Many business activities are processes, meaning tasks that have a beginning and end. Process cycle efficiency is a measure that compares the time spent on value-added steps to the total lead time required to complete a process. Calculating and analyzing the process cycle helps identify points in a process where time is wasted.
Calculating process cycle efficiency is a two-phase operation. First you must determine total lead time and value-added time. Total lead time is simply the time it takes for an item or task to pass through the entire process. Value-added time is the time spent on steps that increase the worth of the product. To determine value-added time, break down the total lead time into steps and time intervals for time that adds value, time spent on necessary steps that do not add value, and waste time. Waste is time that does not add value or accomplish another necessary purpose and may be eliminated from the process. The formula for process cycle efficiency is value-added time divided by total lead time. For instance, if the total lead time for a process is 4 hours and the value-added time equals 1.2 hours, you get a process cycle efficiency of 30 percent – a figure generally viewed as very good. Typically, process cycle efficiencies of 25 percent are considered “lean” or efficient.
