M4- theoretical capacity

Business Process Management (BPM) Overview

  • Institution: Arizona State University, W.P. Carey School of Business

  • Module: 4 - Focus on Theoretical Capacity

Theoretical Capacity

Definitions

  • Theoretical Capacity: The maximum output a system can achieve, assuming no waste.

    • Theoretical Unit Load: Minimum time required to process one flow unit without waste.

  • Theoretical Capacity of Resource Unit (R):

    • Formula: 1 / Theoretical Unit Load

  • Theoretical Capacity of Resource Pool: Sum of the theoretical capacities of all resource units in the pool.

    • Formula: Effective Capacity / (1 - Capacity Waste Factor)

Example Calculation

  • Given: Effective Capacity = 60 flow units per hour; Capacity Waste Factor (CWF) = 25%

    • Calculate Theoretical Capacity:

      • Theoretical Capacity = 60 / (1 - 0.25) = 60 / 0.75 = 80 flow units per hour

    • Note: R (Resource) must fulfill: R ≤ Effective Capacity < Theoretical Capacity.

Capacity Utilization

  • Theoretical Capacity Utilization:

    • Formula: R / Theoretical Capacity

  • Unit Contribution Margin:

    • Formula: Revenue - Variable Costs

Theoretical Capacity Examples

  • Illustrated examples from “Managing Business Process Flows,” Pearson.

Case Study: Mailroom Resource Pool Example

Details of Resource Pool Calculation

  1. Mailroom Clerk Details:

    • Effective Capacity: 1.00 claims per minute

    • Time Worked: 1/8 hours per day

    • Capacity Waste Factor: 12.5%

  2. Theoretical Capacity Calculation:

    • Effective Capacity After Waste: 1 / (1 - 0.125) = 1 / 0.875 = 1.14 claims per minute

Throughput Management Strategies

  • To manage and increase throughput:

    • Increase number of resources available.

    • Expand the size of the resource pool (increase quantity/amount processed).

    • Enhance performance speed.

    • Consider outsourcing processes to improve efficiency.