Activity-based costing, best practice analysis, process model...? We know the terminology can be a little hard to sort out, so we've put together this glossary to help you understand the process of process improvement a little better.
- Activity Cost:
- The cost of an activity, on the basis of salary, benefits, and overhead. Calculated by multiplying the percent of time spent on an activity by the total annual salary + benefits + overhead for the employee who performed the activity. Example: An activity of signing requisitions takes 15% of an employee's time. The total annual salary + benefits + overhead = $40,000. The Activity Cost = 0.15 x $40,000 = $6,000.
- Best Practice Analysis:
- Literature review and external survey analysis of best practice organizations.
- First Pass Yield:
- Percentage of items/things/people moving through the process with no delays due to rework or other ineffective aspects of the process. This is a measure of process effectiveness, with a First Pass Yield of 100% representing a process with no delays.
- Info Opportunity Cost:
- The cost of time spent on activities when not everything needed to complete the activity is available, accurate or timely.
- Key Process Measurements:
- Numerical measurements of effectiveness of a process. They include, rework cost, info opportunity cost, first pass yield, touch points of various kinds that are appropriate for the particular process, and cycle time (the length of time to proceed entirely through the process).
- Process Cost:
- The cost of the activities that comprise the process. This is calculated by totaling the annual salary, benefits, and overhead for every employee who works in the process.
- Process Model:
- Depiction of the process under study, and represented by a chronological ordering of the activities of the process as they occur in sequence.
- Process Improvement Target:
- This is a numerical and time dated goal for improvement that is based on the findings of the process measurements and other information about the problems in the process. It is often based on rework, first pass yield, or info opportunity cost.
- Recurring Benefit:
- Annual savings through reallocation of labor costs that allow other process work to be accomplished.
- Redesign:
- A new or improved design of how the process flow is accomplished, one which removes the ineffectiveness and inadequacies of the current process.
- Rework Cost:
- The cost of the time spent working on an activity for the second or third time, correcting or revising work that has already been performed.
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