Process Cycle Efficiency (PCE) is a popular metric organizations use to measure business process efficiency by identifying areas for improvement. Understanding how this metric works is key to enhancing productivity, reducing costs, and delivering higher-quality products and services to customers.
In this article, we’ll explore the idea behind the PCE concept, how it is calculated, ways to improve it, and factors that influence the metric.
What is process cycle efficiency (PCE)?
Process Cycle Efficiency (PCE) is a KPI used to evaluate the efficiency of a business process. It measures the percentage of time within a process that is spent on value-added activities compared to the total time it takes to complete the same process.
According to the book The Lean Six Sigma Guide to Doing More with Less: Cut Costs, Reduce Waste, and Lower Your Overhead, “PCE provides an understanding of how efficiently an organization is able to create value for its customers.”
The PCE, also known as “flow efficiency” or “value add ratio” is expressed as a percentage. A PCE closer to 100% indicates a more efficient process, indicating that a larger proportion of the total process time is devoted to activities that add value to a business.
Lean-oriented teams in particular leverage PCE as both a performance metric and a means to identify resource waste and opportunities for process improvement. By reducing non-value-added time and improving efficiency, they can boost overall productivity, and become cost-effective.
How do you calculate the process cycle efficiency?
We calculate the Process Cycle Efficiency using the formula below:
PCE = (Value-Added Time/Total Lead Time) x 100
Value-added time refers to the time spent on activities that bring direct value to the product or service as perceived by the customer. These are the essential tasks that move the process closer to delivering the final output.
The total lead time represents the entire time it takes for a product or service to move through a process, from beginning to conclusion. It includes both value-added and non-value-added time.
A PCE of 100% indicates that every moment in the process is spent on activities that directly contribute value, resulting in zero waste or non-value-added time. However, the vast majority of processes typically include some degree of non-value-added time due to factors such as wait times, rework, and other inefficiencies.
Factors influencing PCE
Several factors can influence the Process Cycle Efficiency measurement. Understanding and addressing them are critical for improving overall operational efficiency for any business. The following circumstances can impact your business PCE:
Process complexity
Complex processes that include numerous and confusing steps, undefined responsibilities, and unclear decision points and handoffs, can introduce delays and increase the chance of human errors – and lead to lots of rework. We can therefore define process complexity as the degree to which a process is difficult to analyze, understand, or explain.
Simplifying processes by removing unnecessary steps and streamlining workflows can lead to more precision in operations. A few ways to streamline processes are mapping, standardizing workflows, and using workflow automation software to eliminate unnecessary tasks and increase overall visibility and governance.
Resource allocation
Ensuring that the right resources are allocated to each process is crucial. Misallocated resources can lead to process bottlenecks, delays, and waste.
In Human Resources (HR) teams, for instance, we can analyze whether or not the members have the qualifications to meet required tasks, the workload distribution among team members (or, conversely, if uneven work distribution facilitates bottlenecks and burnout), and whether team members are adequately trained to help employees with more complex processes.
Other resources that directly affect the final PCE result include budgets ( funds for technology, equipment, and personnel), technology (providing the necessary technological infrastructure, including hardware, software, and automation platforms), and physical resource maintenance (ensuring equipment like machinery and facilities are in good working condition).
Management quality
A process manager’s ability to react to external disruptions and apply a mindset of continuous improvement can be game-changing when it comes to boosting efficiency. Processes can be influenced by supplier moves, customer demands, market disruptions, changes to regulations and standards in place, and input quality.
The best managers can consider these factors both individually and collectively and make subsequent adjustments to processes that reflect new efficiency standards. This includes finding optimization opportunities and bottlenecks that should be swiftly addressed.
A business process automation (BPA) platform can significantly lighten managers’ loads and save hours of employee time by offering real-time performance metrics, the flexibility to customize processes without pulling resources from IT, no-code automation capabilities, and compliance with (and adherence to) world-class security standards.
What is an example of process cycle efficiency?
Let’s consider an HR process example: recruitment. In this case, we’ll break down the process into stages: resume screening, candidate interviews, checking references, and an official job offer.
In the first stage of screening resumes, the value-added time is the time spent reviewing and shortlisting resumes that meet the job criteria. The total lead time consists of the total time that elapses from receiving resumes to shortlisting candidates, including any waiting time or delays.
If the resume screening process takes eight hours of actual screening work, and the total time is 12 hours, then the PCE for this process phase is:
(8/12) x 100 = 66.7%
Moving to the interviewing phase, the value-added time is the number of hours focused on conducting interviews with shortlisted candidates. The total lead time is, once again, the total time from scheduling interviews to completing them, including preparation, follow-ups, and any amount of time lost from no-shows and rescheduled interviews.
If the interviewing process involves 12 hours of actual interview time and the total time is 15 hours, the PCE is:
(12/15) x 100 = 80%
Let’s do the same calculation for reference checking: imagine that the value-added time is six hours and the actual work took eight hours in total:
(6/8) x 100 =75%
Finally, we have the job offer phase, in which the total lead time of six hours accounts for the entire period from deciding on the candidate to the candidate accepting the offer, including negotiations. Five hours were dedicated to preparing and extending a job offer to the selected candidates.
(5/6) x 100 =83.3%
Now, to calculate the overall process cycle efficiency for the entire recruitment process, we add the value-added time of all steps together and divide that number by the total amount of time spent on every phase.
(8+12+6+5)/(12+15+8+6) =0.756
0.756 x 100 = 75.6%
Therefore, the process PCE is 75.6%.
Strategies to boost process cycle efficiency
To stay competitive and responsive to evolving market demands, businesses are increasingly turning their attention to strategies aimed at boosting PCE.
In this context, implementing targeted and well-designed approaches becomes paramount. Let’s delve into two improvement paths that unfold in several actions: streamlining processes and resource optimization.
Streamlining processes
There are several methods for streamlining processes. Process mapping supported by flowcharts is a great way to see all the steps, responsibilities and information flows at once, and leverage that increased visibility to identify bottlenecks and waste and address them. You may need to rethink or eliminate non-value-added steps to save time and resources.
Automation is another powerful tool. BPA platforms take over manual tasks, reducing the risk of human errors and their subsequent rework – they significantly reduce wait times and resource waste.
According to C-suite executives interviewed in Pipefy’s 2023 Process & Workflow Automation Survey, the primary drivers behind their adoption of process automation include increasing efficiency and improving productivity. 59% said that reducing errors was also a key driver, and more than half (52%) reported they looked to process automation solutions to conserve IT resources.
The integration capabilities of automation software can make a dramatic difference in overall operational efficiency. Many automation platforms allow easy integration with existing apps and legacy systems, as well as tech stack consolidation, enabling a seamless and orchestrated process ecosystem, reducing silos, and eliminating the need for manual data transfer – another point of concern when teams use multiple fragmented systems and tools.
Resource optimization
One key path to elevate PCE is through strategic resource optimization, a multifaceted approach that ensures the effective allocation of human, financial, and technological resources. By strategically managing these resources, businesses can streamline workflows, eliminate bottlenecks, and enhance overall operational efficiency.
Efficient resource allocation empowers organizations to eliminate unnecessary delays and blockers. By aligning resource allocation with organizational priorities and project demands, businesses can avoid both underutilization and overburdening of critical assets, fostering a more streamlined and responsive operational environment.
If a determined set of tasks represents a process bottleneck, for instance, it is possible that hiring more people to tackle it is the definitive solution. The answer could be an investment in an automation solution to release employees from executing repetitive tasks, speeding up completion times and improving quality along the way.
In parallel, cross-training and skill development emerge as powerful tools in the arsenal of resource optimization. Empowering employees with a diverse skill set ensures flexibility and adaptability. Cross-training employees to handle multiple tasks within a process mitigates the risks associated with skill gaps, absenteeism, and turnover.
Furthermore, investing in ongoing development programs not only enhances individual competencies but also contributes to a workforce that can seamlessly navigate varied tasks – including making better use of the company tech stack – bolstering overall process resilience and efficiency.
Role of automation in improving PCE
Automation plays a pivotal role in significantly improving PCE across various industries. It enhances the speed, accuracy, and reliability of processes, leading to streamlined workflows and reduced cycle times. Here are a few key reasons why automation makes the difference in almost any process PCE:
- It excels at handling repetitive and time-consuming tasks with precision and speed. Processes that rely on manual interventions, such as data entry, can achieve faster completion times and a reduction in overall cycle times.
- By minimizing human errors, especially in data-driven tasks, automation contributes to improved process quality and reliability. It prevents rework recurrency and reduces overall lead time.
- Automation facilitates the seamless integration of stages within a process. Workflows that involve handoffs between different departments or functions can leverage automation systems to grant smooth transitions and reduce idle times between tasks.
- Automation enables the collection and analysis of real-time process data. This data-driven approach supports informed decision-making, allowing organizations to identify opportunities for process improvement, predict potential issues, and proactively address efficiency challenges.
The best choice when it comes to automation is no-code BPA. These platforms empower business teams to build and deploy workflows far faster than other systems, saving IT resources and accelerating time-to-value. Pipefy also offers IA capabilities that provide high-level process insights in seconds and deliver customized workflows immediately after a request is made to the chatbot.
If your business is looking to improve PCE ratios, count on Pipefy to accelerate and perfect your team’s execution, integrate multiple processes and business tools, and establish a cost-effective and scalable operation for your company.
