hilll Publishing, Inc., 2006.
• Fundamentals of Business Process Outsourcing 101 (Teacher’s Guide)

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BPO ENGAGEMENT

LEARNING OBJECTIVES
1. Describe the attributes of a client and the service provider.
2. Enumerate the five core elements of BPO Contract.
3. Define and differentiate CAPEX and OPEX.
4. Enumerate and define what are the BPO Contract Financials.
5. Enumerate the different regulatory requirements.

3.1 Client-Service Provider Relationship

Attributes
Client company is concerned with:
- Quality transition of processes
- Efficient operation in business functions that were once handled in-house
Service-provider company is concerned with:
- Scope of service
- Performance measures
- Benchmarks to ensure objective standards in assessing work quality

Therefore, as a result of these relationship attributes, the BPO contract is a unique,

“tailor-fit” agreement captured in a document that resembles a performance contract.
3.2 The BPO Contract
- A business process outsourcing (BPO) contract is a formal agreement between
a client and a service provider to take over a “pre-agreed portion” of the
client’s business operations.
- The “pre-agreed portion” is documented in the contract as the scope of work
(SOW).
- The BPO contract, with all its attachments, is referred to as the master
services agreement (MSA)

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3.3 The BPO Contract : Master Services Agreement

Definition : Covering agreement that summarizes terms applicable to every job-order
with the service provider
Main Elements : A. Service to be provided
B. Performance management, issues, change management
C. Country laws
Groups (A) and (B) are the “operational” elements, used day to day. Group (C)
generally “just-in-case” terms.
3.4 The BPO Contract : Scope of Work
Definition : Describes specific work to be delivered, by when, at what cost
Considerations : - can be similar to a “job order”
- is generally an attachment / addendum to a Master Agreement, points
to covering terms
- May state that in case of terms inconsistency, the SOW or Master
Agreement supersedes
3.5 The BPO Contract : Core Elements
- Services to be rendered or provided as documented in the Scope of Work
(SOW)
- Performance standards expected from the service provider; Service Level
Agreements (SLA), and, Key Performance Indicators (KPI)
- Timeline of the contract; start date (“go live”), and, duration
- Costs to the client
- Other Specific Operational Requirements
• Services to be rendered or provided as documented in the Scope of Work (SOW)
- Out-bound sales calls
- In-bound inquiries or subscriptions
- Delivering food or flowers or mail
• Performance standards expected from the service provider; Service Level
Agreements (SLA), and, Key Performance Indicators (KPI)
- “Handle Time” and “Average Handle Time”
- Sales attainment
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- Customer satisfaction rating

• Timeline of the contract; start dates (“go live”), and, duration
- It is detailed schedule of when the transition period starts and when the
service provider assumes control of the contracted processes
- In terms of type per duration; most contracts are typically multi-year
contracts, however and when deemed most effective, on-demand contracts
may also be put into effect
• Cost to the client
- Refers to the payment made by the client to the service provider for honoring
contractual agreements
• Other Specific Operation Requirements
- Who will provide the service
- Qualifications of personnel
- Location of operations
- Outline of reporting procedures, decision-making, and escalation of problems
- Legal provisions (e.g., non-competition, confidentiality)
3.6 BPO Contract Pricing Models
There are two pricing models that are commonly used in outsourcing contracts;
(1) fixed price, and, time and material.
1. Fixed Price :
- This pricing model is easy to plan and more predictable than other pricing
models.
- A fixed, pre-agreed price per unit is negotiated, (e.g., a fixed price per call of a
fixed price per transaction)
- Advantages for clients : provides greater cost certainty
- Disadvantages : several risks with capital requirements and lower flexibility
2. Time and Material :
- The price for service is based on the time and material that was used.
- Used when a service is very flexible and it is not predictable in terms of how
much time and material is needed.

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- In some cases, a maximum price for the service is negotiated by the client /
customer to build in some control or safety level.
In practice, it is often a mix of the above-mentioned pricing models that is
used.
3.7 BPO Contract Financials
Capex and Opex
CAPEX (or Capital Expenditure) – is a business expense incurred to create future
benefit. Expenditure on assets like a building or the physical space, machinery,
equipment or upgrading existing facilities so their value as an asset increase.
OPEX (ox Operational Expenditure) – is the money the business spends in order to turn
inventory into output (throughout). These are operating expenses which also include
depreciation of plants and machinery which are used in the production process.
Those expenditures required for the day-to-day functioning of the business, like
wages, utilities, maintenance and repairs fall under the category of OPEX.

3.8 Components of Process Cost

Process costs associated with roles (activities-processes-tasks) that may be
outsourced via the offshoring outsourcing strategy
1. Labor cost
- Compensation

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- Benefits
- Bonuses
- Incentives
2. Direct costs
- Employee Development (Training), Employee Relations Programs
- Employee Tools/Equipment; desktop computers, communications
- Coordination and Management: travel, representation, meetings, and,
workshop
3. Indirect costs
- Infrastructure : indirect costs for network, mail, and other shared employee
services, rental, depreciation / amortization
- Other charges : head office or regional shared cost allocation, interest cost,
foreign exchange gains / losses
Loaded Annual Cost
1. Compensation : Salary and Bonuses
2. Benefits : Training, Health and life Insurance, Profit Sharing, Pension Matching,
Worker’s Compensation, Employer share of payroll and Social Security Taxes
3. Infrastructure : Facilities, Venue Rent, IT Support
3.9 Regulatory Requirement
Adherence to Government Regulations (External) :
- Board of Investments (BOI)
- Bureau of Internal Revenue (BIR)
- Bureau of Immigration
- Department of Labor and Employment (DOLE)
- Pag-Ibig Fund
- Philippine Economic Zone Authority (PEZA)
- Securities and Exchange Commission (SEC)
- Social Security System (SSS)
- Data Privacy Law
Industry / Company Regulations (Internal) :
- Institutional and operational standards / policies / guidelines

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- Service provider implements own regulations

3.10 External Regulatory Requirements – BOI
Board of Investments
- A Republic of the Philippines agency created under the Department of Trade
and Industry
- It strives to attract direct investments into the country to contribute to
economic growth and jobs creation in the Philippines
BOI Qualification
- A Philippine enterprise can register their project with the BOI if the proposed
activity is listed as a preferred project in the current IPP. Said enterprise may
engage in domestic-oriented activities in the IPP whether classified as pioneer
or non-pioneer.
However, an activity which is not listed may still be entitled to incentives if
the following conditions are met:
- At least 50% of the production is marked for export (for 60% Filipino – 40%
Foreign-owned enterprises); or
- At least 70% of production is marked for export (for more than 40% Foreign-
owned enterprises)
Any outsourcing company is Qualified under 100% export.
- For foreign-owned firms or those whose foreign investment exceeds 40% of
the outstanding capital stock who can engage in domestic-oriented activities,
can only be registered with the BOI if they propose to engage in an activity
listed or classified in the IPP as pioneer.
- However, if it fails to meet the pioneer classification, it can likewise opt to be
an export-oriented firm to qualify for BOI registration. However, this time, the
expert requirement is at least 70% of actual production.
BOI Requirements
- DTI Registration : Sole Proprietorship
- SEC Registration : Corporation, Branch Office, Regional Headquarters
- Audited financial statement and Income Tax Return for the past three years (if
applicable)

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- Board Resolution to authorized company representative

- Accomplished Application Form 501 and Project Report
3.11 External Regulatory Requirements – PEZA
PEZA, The creation of
- The development of Special Economic Zones throughout the country, and the
very competitive incentives available to investments inside PEZA Special
Economic Zones are embodied in the Special Economic Zone Act of 1995
(Republic Act No. 7916), a law passed by the Philippine Congress.
- Promote Philippine investments, extend assistance, register, grant incentives
to and facilitate the business operations of investors in export-oriented
manufacturing and service facilities inside selected areas throughout the
country proclaimed by the President of the Philippines as PEZA Special
Economic Zones.
Qualification
- Export-oriented enterprises that locate in any of PEZA special economic zone
Requirements
- Duly accomplished and notarized PEZA application form and anti-graft
certificate
- Corporate Profile (including that of parent company, if applicable)
- Board Resolution authorizing the filing and designation of a representative
- Securities and Exchange Commission (SEC) Certificate of Registration,
Articles of Incorporation and By Laws (if not available, submit draft of
Articles of Incorporation)
- Project brief (i.e., Information on Market, Technical, Financial and
Management aspects of the project to be registered)
Data Privacy Law – Republic Act No. 10173
An act protecting individual personal information in information and
communication systems in the government and the private sector, creating for this
purpose a national privacy commission, and for other purposes.
3.12 Internal Regulatory Requirements – Industry

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Industry Specific Regulations – Control of communication channels and

information systems : Article 16-(1) The communication channels and information
systems of the bank shall be controlled to ensure that information obtained within the
bank is reliable, complete, traceable, consistent, is a suitable format and character to meet
the requirement, and accessible by relevant units and personnel in a timely manner.
Industry Specific Regulations – Auditing of partnerships subject to consolidation :
Article 34-(1) Banks shall take all necessary measure to ensure that their internal audit
units can inspect all activities and units of their consolidated partnerships without
limitation

Learning Assessment
1. Describe the attributes of a Client and Service Provider
Relationship.
2. Define the following: BPO Contract, SOW, MSA, SLA, KPI.
3. What are the five (5) core elements of a BPO Contract?
4. Define and differentiate CAPEX and OPEX.
5. What are the components of process cost?
6. What are the five (5) BOI requirements?
Note: The assessment will be done through Google forms in which the link will be uploaded to
the Google Classroom assigned for the class.

➢ Book
• Wiley, John E., Essentials of Outsourcing , McGraw Hilll Publishing, Inc., 2006.
• Fundamentals of Business Process Outsourcing 101 (Teacher’s Guide)

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MANAGING OUTSOURCING TRANSITIONS

LEARNING OBJECTIVES
1. Define transition management.
2. Define migration strategies and knowledge transfer
frameworks.
3. Define what are the transition risks.
4. List down the critical success factors.
5. Identify the transition effectiveness.
6. Outline the requirements for good transition documentation.
7. Explain work shadowing.
8. Define the components of readiness assessment.
9. Define hand-offs.
10. Explain the concepts of scale and time tracking.

4.1 Managing Outsourcing Transition

The Transition Manager – Transition Strategies & Knowledge Transfer Framework

• Transition Management is the set of activities that transpire after a BPO contract is signed
that implements or executes the detailed movement or transfer of processes from the
client to the service provider.
• A Transition Manager is responsible for migrating the function or the process from the
client location or organization to the service provider or outsourcing organization.
• The Transition Manager needs to be an effective communicator, as the role requires
extensive interaction with the clients.
• Because of the nature of the role, a Transition Manager needs to have a variety of skills
and competencies:
✓ Needs to have strong project management skills, as the migration process are
complex projects that require expert management skills;
✓ Needs to be comfortable in working in a cross-cultural environment, as most
often, the client teams are based overseas;

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✓ Needs to have a thorough understanding of the: existing business and legal

processes, and, current as well as emerging technologies as these play a critical
role in the off-showing of a business function.
• Generally, there are two common strategies followed in migrating a function, these are:
Lift and Shift and Re-engineer and Migrate
✓ Lift and Shift
Definition – This is the most common methodology used. When the process is
mature, this approach is used for migrating.
Phases
1. Move the current process to the service provider without
changes/improvements
2. Stabilize
3. Re-engineer the process to achieve efficiency gain – produce same output, less
FTEs
- Modify the process
- Add end-user type or strategic automation
- Combine role with others
- Move process into a production line
- Negotiate elimination of unnecessary outputs

Items to Consider:
1. Process change that will not affect process control points or output can be
done by service provider independently
- Onshore approval of process changes is good practice
- Onshore review if the change impacts regulatory control points
2. Major effort: post go-live reengineering
- Transition phase can be very easy especially if “people and processes” are
moved; may take 3 to 4 months only
- Risk the Onshore loses political will to reengineer processes after a while
Advantages – Advantages of an “as is” basis process migration:
- Training the new team is easier, as the process is well understood and
documented

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- Existing employees at the donor location are available to support the

process in case of disruptions or instability
- A fresh set of eyes (the new team) look at the process from a fresh
perspective, often resulting in process improvements and enhanced
controls

✓ Re-engineer and Migrate

Definition – Fundamental rethinking and radically redesigning of the business
process to as to achieve dramatic improvements in critical measures of
performance such as cost, service, and, speed.
Items to Consider:
- Useful when the process is either broken and requires fixing, or is due to
undergo significant change in the near future (systems change or process
change)
- In such cases, it may be important to utilize the expertise of the existing
team (which is built over several years) to drive the change, before it is
handed over to the new team
- Company that outsource industry common processes to a market-leading
service provider will generally follow service provider processes
- Company changes its processes as part of transition to service provider

4.2 Transition Success and Effectiveness

Transition Pitfalls & Risks – Critical Success Factors – Transition Effectiveness

Transition Pitfalls & Risks

Most of the issues with sub-par or failed outsourcing endeavors can be attributed to a few
pitfalls.

1. Inadequate investment and Sponsorship

2. Unclear scope of work
3. Training shortcuts

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4. Unclear roles and responsibilities

5. Not retaining the experts

These can be avoided if the Transition Manager constantly re-focuses attention of all involved
towards these.

Transition Critical Success Factors

The success or failure of a transition project is fundamentally measured in two aspects:

1. Technology Readiness – state of readiness of the enabling hardware and software to

support the on-going operations
2. Manpower Readiness – state of the readiness of the operating staff; hired, trained, and,
skilled for the service processes

Transition Effectiveness

Transition Effectiveness can be measured through:

1. Financial Benefits
It is important to quantify the real cost of the function before off-shoring (baseline costs),
and also to measure the cost of the off-shore team on an ongoing basis.
• Costs related to moving the function to the new team should be tracked separately as
project costs.
• Capturing these cost elements enables comparison of baseline costs with current costs,
and provides an accurate measurement of the saves.
2. Performance of the Team
• Primarily done by developing performance metrics

Usually subject to a testing phase to determine reasonability of the service measures – also
known as the “baselining” period.

4.3 Document Readiness

• Inputs
• Processes are documented to standards
• Replication ready

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• Output
• Communication
• Supervision

Document Readiness: Inputs

1. Inputs are documented

• Source systems and dependencies
• Timing of delivery quality assumptions, and work-around in case of failure in
delivery of some inputs
• Format of inputs (structured or not)

Document Readiness: Process

2. Process are documented in industry standard format and in complete detail

• Hand-offs to other parties, internal and external, documented, including timing
and format
• Interim/flash reports, if required, are documented as deliverables. Delivery time,
day-of-month, period targets are documented.
3. Required tools, macros, workflow, application, shared directory access are listed in
sufficient detail to allow replication in the service provider.

Document Readiness: Outputs

4. Interim/flash and final outputs are completely documented

• Formats are completely defined
• Control steps and quality assurance checklists are defined
• Delivery time/day-of-period are defined; these are reviewed to ensure they are
achievable/consistent with input timeliness
• Service provider and transition project manager should validate that timelines are
current and not “aspirational”; tendency to put in desired/unrealistic deadlines
when outsourcing

Document Readiness: Communication

5. Communication channels for output to be explicitly defined

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• Clarity here minimizes misunderstanding during early production period

• Especially if the output is an input to another process

Document Readiness: Supervision

6. Onshore supervision points and that will be reviewed/checklist should be defined

• Some country regulations (US) require clear trail of supervisory control by an
Onshore person
• Responsibility for output (e.g. financial statements) rests with an accountable
Onshore officer
• For shared service centers particularly, clear documentation on areas of
supervisory review paves the way for transition into “center of excellence” mode
where supervisory control rests offshore

4.4 Work Shadowing

Definition:

– is the term used for “learn-by-doing” activity of service provider personnel, generally done at
the same location as current company performer

Phases:

1. Onshore personnel doing activity

• Onshore personnel performs activity, conducts training; service provider
personnel looks over/on-observers
• May be done at Onshore location with service provider staff travelling; may be
done at service provider location with Onshore staff travelling
• Service provider staff reviews documentation provided against actual activity
done by Onshore personnel
• Changes in documentation are done
• Re-sizing pf required staffing may be negotiated at this point
2. Guided service provider network
• Service provider performs the activity; Onshore personnel looks over and gives
close guidance

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• May be done Onshore or at service provider site

• Completes 1 or 2 full cycles: if output is monthly, guidance is given for 2 month-
ends; if output is daily, guidance is given for a few days
• Generally, 1 to 2 months of guided work
3. Go-live
• Service provider performs the activity independently at service provider site
• Performance targets in place and required
• Changes in sizing or process (to correct erroneous training provided by onshore)
now falls under change-request process and governance
• Need to closely monitor for a period of 3 months to ensure stable performance

4.5 Readiness Assessment

Readiness Assessment, Purpose of

Readiness Assessment verifies if process to be outsourced is:

1. Adequately documented. Poorly documented current process will result in:

a. Most current in-house processes operate on tribal knowledge, undocumented steps.
b. Service providers adding “uncertainty” of process premium in their proposals – not
very clear what will be delivered, how, and by when
c. High probability of he-said-he-said misunderstanding during initial phase of
production
d. Long work shadowing period and high cost as service provided tries to document
required process
2. Correctly-sized in generic resources
a. Most current process done in-house operate with long-experienced staff (veterans in
role). 1 FTE with 20 years on-the-same-job experience is not equal to 1 FTE with
general experience no matter how bright or expert or diligent
b. Without readiness assessment, the company will estimate the current cost low, the
receiving provider may incorrectly size the role, may have to initially use 2
performers (with very structured steps) to do the same 1 FTE job until knowledge is
gained/documented

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3. Resource sizing already includes the right level of quality assurance and supervisory
control
a. Most in-house processes rely on veteran performers with long-developed “business
acumen” that allows unstructured sense-check for quality assurance
b. Most contracts (especially shared service center migrations) are under-configured
because QA/supervisors are not included
c. Why is incorrect (under) sizing a problem? Because service providers will inevitably
use the “change request” process to add the cost

Adequate Documentation

Adequate Documentation for:

1. Input
2. Process
3. Output
4. Communication
5. Supervision

Considerations for Input

1. Properly described input

2. Method of acquisition
3. Language of input
4. Timing of the input
5. Dependencies

Adequate Documentation: Input

a. What are the inputs

- Is there documentation listing/describing the inputs
o Many onshore processes performed by long=time staff would not have existing
documentation
o Key to know where are gaps to understand areas and cost of remediation
- How are the inputs received

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o Are they in structured form (consistent) or are they in verbal, email or even
spreadsheet freeform
o Structured input makes straight-through processing easier, requires less business
acumen on part of performer
o Less training for processor to start, faster growth from new hire to productive
performer
o Unstructured input data points to early area for process improvement; efficiency
gains from straight through processing
- Are inputs in same language as that of provider
o Can communication onshore be done in same language as that used by provider
o Different language adds cost in terms of language translator/specialist and
“funnel” effect
b. Is there an input data timing condition (can be received only on Business Day)
- Are the inputs received all throughout the month or do they peak on a single day/period
o Peaking inputs may require peak-basis staffing to keep delivery target
o Extra cost of peak personnel
o Challenge of work-scheduling to use staff during low periods
- Are inputs received only on defined days
o Do those days coincide with month-ends
o Less opportunity to do work-scheduling of off-peak staff if work peaks are the
same
c. What are the dependencies (what systems, external parties)
- Are dependencies documented – i.e. OO output from another system/process must be
received first before PP input can be delivered
- Which inputs are delivered by external, systems, which by internal systems
o How stable are the systems (do they go down regularly)
- Are there work-arounds in case of input system failures
d. How accurate are the inputs (quality of input)
- Are there base/historical accuracy statistics. Can be used to justify cost of measures to
improve accuracy
- Input errors cost money in terms on re-work

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- Poor quality of input means prior step to validate input must be added
e. How consistently delivered on time (timeliness)
- Are there historical timeliness statistics. Can be used to justify investment in faster
platforms, in process improvements
- Late inputs cost money in terms of overtime
- “Compressed work-day” burden on performers (doing 3 hours worth of process in hour
deliver on time

Adequate Documentation: Process Checklist

a. Are the processes properly documented

b. Are hand-offs to other parties (internal and external) shown in the documentation
c. Are interim or “flash” reports documented
d. Are delivery time/day-of-month/period targets documented

General rule of thumb:

➢ If documentation length exceeds the output materially, that is too low a level
➢ Lowest level documentation going beyond 2 to 3 pages is too much

a. Are the processes properly documented

- What documentation standard
o Process maps (who performs, what are the hand-offs to other performers) are
intuitive
o Using a specific standard is not important; it is important that a standard is
consistently used
- How many levels are documented
o Must go beyond high-level process
o Must document actual outputs sufficiently to allow:
▪ Qualified performer (with xx years experience in yy process, with aa
academic training) to replicate output
o Must be simple and straight forward
- Are workflow and other technology tools properly referred to in the document
o Ideal if workflow platform is used in Onshore, but this is infrequent
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o If specific spreadsheets, access, or other end-user-developed programs are used

(“macros”), it is important that the source code and technical documentation for
the macro is shared
b. Are hand-offs to other parties (internal and external) shown in the documentation
- Clear documentation of hand-offs show areas of “process fragmentation”
- Hand-offs are transfers of the task to other people before continuing
- Aggregate items to review in a single-sign-off step at the end
- May be better to require enriched data prior to start of the process – i.e., intelligent input
template or train performer to do the data enrichment
c. Are interim or “flash” reports documented
- Flash reports allow Onshore supervisors to do early process check. Regulatory
submission deadlines are hard, hence critical outputs may need intermediate review
- Ideal that the process continues without waiting; only stop by exception
d. Are delivery time/day-of-month/period targets documented
- Indication of required delivery time/date important in the process documentation
- Quick look at input receive and output delivery allows check of process ease and
staffing requirements
- Tight processing time (late input, early month output) shout out opportunities for
required technology/process improvement

Adequate Documentation: Process

How up-to-date is the documentation

- How often is document re-certified. Are the “live”/modified immediately whenever process is
changed

o Documentation is valuable only if up-to-date; show binders are not useful

o Easy to quickly assess live-status of documentation” Ask performer about his process,
ask him to then point it in the documentation
o What steps/procedures will Contracting of a service provider for the delivery of a process
or service
- Delivery targets: Following defined delivery objectives-defined timelines, accuracy,
consistency
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- How: With description/documentation of how the service will be performed (key

operating procedures, control points) (in many cases, requirements will include:
performer qualifications and count, required tools – for clarity of expectations)
- Supervision: Stating the supervision process, periodic reviews, and how performance
will be measured
- Cost: For a clearly defined cost (per input unit o outcome) and clearly defined
bonus/penalty award and basis

Adequate Documentation: Output

Considerations for Output

1. Properly described output

2. Method of transmission
3. Language of output
4. Timing of the output
5. Dependencies

Are outputs completely documented

- Formats defined. In key management reports, down to the colors of certain data

- If output is an input to another process, best that structured template is followed

- Periodic changes in outputs (and in contents/format within output) are normal – BUT the
change requests should be documented, cost-justified, and properly approved

Adequate Documentation: Communication

How are the outputs to be communicated

- Transmission channel has to be clearly stated – e.g. email, file upload into MS Sharepoint

- As input to another process – in workflow or direct entry to another system

Adequate Documentation: Supervision

Considerations for Supervision:

• Onshore

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• Offshore
• Staffing, Equipment, Motivation
• Country Regulations

Where are the “Onshore” supervision points

• Some country regulations (US) require supervisory control by an Onshore person – i.e.
ownership of the output is with the Onshore person
• In Onshore exercises who has “supervisory control”
• In shared services, next stage of evolution is true centers of excellence where work and
supervision is done in another location

Adequate Documentation: Summary

• Onshore processes with adequate documentation have greater readiness for offshoring
• Documentation on Inputs, Processes, Outputs, Communication channels, and Supervision
allow a service provider (Third0Part of Shared Service Center) to estimate cost of doing
the service offshore with more certainty.

4.6 Hand-Offs

Definition

- are transfers of the output to a different performer, an approver, for further action prior
to continuation

Reasons for Hand-offs

1. Data enrichment. The other performer adds data to the transaction

2. Quality Assurance. The second performer is a checker
3. Control. Approval for materiality and substance is done by a separate person

How you get paid…

1. Paymaster creates initial employee pay record

2. Timekeeper reviews overtime records to adds overtime pay
3. Payroll clerk reviews loan records for loan deductions

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4. Payroll clerk looks at reimbursement records to add payments for expenses advanced by
employee
5. Payroll clerk looks at enriched pay record and calculates right withholding tax
6. Payroll supervisor reviews the whole pay and approves
7. Paymaster submits net salary ta bank for payment

4.7 Scale

Sufficiency – Tips to Optimize

Scale Illustrated

Scale

- Number of employees (manning compliment, head count, full time requirements FTE)

Sufficiency of scale depends on the following:

• Service provider
• Requirement of the job
• Client

Scale in Relation to Workforce

Sufficiency of scale depends on the service provider – for risk management

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• A 15,000 FTE provider is a single location may prefer engagements of at least 500 FTEs
(5% is normal buffer of resources, can be ramped up easily or absorbed in other clients
when contract ends)

Right scale depends on client – percentage of outsourced roles to total staff, for risk management
and control

• A 500 person Finance organization may want to limit initial outsourcing to say 10% or
15%
• A large company with experience in outsourcing may opt to outsource the entire
technology group (from data centers to application development to helpdesk) to a
provider –especially if core business is non-IT

Tips to Optimize Scale

• If the process to be outsourced is done by only a few FTEs (Full time equivalent), it is not
worth outsourcing
• Near self-contained roles have good potential for outsourcing – because more FTEs
covered

For Scale to work it must ne considered to both sides client and service provider. In each
instance, both parties have to consider the following:

• End-to-end roles are ideal (start from external contact, ends with external contact, with
only 1 or 2 intermediate hand-offs for review/approval)
• Product P&L (profit and loss) starts with transaction data download and ends with
submission to regional/senior management, intermediate activities (market price
verification, calculation of mark-to-market value) are fully done by service provider
• Buyer needs sufficient FTEs in outsource project to justify risk and executive attention
(sourcing management, finance/payments, legal)
• What is the amount saved. If it is too small, the cost of Onshore supervision eats up the
benefit
• Service provider needs sufficient FTEs (margin) to justify a risk, supervisor (operations
manager attention), and overhead (Finance, billing, legal)

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• Large and small engagements have near same “overhead” in support –except for very
large contracts
• Training
• Improve Hardware and/or Enhance Software

Identifying Task Candidates for Outsourcing

• Break down current onshore roles into individual tasks that have scale (high number of
FTE hours)
• Tool for task analysis can be
- Follow the performer: consultant follows a performer and tracks time spent in each task;
called “stop-watch” method because consultants carry timing devices

Identifying Task Candidates for Outsourcing: Time Tracking

• Time-tracking into granular task buckets is good way to identify potential roles for
outsourcing
• Record how much time is spent each day in specific task groups
• Helps managers assess whether the work can be simplified
• Challenge of simplify now or later
• Some high-volume tasks may need further breaking up to identify specific roles
• Highlights tasks that occupy a lot of people’s hours
• High FTE-hour numbers are directional pointers for outsourcing
• Other “sub-filters”: (a) do not require complex market knowledge, (b) do not have high
financial or regulatory risk, (c) tasks which are self-contained (have minimal hand-offs)
• Tempting to wait and do more granular time tracking and further analysis. Be wary of
analysis paralysis

Identifying Task Candidates for Outsourcing: Candidates

• Finite
• Documented
• Sufficient of Scale

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Identifying Task Candidates for Outsourcing: Considerations

• Readiness assessment
• Level of documentation of onshore processes
• Scale: sizing savings based on current performer count
• Time-tracking or task-based FTE assessment
• Prioritize roles that are “more ready”
• Lift-and-Shift for less documented roles
• Cost of low outsourcing readiness

Components of Readiness

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Learning Assessment
1. Define transition management.
2. What skills are essential for a transition manager?
3. What are the two (2) transition strategies?
4. What are the transition pitfalls and risks?
5. What are the critical success factors?
6. What are the measures of transition effectiveness?
7. Explain the importance of proper documentation.
8. Explain work-shadowing.
9. Define the components of readiness assessment.
10. Define Hand-offs.
11. Explain the concept of scale.
12. Explain Time tracking.
Note: The assessment will be done through Google forms in which the link will be uploaded to
the Google Classroom assigned for the class.

➢ Book
• Wiley, John E., Essentials of Outsourcing , McGraw Hilll Publishing, Inc., 2006.
• Fundamentals of Business Process Outsourcing 101 (Teacher’s Guide)

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BPO OPERATIONS MANAGEMENT

LEARNING OBJECTIVES
1. Define what is operations management.
2. Explain the value of importance of operations management.
3. Enumerate and discuss the components of operations
management.
4. Identify the process mapping and notation shapes.
5. Explain the importance of process mapping.
6. Prepare process map.

5.1 BPO Operations Management Overview

• The main strategy that the BPO sector applies is what is called: “End-to-End Service
Level Management”.
• The theoretical and practical aspects of designing and implementing End-to-End Service
Level Management (SLM) in any BPO relationship is thorough formal agreement – a
contract with the client
• The Service Level Agreement (SLA), is a formal agreement between the client and
service provider for a common understanding on aspects including service quality,
responsibilities, performance metrics, penalties and commitments.

SLM is a regular and systematic review of service provider performance against the agreements.

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BPO: Operations Management Six Components

5.2 BPO : Operations Management Six Components – Component 1

Performance Management

- is the systematic process by which an organization involves its employees, as individuals

and members of a group, in improving organizational effectiveness in the
accomplishment of mission
- and goals.

Employee performance management includes:

• Planning work and setting expectations,

• Continually monitoring performance,
• Developing the capacity to perform,
• Periodically rating performance in a summary fashion,
• Rewarding good performance.

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5.4 BPO : Operations Management Six Components – Component 2

Metrics and Reporting
6.
7.
8.
9.
10.
11.
12.
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15.
16.
17.
18.
19.
20.
21.
22.
23.
24.
25.
26.
27.
28.
29.
30.
31.
32.
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34.
35.
36.
37.
38.
39.
40.

40.4

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5.3 BPO : Operations Management Six Components – Component 3

Professional Development

- refers to skills and knowledge attained for both personal development and career
advancement

Value – lifelong learning, a sense of moral obligation, to maintain and improve professional
competence, enhance career progression, keep abreast of new technology and practice, or to
comply with professional regulatory organizations

Approach to Personal Development:

• Case Study Method

• Consultation
• Coaching
• Communities of Practice
• Lesson Study
• Mentoring
• Reflective Supervision
• Technical Assistance

5.4 BPO : Operations Management Six Components – Component 4

Quality Monitoring and Analyzing

Quality Specification:

• Total Quality Management (TQM)

• Total Quality Circles (TQC)
• ISO 9001
• Six Sigma

Total Quality Management (TQM) is a management system or approach to long-term success

through customer satisfaction. In a TQM effort, all members of an organization participate in
improving processes, products, services, and the culture in which they work through the use of;

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strategy, data, and effective communications to integrate the quality discipline into the culture
and activities of the organization.

Primary Elements of TQM

• Customer Focus
• Total employee involvement
• Process-centered
• Integrated system
• Strategic and systematic approach
• Continuous improvement
• Fact-based decision-making
• Communication

Total Quality Circles means having organized Kaizen activities, involving everyone in a
company – managers and workers – in a totally systemic and integrated effort toward improving
performance at every level.

It is to lead to increased customer satisfaction through satisfying such corporate cross-functional

goals as quality, cost, scheduling, manpower development, and new product development.

ISO 9001 is a very flexible quality standard that is readily applicable to many industries, as well
as to all sectors of IT-BPM industry, hence its popularity in the Philippines even with small-scale
business.

ISO 9001 is part of a series of International Standards for Quality Systems, it is primarily
focused on quality systems as models for quality assurance in design / development, production,
installation and servicing.

Six Sigma is a set of qualitative and quantitative (statistical) techniques to systematically

improve processes by elimination defects and process variation.

It is by product of decades of quality improvement methodologies such as Statistical Process

Control (SPC), Total Quality Management (TQM), and, Zero Defects.

Six Sigma asserts that:

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- Process variation is an obstacle to reliably delivering high quality products and services,
as defined by the customer,
- Continual focus on reducing process variation is the foundation for business
improvement and success,
- All business processes (manufacturing, service, administrative, etcetera) can be
measured, analyzed, controlled, and improved,
- Effective problem solving can only be achieved by data driven decision making, and,
Achieving and maintaining quality improvement requires an organizational
commitment that comes from senior management

5.5 BPO : Operations Management Six Components – Component 5

Productivity Monitoring and Control

Employee Productivity is amount of outputs (usually regulated by requirements and quality)

which can be produced by employee per period of time, utilizing the given resources. The more
stable and elaborated the process of production (the less X-factors or varying inputs it involves),
the smoother level of productivity is expected from employees operating it.

Guidelines for Monitoring Employee Productivity:

• Measuring
• Comparison
• Identification
• Feedback

5.6 BPO : Operations Management Six Components – Component 6

Continuous Improvement Initiatives

5S Process – or more simply “5S”, is a structured program to systematically achieve total

organization, cleanliness, and standardization in the workplace.

5S was invented in Japan, and represents five (5) Japanese words: Seiri, Seiton, Seiso, Saiketsu,
and Shitsuke

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Benefits:

• Improve safety
• Decrease down time
• Raise employee morale
• Identify problems more quickly
• Develop control through visibility

Kaizen:

• It is a Japanese management concept for incremental (gradual, continuous) change

(improvement)
• It is way of life – a philosophy, assuming that every aspect of our life deserves to be
constantly improved
• Kai means Change and Zen means good

Key Elements of Kaizen:

• Quality

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• Effort
• Involvement of employees
• Willingness to change
• Communication

Lean is a process management framework and methodology derived mostly from the Toyota
Production System (TPS). It aims to optimize the flow or speed of producing goods and services
by removing the traditional “8 deadly wastes”.

Lean implementation (or transformation, as it is commonly called) leverage tools for assessing
process flow and delay at every step in a process. The focus is on separating value-added from
non-value-added activities and eliminating the root causes and cost of non-valued activities.
Lean methods are used to quantify and eliminate the cost of complexity.

“8 Deadly Wastes”:

• Overproduction
• Transportation
• Motion
• Correction
• Over-processing
• Inventory
• Waiting
• Unused Employee Ideas and Talent

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5.7 Business Process Mapping and Notation

Process Mapping & Notation: Definition

• Business Process Mapping and Notation (BPMN): “standard notation readily

understandable by all business stakeholders”

• Crafted by business analysts

• Reviewed by business managers and performers who will manage and execute the
processes

• Implemented by technical developers

Process Mapping & Notation: Basic Shapes

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Process Mapping & Notation: Basic Shapes – Event

Event – represents start, intermediate, end events. “Something that happens”.

Examples:

• Month-end date is an event that can start the month-end reporting process

• Email with an invoice attachment requesting payment can start the accounts payable
process

• Student grades arriving at the registrar office is an end event to the semester teaching
process

Process Mapping & Notation: Basic Shapes – Activity

Activity – represents task, sub-process. “Something that is done”. Leads with an action verb,
describes the work done in the task as a clear / action instruction

Examples:

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• Extract account balances in SAP is an activity that will be performed at the start of
month-end

• Check for duplicate invoice is a task done at the first stage of the accounts payable
process

• Explain syllabus is a task performed by the teacher at the start of the semester

Process Mapping & Notation: Basic Shapes – Gateway

Gateway – represents forking (decision) or merging of paths

May be exclusive forking an “or”, depending on the answer to the question indicated by the
label. An “X” can be placed inside the shape (diamond) to denote a forking of paths.

May be parallel flow an “and”, marked by a “+” sign inside the shape (diamond), denoting
concurrent activities.

Examples:

• Exclusive: Is invoice a duplicate? If yes, reject. If no, create accounts-payable entry

• Parallel: After billing template is received;

- Accounts receivable entry is created in service center, and

- Accounts payable entry is created in the Onshore unit

Process Mapping & Notation: Basic Shapes – Flow

Flow – represents sequence flow. Connects the tasks, shows/indicates the flow direction

Examples:

• Check for duplicate invoice followed by generate accounts payable entry

Process Mapping & Notation: Basic Shapes – Data

Data – represents input data, output data. As an input can be via a submitted template or data in
a storage repository. As an output can be a report to be sent to a recipient, can be a filled-up
template to be used by the next process.

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Examples:

• Flash or interim profit and loss (P&L) report

• Email notice to a recipient

• Generated physical invoice

Process Mapping & Notation: Basic Shapes – Group of Tasks

Group of Tasks – represents a group of tasks. It is literally a visual indicator that the included
tasks are within a logical group

Examples – Pay supplier group can include:

• Generate balance sheet entries (credit cash, debit accounts payable)

• Issue check-payment request

• Pay supplier

• Get official receipt

Process Mapping & Notation: Basic Shapes – Annotation

Annotation – represents comments. A repository for explanatory comments for any of the
shapes (process, flow, tasks)

Examples:

• “Check payment requests are processes only every Thursday”

• “Same as Onshore process”

Process Mapping & Notation: Basic Shapes – Pool or Lane

Pool Lane – represents scope of the role of a performer; hand-offs to other performers/units are
shown as arrows going out of the lanes. Activities performed by the individual (or role/team) bill
be noted inside the lane

Examples:

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• Accountant checks for duplicate invoice and requests check payment. These two
activities are within the Accountant’s lane

• Approval by the company head is done by a different person, hence in a different swim
lane (the company head’s lane)

Process Mapping & Notation: Example – Customer Support

Process Mapping & Notation: Example – Customer Support

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Learning Assessment
1. What is operations management?
2. What is the value or importance of operations management?
3. Enumerate and explain the components of operations
management.
4. What are the process mapping and notation shapes?
5. What is the value or importance of process mapping and
notation?
Note: The assessment will be done through Google forms in which the link will be uploaded to
the Google Classroom assigned for the class.

➢ Book
• Wiley, John E., Essentials of Outsourcing , McGraw Hilll Publishing, Inc., 2006.
• Fundamentals of Business Process Outsourcing 101 (Teacher’s Guide)

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CRITICAL SITUATION IN BPO ENGAGEMENTS

LEARNING OBJECTIVES
1. Define continuity management.
2. Enumerate and discuss the seven steps of continuity
management.
3. Explain what an interruption event is.
4. Enumerate and discuss the “tell tale” sides of critical
situation.
5. Describe the critical situation management.
6. Enumerate the eight (8) disciplines of the 8D Approach.

6.1 Business Continuity Management

Steps of Business Continuity Management – Critical Situations

The challenge to business continuity management is to plan for seemingly “uncontrollable”

circumstances so as to provide for consistent excellent service.

Therefore, the goal of continuity is maintaining the uninterrupted availability of all key business
resources required to support essential business activities.

Goal of Business Continuity Management is most evident in the following:

• Uninterrupted availability – continued business operations

• Key business resources – ensuring critical business capability
• Essential business activities – key business goals

Business Continuity Management Steps

1. Identify key business processes

2. Identify risks and business process impact
3. Identify key business processes
4. Reduce probability of occurrence
5. Mitigate impact

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6. Develop disaster recovery plan

7. Mitigate impact

Business Continuity Management Steps – Step 1

1. Identify key business processes

• Strategic, operating, and support processes
• Assessment of business impact in event of interruption
• Documentation of maximum allowable time for interruptions
• Assessment of business impact in event of interruption
- Prioritization/ranking of business processes

Business Continuity Management Steps – Step 2

2. Identify risks and business process impact

• Identification of risks, link with key business process affected, prioritize by
business impact
• Periodic certification that the list is updated
• Constant monitoring to assess likelihood of occurrence of risk

Business Continuity Management Steps – Step 3

3. Identify key business processes

• Documentation of maximum allowable time for interruptions

Business Continuity Management Steps – Step 4

4. Reduce probability of occurrence

• Formulate measures to reduce the probability that controllable risks will occur
• Effective primarily on internal risks
• Improve policies, process changes, people measure
• Revise guidelines, provide greater supervision

Business Continuity Management Steps – Step 5

5. Mitigate impact
• Formulate measures to mitigate adverse effect, shorten interruption, if risk occurs

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• Planning for redundant resources, alternative process

Business Continuity Management Steps – Step 6

6. Develop clear disaster recovery plan

• Response. Responsible personnel, decision structure, facilities
• Interim process. Alternate processing resources
• Restoration/Resumption. Transition from alternate process / work-around and
resources to normal mode after interruption is resolved
• Also called a “business continuity plan”

Business Continuity Management Steps – Step 7

7. Mitigate impact
• Periodically test recovery plan to
- Validate effectiveness of plan actions (response, interim process, resumption)
- Ensure availability of required equipment, and
- Develop people skills
• Perform success/failure assessment to improve plan
• Perform root-cause analysis to improve risk prevention measures

Business Continuity Management Interruption Events

• Each process has a period within which interruptions will not affect achievement of key
business goal
• Beyond that period, business goal will be impacted – and interruption becomes
extraordinary
• Business Interruption Event is triggered when the interruption on a key business process
exceeds the maximum allowable time

Business Continuity Management Triggering Event

1. Extraordinary event
- Beyond normal downtimes of equipment or input process errors
2. High impact
- Resulting in risk of significant loss
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ANAO uses the term “outage”

- In this course, we use Risk and Risk Event interchangeably with “business interruption
event”

Business Continuity Management Reduce Probability of Occurrence

• Develop measures to prevent risk from occurring

- If within the control of the organization
• If cost effective
- Shifting of factory to an underground bunker to protect from tornado damage may be
cost prohibitive
• Reduce likelihood of the risk if prevention is impossible or not cost effective
- Extensive smoke alarms to catch possible fire starts
- Good quality circuit breakers, periodic inspection and replacement, use of standard
wires/tapes reduce risk of electrical fire
- Multiple generator sets reduce risk of interruption from power failure

6.2 Critical Situation in BPO Engagements – Critical Situation

Management Methods
Critical Situation in BPO Engagements

Definition:

• Critical situation (CritSit) in BPO is when your ability to render consistent excellent
services has been compromised
• An organizational state where symptoms of service quality and operations management
degradation is becoming apparent in the delivery of services

Critical Situation in BPO Engagements: Symptoms

“Tell Tale” Signs of a CritSit:

1. Prolonged period of non-achievement of key SLA’s or Contractual Obligations.

2. Business Controls and/or Financial posture of a contract / account is assessed as high
risk.

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3. Lingering IT infrastructure issues causing problems in operations, e.g. delays in

processing of client’s payroll.
4. Data Privacy Incidents/Fraudulent activities involving clients’ information are recurring
in the workplace.
5. Customer satisfaction rating is on a downward trend, Customer escalation is spiraling
upwards.
6. Increase in costs (e.g. additional resources)

Critical Situation in BPO Engagements: Entering into

Entering a CritSit:

• A state of being on the verge of a crisis or emergency that if not addresses could lead to
an elevated risk level.
• A CritSit is no ordinary exercise and it should only be declared once a defined set of
criteria has been determined by the senior management.

Critical Situation in BPO Engagements: Declaration of

Declaring a CritSit:

The CritSit should be jointly declared by the following:

• Delivery Center Leader or General Manager

• Competency Leader or Delivery Process Leader
• Delivery Center or Competency/Process Quality Leader

Critical Situation in BPO Engagements: Situation 1

Situation: Heavy flooding caused by the Habagat phenomenon in August 2012

Situation in the BPO: Massive absenteeism as employees were not able to leave their houses
due to the heavy flooding

Impact to Business:

• Non-attainment of SLA (Service Level Agreement) due to lack of agents to take the calls
or do the work

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• Long call queues as only a handful of agents taking the calls

• Other centers/countries who are receiver of Manila work output cannot do the next
process as work is delayed from Manila end

Mitigating Actions done by the BPO:

• Declared an emergency situation for Manila and asked for assistance/support from other
centers located in India, China, Singapore and other centers in Asia
• Requested employees who are already in the center to render overtime work to cover for
agents who are absent
• Employees who can work from home (with technical connectivity) were asked to work
from home
• Team Leaders, all management and support teams who can do actual operations work,
were asked to do operations work
• Shuttle service provided to ferry employees from house to work and vice versa (where
passable)
• Reimbursement of transportation expense

Over-all Support to Employees Heavily Affected by Habagat:

• Financial assistance for those whose houses, personal properties were damaged
• Paid absences
• Counseling for those who were emotionally affected
• Fund derives organized by the employees as well assistance from other centers/affiliate
companies to support affected employees

Support to the Community:

• Fund drives organized by the employees as well assistance from other centers/affiliate
companies to support communities in affected areas
• Amount from the fund drive doubled by the company or a certain amount donated by the
company
• Support in kind also provided especially in evacuation centers

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Critical Situation in BPO Engagements: Situation 2

Situation: Metro Manila Blackout and to compound the situation building generator is
broken/not functioning due to mechanical trouble

Situation in the BPO: No power means downtime as there is no technology support (no
computers), no light and no air-conditioning

Impact to Business:

• non-attainment of SLA (service level agreement) as employees cannot work due to the
lack of power
• long call queues
• other centers/countries who are receiver of Manila work output cannot do the nex process
as work is delayed from Manila end

Mitigating Actions done by the BPO:

• Declared an emergency situation for Manila and asked for assistance/support from other
centers located in India, China, Singapore and other centers in Asia
• Required employees to go down the building using the fire exit stairs and wait for
instructions as to when work will resume
• Employees who can work from home (places where there is power and with technical
capability and connectivity) were requested to work from home

Disaster Recovery Plan / Business Continuity Plan to minimize risk in the future:

• Meeting with Building Admin to review situation (what went wrong) and identify Action
Plans to increase prepared in the future
• Schedule monthly meeting with Building Admin to ensure actions are being done as per
agreed timelines
• Monthly/Quarterly audit/testing to ensure generator and other power systems/tools are in
good condition

Critical Situation in BPO Engagements: Situation 3

Situation in the BPO: High Absenteeism due to widespread influenza and colds

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Impact to Business:

• Delay in response time as there is not enough agents to take calls

• Long call queues
• Turn Around Time of work/calls is no longer than required time as there is not enough
agents/employees to do the volume of work
• Other centers/countries who are receiver of Manila work output cannot do the next
process as work is delayed from Manila end

Mitigating Actions done by the BPO:

• Required employees to work overtime (work extension and work on day-off) to cover for
colleagues who are absent
• Request for vacation leaves are revoked
• Employees who can work from home (places where there is power and with technical
connectivity) were asked to work from home

Disaster Recovery Plan / Business Continuity Plan to minimize risk in the future:

• Review workforce planning to ensure FTE allocation in case of high absenteeism

• Multi-skilling of agents to allow for flexibility to transfer agents from 1 program to
another in case of high absenteeism in certain accounts/programs
• Develop health programs to educate employees on how to live healthy and avoid illnesses

Critical Situation in BPO Engagements: Example

• First call Resolution (FCR) which is a Key Service Level Measure in a Call Center
operation with a target of 85% is consistently missed for three months. Should
management call for a CritSit?

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• Medical Transcription – Specialist accuracy output consistency is below SLA for 5

consecutive week.
• Animation – Delayed attainment of pre-production targets
• Technical Support – Resolution of escalations exceeding required turn around time

Critical Situation in BPO Engagements: Entering into

Entering a CritSit:

• A state of being on the verge of a crisis or emergency that if not addressed could lead to
an elevated risk level.
• A CritSit is no ordinary exercise and it should only be declared once a defined set of
criteria has been determined by the senior management
• A CritSit should be declared for the following reasons:
- non-achievement of the Service Level Agreement (SLA);
- non-implied client dissatisfaction; and
- penalty paid for every month of SLA miss

Critical Situation Management Method

A simple and straight-forward manner to manage a critical situation is presented below:

Prepare

• Identify the Project Manager or Team Leader of the CritSit team. A good option to lead
this team is either a certified Project Manager of 6S Black Belt.
• Identify the team members of the CritSit and assemble the team.
• Identify the stakeholders / governance board of the CritSit process

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• Ensure all administrative requisites of the CritSit are ready, e.g. meeting schedules
• Establish a dedicated “war room” that will be used by the CritSit team

Assess

• Develop glide-paths for improvement on key metrics that will be monitored for the
duration of the CritSit
• Define and communicate to CritSit team members the entry and exit criteria of the CritSit
• Conduct an in-depth analysis of the problems by scrutinizing thoroughly historical data /
measures of the problem area (s)
• Use root cause analysis methods such as the Fishbone diagram, why-why analysis or 8D
problem solving techniques

Develop Recovery Plan

• Prioritize the problems and/or root causes as a result of the assessment

• Brainstorm with the team and develop detailed action plans to address the problems
and/or root causes
• Assign individuals/teams to implement solutions as defined in the over-all action plan.
Make sure that each action step has defined timelines in synch-with the target exit from
CritSit

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• Ensure that there will be consistent executive status presentation and regular core team
project review schedule

Gain Commitment

• Get clients’ buy-in and/or vote of confidence on the recovery plan if they are aware of the
CritSit in their contract/account
• Be sure that all stakeholders and team members involved in the process have signed-off
on the following:
- Over-all recovery plan
- Assignments and timelines
- Resource allocation / requirement
- Costs associated with the recovery plan

Execute the Plan

• Execute a pilot or go for a full-implementation of the recovery plan

• Conduct frequent checkpoints and tollgates per the established metrics glide path
• Document the changes in the process as it gets implemented and standardize accordingly
• Establish regular stakeholders and customer feedback sessions during the implementation
of the recovery plan

Close the Recovery

• Present to the stakeholders and client the improvement of the metrics per the glide path
• Get the sign-off of the stakeholders and client to approve the exit from CritSit and return
to business as usual mode
• After implementation of the action plans and full recovery from CritSit, conduct an
evaluation of lessons learned and collate this for future reference
• Ensure to develop next steps that will prevent the CritSit from happening again. This
could be done by conducting another round of brainstorming session
• Celebrate with the team

The 8D Approach

8D Approach Problem Solving / Issue Resolution

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Definition:

• The Eight Disciplines or 8Ds is a Ford Motor Company method to resolve a problem
when the cause of the problem is unknown
• The 8D is at one time three different things that work together, these are:
- A problem-solving process
- A standard
- A reporting format

The 8D Approach:

Discipline 0 – Become aware of the problem

Discipline 1 – Use Team Approach

Discipline 2 – Describe the Problem

Discipline 3 – Implement and Verify an Interim Containment Action

Discipline 4 – Define and Verify Root Causes

Discipline 5 – Choose and Verify Corrective Actions

Discipline 6 – Implement Permanent Corrective Actions

Discipline 7 – Prevent Recurrence

Discipline 8 – Congratulate Team

Discipline 0 – Become Aware of the Problem

• Understand the complaint of customer or the problem raised

• A problem is the gap between “what is” or current results and “what should be” or
desired/promised results
• Clarify if the concern is not clear

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Discipline 1 – Use Team Approach

• Establish a small group of people, with the process / product knowledge, allocated time,
authority, and, skill in the required technical disciplines to solve the problem and
implement corrective actions.
• The group must have a designated champion – team leader, for command responsibility
purposes

Champion / Team Leader

• Sets the stage and ensures that the team activities are in the right direction
• Assists the team and provides leadership when required
• Has ownership; supports the final decision, and has the authority to implement the
Corrective Action and system repair when necessary
• Responsible for facilitating and directing the 8D team
• Ensures the group performs its duties and responsibilities

Discipline 2 – Describe the Problem

• Specify the internal / external customer problem by identifying in quantifiable terms the;
who- what- when- where- why- how- how many (5W2H) of the problem
• Use an “Operational Definition”. The definition should have a common meaning to
everyone who reads it
• Gather relevant data/info/facts
• 5W2H:
- Who : Identify customer/s complaining
- What : Describe the problem adequately

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- Where : Locate the problem

- When : Identify the start of the problem
- Why : Identify known explanations
- How : In what mode or situation did the problem occur
- How many : Quantify the problem

Discipline 3 – Implement and Verify an Interim Containment Action

• Define and verify Interim Containment Action (ICA) to isolate the effects of the problem
from any internal/external customer until Permanent Corrective Action is implemented
• Temporary short-term (band-aid) fix taken until a permanent corrective action is defined,
implemented, and verified
• Verify the effectiveness of the interim containment action (ICA)
• Verify the effectiveness of the ICA:
- Perform tests to evaluate
- State the results
- State the procedures for on-going evaluation of effectiveness (control charts, check
sheets, etc.)
- Prioritize goods nearest customers’ gate
- Define inspection / checking method that is certain to detect the defect

Discipline 4 – Define and Verify Root Causes

• Identify all possible causes, which could explain why the problem occurred
- Ask “why” as many times as necessary to drive the process to root cause
- Review the FA report, dimensional measurement data, illustration, photo
- Use Cause and Effect Diagram, FMEA to list previously defined causes
• Isolate and verify the root cause/s by testing each possible cause against the problem
description and test data
• List all possible corrective actions to eliminate root cause/s

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Discipline 5 – Choose and Verify Corrective Actions

• Through pre-production test programs quantitatively confirm that the selected corrective
actions will resolve the problem for the customer and will not cause undesirable side
effects
• Define contingency actions, if necessary based on risk assessments
• Verify corrective actions before the actions are implemented
• Corrective action should be a poka-yoke solution and should address root cause
• Notify all affected personnel and formalize change action
• Run Pilot Tests
• Artificially simulate the solution to allow the actual process or field evaluation
• Monitor Results

Discipline 6 – Implement Permanent Corrective Actions

• Implement the best permanent corrective action. Choose on going controls to ensure the
root cause are eliminated

Once in production, monitor the long term effects and implement contingency actions, if
necessary.

• Establish an action plan on all permanent actions

• Establish on going controls on the process
• Correct defective parts already produced
• Identify contingency actions

Discipline 7 – Prevent Recurrence

• Modify the necessary systems, practices, and procedures to prevent recurrence of this and
all similar problems
• Identify opportunities for improvement and establish a process improvement initiative
• Revise systems, procedures, and practices, if necessary
• Document new standard procedures, streamline to remove obsolete procedures and revise
previous standard
• Release specs to document plan
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• Fan-out to other equipment or area

• Process Control Plan, if necessary

Discipline 8 – Congratulate Team

• Recognize the collective efforts of the team in solving the problem

• Write case study reports
• Acknowledge the significance and value of the problem/solution

6.3 Managing Issues and Changes

Interaction Levels – Issue Management Process – Communication and Tracking – Issue

Management Systems

Managing Issues and Changes: Interaction Levels

Managing Issues & Changes: Issue Management Processes

Issue Management Processes:

1. Facilitated Communication and Tracking

2. Root-cause Analysis

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3. Escalation
4. Process Improvement or One-Off

Managing Issues & Changes: Communication and Tracking

Facilitated Communication and Tracking:

• Communication of issues, particularly tie sensitive matters, can be done verbally or by

email
• But proper documentation by way of an issue management system is key to: structures
resolution and recurrence prevention
• Clear documentation of issues is key to effective escalation

Managing Issues & Changes: Issue Management System

Issue Management System Facilities:

1. Clear documentation
• Clear statement of the following; issue (including cost of the issue if unresolved),
scope affected, root cause, proposed solution, financial impact of the proposed
solution, and, timetable
2. Accountability for issue resolution
• Clear assignment of responsible persons
3. Approvals
• Facilitates approval by right authority in service provider and onshore/client
organization
4. Process Improvement
• Can identify changes in people skill/training, staffing level, technology, or
policy/processes
• Analysis of trends across multiple issues can highlight areas for process changes
that will prevent future issues

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Learning Assessment
13. What is continuity management?
14. What are the seven (7) steps of continuity management?
15. Explain what an interruption event is. Provide three
examples of such an event.
16. Explain what a critical situation is.
17. Enumerate and discuss the “tell tale” signs of critical
situation.
18. Recreate and explain the critical situation management
method.
19. What are the eight (8) disciplines of The 8D Approach?
Note: The assessment will be done through Google forms in which the link will be uploaded to
the Google Classroom assigned for the class.

➢ Book
• Wiley, John E., Essentials of Outsourcing , McGraw Hilll Publishing, Inc., 2006.
• Fundamentals of Business Process Outsourcing 101 (Teacher’s Guide)

B PO 2 0 1 – Pr i nc i pl es of B usi ne ss Pr oce ss O ut sour c i ng I

ORIENTAL MINDORO NATIONAL HIGH SCHOOL -