Too big to fail? Processes certainly aren’t!

You’ll probably have heard the term ‘Too big to fail’ over the past two years more often than you wanted. But while everyone is wondering why stresstests weren’t used to test for stress and essential internal controls were routinely by-passed with a simple in-house phone call, it strikes me that things are not much different in the everyday world of processes.

Readers will know that we recently launched the Process TestLab (PTL), an independent facility to analyze, validate and simulate processes and their behaviour under varying circumstances. One of the tests the PTL conducts is a stresstest on processes. For this test the PTL subjects the process structure, its logic, to stress by varying the load it handles while keeping the available resources at a fixed level. The reason for this test is to identify the critical upper and lower limits a process can handle.

If you’re involved with operating processes you know that the relationship between input (stress) and output (performance) is seldom a fixed ratio. In most cases that relationship is more like the fuel consumption of your car: If you increase your speed, consumption will likely increase disproportionately. As most business analysts and process designers tend to base their design on certain assumptions (we usually have 10 enquiries per hour, average interest rate was 6%, cost of an office worker is 20$ per hour) the processes tend to perform well enough when these assumptions correspond to reality. This is what’s usually known as the sunshine case. But unless you’re living in the west saharan desert, we are all aware of the phenomenon of precipitation…some of us have even got soaked once in a while. So, while it might not be necessary to carry your umbrella with you all the time, the basic understanding that deviation from the sunshine case can have consequences should not be too much to ask for (particularly when you’re holding a well paid managerial position).

So when the representatives from Citigroup (among them their former chief risk officer) admitted at a recent hearing of the Financial Crisis Inquiry Commission that they conducted their stresstests in such a narrow range of margin that the results had to show good results, you can only wonder why they spent any money and effort on doing the stresstest at all. Of course, the main excuse behind it all was that the stresstests had really only been performed for the benefit of the regulators and not for the bank itself, which had always seen itself above those petty requirements. Come to think of it, it’s rather like ordering the safety belts and airbags only when you know that you’re crash -  and as you never think that it’s going to happen…

Exceptional behaviour under exceptional circumstances in an exceptional industry? I think not! The same sort of attitude can also be found among process managers across the board. And they all have the same attitude: Too big to fail – and if it doesn’t work anymore we’ll just have to get the money for the next reengineering project (not that that will improve things, but it’ll show that we’re doing something about it).

We recently had a very interesting meeting with a project manager who proudly showed us all the process models his team had designed over the past 12 months. The PTL did a couple of quick tests for him, among them a stesstest on one of the processes and an analysis of the implications of failure of critical IT systems. When we presented the report, the response was ‘As long as the process works when everything else works, I’ll have done my job’. Quite funny, given that the results showed that a 5% variation of the number of customer complaints would lead to a complete breakdown of his process and that a 24 hour system breakdown would require one month to work through the backlog. While one might have expected a different reaction to our findings, at the very least the future manager of that process will now be keenly aware of the critical issues and will keep an eye on them. This is what process management is about – not trying (and failing) to build the perfect process but managing the unavoidable shortcomings and risks to ensure quality and performance, which implies knowledge of the inner workings and behaviour of the process.

So, while the Process TestLab can’t predict when it will rain, it does tell you what would happen if it did and what you could do about it. The Process TestLab: Putting stress on your processes so that reality can’t!