The Profit Model

When developing a Business Process Architecture there needs to be an understanding of the Profit Model being pursued by the Organisation. The process activities at all levels within a Business Architecture support the Profit Model which in turn contributes to the Value Proposition.

There is an excellent book “Key Management Ratios” written by Ciaran Walsh which explains the profit model and the key ratios that support the sustainable profitability of an organisation. Without this understanding it will difficult to build a Business Process Architecture that supports the Organisation's Business Model. In my previous Blogs I discussed the development of core end-to-end business processes through the use of industry specific frameworks. The recording and presentation of the financial success of these frameworks is maintained in the Finance Processes. Below is a diagram of the Cash Flow within a typical commercial organisation. It highlights the fine balancing act required to manage the cash inflows  and cash outflows during a typical production cycle.  

The above diagram shows how the Cash Reservoir supports the core processes and the financial interfaces that manage the cash inflows and outflows enduring there is sufficient cash available to execute a full production cycle.

The diagram below shows how we measure the liquidity of an organisation and provides an end-to-end process measured in Working Capital Days. This can be further decomposed so that responsibility for lower levels of processes into payable days and receivable days that can affect the Time Gap-Cash in/Cash-out and the funding requirements of the organisation,

This example highlights the need for Business Architects to have both and Industry Knowledge and an understanding of the resource requirements of an organisation within the industry sector it operates in.