What are business rules and what is their importance? (2023)

By Mike Raia Posted on May 28, 2019

What are business rules and what is their importance? (1)

Without clear business rules and defined procedures, a chaotic workplace often leads to inconsistent results, low employee morale and unhappy customers.


Suppose you are a longtime business owner or even an executive in an established company. Then you know how chaotic it can get when most decisions are left to fully autonomous employees.

While autonomy plays a role as it promotes job satisfaction and can help employees grow as they learn to make decisions to improve the business, in most cases at least a core knowledge is presentbusiness rulesis crucial to support the organizational function.

"If you don't have time to do it right, you must have time to do it again."


What are business rules?

In their simplest definition, business rules are policies that define (or constrain) business activities. Designed to help a company achieve its goals, those without clear business rules and defined procedures will often find a chaotic workplace with inconsistent results, low employee morale, and dissatisfied customers.

The concept of business rules was not born in the age of technology. Rather, the development or invention of business rules was driven by a grassroots effort to provide the best possible approach to business operations. However, the introduction of business rules as a comprehensive concept for organizations did not occur until the early 1990s.

Business rules are now supported as an underlying requirementof most organizations. They are often used to prepare system flows or process flow diagrams that describe how a company will work.

Correct business rules ensure efficiency, consistency, predictability and benefits. They also ensure that the work can continue to progress.

What are business rules and what is their importance? (2)

Examples of business rules

A wide range of approaches can develop business rules, but the following points are important examples to help you understand where we are going:

  • A decision-making hierarchy for invoice processing where specific invoice amounts are escalated to determine which managers can approve.
  • Calculations to determine possible bonuses and payments for sales reps.
  • A set of mandatory questions that, if the answer is no, excludes a specific vendor from a specific partnership opportunity.
  • A set of questions and answers for a guest booking a hotel room to determine availability and rates.

Why are business rules so important?

Effective business rules help set expectations and provide guidelines for getting work done. Business rules should also be used to ensure that an organization is compliant with local, state, and federal regulatory requirements and policies, ormay deal with the control of a specific project.

Business leaders often use business rules to provide certainty in times of conflict resolution, reduce errors, and avoid the need for litigation.

In short: combine rules with automation

Only business rules rely on individuals to follow and enforce them. Combining these rules with aautomation platformenables companies to apply them transparently as part of standard business processes. For example, instead of Bob checking invoice amounts in accounting and escalating them manually when a threshold is exceeded, scanned invoices automatically flow to the right people. This can be applied to any existing business rule part of a business process. We'll tell you more about it below.

The Tribal Knowledge challenge with business rules

Most companies have tribal knowledge, that is undocumented information, processes and rules that only exist in the minds of a few employees. When business rules are not widely shared and written down in an organization, it leads to inconsistencies in production, processes, quality, and customer/employee experiences. If business rules are not shared among all stakeholders, the organization suffers performance degradation.

Check out this example which describes well the importance of ensuring that tribal knowledge is not limited to a select few:

  • Imagine a company with seasonal peaks in business. It could be a retailer that needs to ramp up store staff and customer support, or even a tax office that needs extra help to get through the months leading up to April 15.
  • Your trainer works to train all of these new functions in a short amount of time so they can hit the floor or the workplace and add value.
  • But let's say a new regulatory requirement to only sell a given product to persons over the age of 18 in a given state. This information is known to the legal or regulatory staff preparing the move, but is never shared with the coach and is therefore not shared with all new seasonal staff.
  • Without well-communicated, standardized business rules, this organization can be prosecuted for not following proper rules and regulations when employees fail to properly screen customers at the checkout.

This example is about having a central channel for documentation and, just as important, for communicating the rules. In many other cases, the problem is simply that only one person knows a rule and it is taken for granted that they will always be on hand to give critical advice.

But knowing critical information from across a person's organization can be dangerous. This is the "If you were hit by a bus tomorrow, what would we do?" Landscape. Unfortunately, there are unexpected job openings and it is critical that companies move from tribal knowledge to documented knowledge and ensure it is put in place for all business rules that need to make important business decisions.

Types of Business Rules

When defining the types of business rules that most organizations rely on, it is important to understand several statements:

  1. A structural statement is a statement in which a fact expresses an aspect of corporate structure that determines how decisions are made.
  2. An action statement describes a constraint or set of conditions that has some sort of control over the company's actions.
  3. A derivation is simply additional knowledge derived from other critical knowledge about the business.

Read more about the history of business rules.

Within the instructions explained above, rules as part of a process are defined as one of three types:

  • Coordination Rules—Coordination rules represent a general requirement that must be met for a process to proceed. General statements such as "A request must include the department's billing code." These rules help keep a process running without rework.
  • Admission/Disqualification Rules—A set of qualification/disqualification rules are used when determining whether a particular subject should be included or excluded from a process. Think of it as a filtering rule that saves a lot of time and effort.
  • decision rules—A decision rule is used when an issue needs to be evaluated and assigned to the next step. (e.g. approved, rejected, sent back for more information).

Business rules complement business processes and automation

In many cases, organizations can integrate their business rules into oneWorkflow automation platformwhich can generate final decisions and offers as part of a workflow. A prime example of this is the hospitality industry.

When a guest goes online (or even contacts the reservations department by phone), they need to provide some information to determine if a room is available and to get the price. Critical information requested is typically length of stay, number of guests, and dates of visit.

Another important but secondary piece of information is whether the guest belongs to that chain's loyalty program or not, and if so, their previous and current loyalty level. And, of course, the presence of a discount code for a package offer also affects the tariff.

Once the hotel's reservation system has all this information, it can better provide a list of available rooms and at what price. All guest data feed the business rules of this hotel chain. These rules are an excellent combination of how the decision and qualification rules are used in parallel with the coordination rules to generate a decision.

Embed business rules in your organization

Businesses need to remember that technology is only part of the solution in today's workplace, where there seems to be no limit to the amount of fantastic technology that has been developed to improve productivity and efficiency. More important than any piece of technology you choose is the work individuals and teams must do to program the business rules and processes that run the business. Once these rules and procedures are established and accepted, you can begin to digitally transform your business through automation.

additional resources

What are business rules and what is their importance? (5)Thanks to my collaborator on this article,Ann Jarema, sales and marketing leader by day and business process enthusiast by night. Ann has worked at several business process software companies including Sutherland and FICO.

What are business rules and what is their importance? (6)

Mike RaiaAuthor

Market the best workflow automation software in the world and drink lots of coffee. Connect with me on LinkedIn athttps://www.linkedin.com/in/michaelraia/

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