By: Leanne Armstrong
Rules come in many forms. Some tell us what is or isn’t allowed during specific types of interactions or when we carry out certain tasks. Others govern what will happen as different processes or systems play out. There are even rules that serve as stand-ins for best practices and expert advice.
In every case however, these rules exist for a reason: not only are they critical to providing common ground, they help streamline various activities. And that’s especially important when the rules are built into the fabric of your business.
Without clear business rules in place, organizations would be littered with:
- Inconsistent outcomes
- Unhappy clients, and
- Disengaged staff
Establishing certain rules is essential for both governing conduct and for laying out the criteria and conditions that enable effective decision-making.
To give you an idea of how successful companies wield business rules, this introductory guide will walk you through a high-level overview of what they are, why they’re so important, and where they typically get used in the workplace.
What are business rules?
Business rules are a set of principles, directions, or instructions that describe – and sometimes limit or restrict – certain business activities. Because their main purpose is to advance efficient, consistent decisions, they’re mostly set in place to ensure better business operations can happen.
In general, business rules:
- Help guarantee reliability, compliance, and predictability across an organization
- Are used to inform company policies, systems, and processes
- Can reflect both internal procedures and external (industry or government-driven) regulations
If you’ve ever been involved with the financial side of an organization, one example of a business rule you may be familiar with is the need to follow GAAP – generally accepted accounting principles – in all your accounting procedures.
But while external guidelines like GAAP are widely available for reference, some companies make the mistake of relying on internal business rules that are simply “understood”.
Taking the time to clarify, document, and share key business rules provides an enormous advantage when it comes to producing high quality work, generating predictable results, and encouraging repeatable performance.
The importance of business rules
Now that we’ve answered the question of what are business rules, it’s time to dive into why they’re so important.
Suffice it to say that without a well-thought-out set of rules in place, both a company’s structure and effectiveness would soon crumble.
Business rules are vital, for example, for determining if or when it’s okay to follow a designated course of action in the workplace. And by providing a set of norms or standards for certain choices, they also help ensure agreement across different teams and departments.
When you establish a firm set of expectations where they truly matter:
- Your team will find it easier to collaborate
- Your business will be better positioned for growth, and
- You’ll be less likely to experience financial loss, reputational damage, or legal repercussions (especially where external business rules are concerned)
Consider, for example, what would happen to a company’s revenue if client onboarding teams were simply permitted to use their best judgement when evaluating new customers instead of having to adhere to established credit approval procedures.
As we’ve said, rules exist for a reason.
And by implementing meaningful business rules, your company stands to gain a wide range of meaningful benefits, including:
- Increased process efficiency
- Better workflow consistency
- Improved employee productivity
- Less effortful compliance
- Greater clarity in complex decision-making environments
The right business rules can even contribute to workplace safety and aid in conflict resolution.
Using business rules to stay agile
Business rules are also important for giving companies a level of agility that can help them meet their goals as quickly as possible. To do that however, they need to be created outside any new process design.
In other words, if you’re putting together a new way for your team to do something – and it’s going to mean following a couple of new rules – it’s better to establish those regulations separately.
Here’s an example.
Say you wanted to develop a more disciplined approach to collecting unpaid customer invoices. You might use a process map, flowchart, or workflow diagram to design a multi-faceted collections process that incorporates this new set of business rules:
- If an outstanding invoice is due, email a friendly reminder to the client
- If an outstanding invoice is 10 days past due, send a second email and follow up with a phone call
- If an outstanding invoice is 30 days past due, make another phone call and follow up with a formal letter outlining the consequences for unpaid balances
By laying these policies out separately – and simply inserting a step into any relevant processes that directs users to them – you can stay more flexible by quickly updating your business rules whenever change needs to happen (like if you modify your payment terms, for example) instead of continuously redesigning all your process documentation.
Remember: clear, distinct business rules help teams stay aligned and make it easier for businesses to respond to shifting workplace requirements.
Where do business rules get used?
The importance of business rules becomes even more obvious when we consider where and when they tend to get used.
Business rules of all types play a key role in:
- Preparing high-level operational systems
- Automating work platforms
- Carrying out business requirements gathering
- Overseeing change management
- The everyday launch of new company projects, products, processes, and plans
There are 3 main areas where business rules frequently get used to save time, prevent errors, and keep work moving forward.
- Processes where one or more conditions must be met. This might include a company’s purchase order process, for example, where employee requests for specific office supplies or equipment must be signed off by a supervisor at a certain point along the way.
- Evaluations that require a decision. If your product development team were testing and evaluating a new prototype, they might have to follow an established set of rules in deciding whether to approve, reject, or rework it.
- Procedures designed to filter results. Thinking back to the example of our wayward client onboarding team, new customer accounts are often qualified or disqualified based on credit check rules and results.
No matter where or how you plan to use them, it’s also important that you find a reliable way to document and communicate your business rules to everyone who’s required to follow them. Like all company knowledge, business rules are only truly useful when they’re easy to access and understand.
Real-world examples of business rules
Now let’s take what we’ve learned about business rules out of the classroom and into the wild for a look at some real-world examples.
In this first example of a business rule, the company involved has set a goal to improve sales outcomes by establishing a hierarchy around the way incoming sales calls are handled.
To that end, all calls are initially answered by a dedicated customer agent, who must then follow a clear set of rules to move the potential sale forward.
Rule #1. If the caller is inquiring about a product or service within a specified dollar range – in this case, up to $500 – the customer agent will handle their questions personally.
Rule #2. If the potential sale dollar value is above $500, the agent must either:
- Forward the call to a sales account representative (for product valued between $500 and $5000), or
- Forward the call to a sales manager (for product valued above $5000)
In this second example, the company is a successful manufacturer that’s learned through experience how much work they can handle and when they need to outsource.
As a result, they’ve established the following workflow rule to ensure their efficiency:
- Customer orders below a certain volume are dealt with in-house
- Customer orders above a specific threshold are entrusted to a proven third party
Here are some more examples of different types of business rules you might find in the workplace. In each case, the directives are set in place to help companies meet certain business objectives.
- Policies for approving customer payment methods or credit-based accounts
- Yes-or-no questions that determine which vendors a business will or won’t partner with
- Hierarchy regulations that determine who must approve an internal purchase order or supplier invoice based on specific dollar amounts
- Calculations that sales managers must use to tally bonus payments for personnel
- A directed series of client questions that allow venue booking companies to check rates and availability
- Externally sourced mathematical formulas or metrics that calculate revenue and expenses or measure financial performance
- Lists that dictate which suppliers or third-party businesses an employee may contract with to carry out company projects
- Federal or regional tax laws
As you move forward from the question of what are business rules to ensuring they get put into practice, remember that versatile knowledge mapping software like MindManager is ideal for laying out and sharing all kinds of company information, including fundamental business rules.