Business Process Audit: Why The CFO Needs To Care (+ How To Do It)
As a CFO, you’re used to being in charge of audits, which makes you the best person to lead the business process audit of your company, too.
Whether it’s performing the audits by yourself or investing in the training of your employees, studies have shown that you’ll get a clear return on your time and money. In fact, companies that invest in robust employee training for Business Process Management (BPM) programs are 2.1 times more likely to increase their ROI than those that do not train employees thoroughly.
Here’s how business process audits work, how to set them up, and what you should expect on the other side.
Understanding The Relevance Of Business Process Audits
A business process audit is essentially a deep dive into your company's health. It scours every operation, task, and process, celebrating what's working and flagging what might need a tweak.
Diving deep into your business’s heartbeat, the audit highlights potential areas of improvement to boost performance and ensure that your company and your teams are working like a well-oiled machine.
Ever noticed how the go-to fix for a department often seems to be hiring someone new? Sure, it might help. But more often than not, what's really needed is just a fresh set of eyes.
This review isn’t just about checking another box. It's about genuine conversations with your team members, reviewing guiding documents, and observing day-to-day operations. It’s like pausing and zooming out to ensure the bigger picture looks as good as the details.
The whole exercise can offer clarity on the company's strengths and the areas for improvement. These useful insights can steer you towards smarter strategies, smoother changes, happier employees, and, by extension, even more satisfied customers.
Here are some of the main benefits of regular audits:
- Tackles irregularities and errors head-on, enhancing cash flow and guaranteeing precise data capture.
- Promotes an ever-evolving mindset, inspiring teams to refine workflows rather than just settling for the status quo.
- Ensures every task and function resonates with the company's core objectives.
- Streamlined operations and improved efficiencies.
- Elevates risk management by highlighting potential roadblocks in functions and workflows.
- Pinpoints crucial business processes that need to be in top shape for business solvency.
- New employees step into more intuitive and streamlined workflows, speeding up the learning curve.
- Equips executives with in-depth operational knowledge, guiding where to channel resources and investments.
- Enhances understanding and trust among various departments, fostering improved teamwork.
- Helps spotlight staffing, procedural, or tech-related voids.
The Need For Auditing Internal Processes
In the modern business landscape, being complacent is a one-way ticket to bankruptcy; companies need to adapt and find ways to grow amidst evolving economic and technological backdrops. But with so many uncertainties, making new plans can often feel like navigating a maze with shifting walls.
Business process audits act as a compass giving you the information you need to protect your company’s assets, reputation, and money. Efficient audits will help you identify and replace slow manual tasks with automated ones, letting teams focus on important jobs like understanding and avoiding risks.
Consider the journey of footwear giant, Skechers. Amid a meteoric rise, with the company's valuation leaping from $815 million to an astonishing $4.5 billion, Ashwat Panchal, the Vice President of Internal Audit, achieved impressive results. He not only saved valuable time for employees and cut costs while ensuring compliance at a local level but also did it all while only increasing the internal audit team by two members. It was the clear process, not extra people, that helped make it happen.
But apart from that, a proper internal auditing process can help CFOs, like yourselves, and your other executive peers in the following ways:
- Protect the business: Regular business process audits assess the backbone of your organization, examining key elements like supply chains and finances.
- Uphold financial rules: It's essential that your company policies, especially in areas like accounts payable, are in sync with internal financial controls. Given the Sarbanes-Oxley (SOX) Act, you and other top executives are legally obligated to vouch for the accuracy of financial reports. Internal audits offer you that peace of mind, ensuring the financial reporting is on point.
- Support clear strategy: Audits offer a clear, fact-based assessment of how challenges and risks affect different areas of your business, from operations and IT to finances and cybersecurity. This clarity paves the way for data-driven decision-making.
- Ensure good returns: Quantifying the financial gains of business process audits might be tricky, but think of them as a long-term protection against risks. Deloitte has highlighted that internal audits usually cost between 0.026% to 0.126% of revenue for Fortune 500 companies. Seeing as how they’re proven to be more effective at increasing your bottom line, this is a small price to pay.
The Business Process Audit Methodology
Think of a business process audit as fishing in the vast sea of your company's operations. Every catch—be it big or small—tells a story, praising what's thriving and pointing out what might be swimming in the wrong direction.
Just like a fisherman checks his net's strength, an audit delves into your company's core - its heartbeat. It's not just about what's happening in accounting and compliance, but what's happening in the deeper waters of cost, quality, speed, and overall productivity.
So, what should you specifically look for during these audits?
Structure
Are the process and its participants in sync? Consider looking at job descriptions, org charts, and policy documents. Without clear structure, there's a risk of confusion regarding roles, responsibilities, and timelines.
Infrastructure
Which IT systems and equipment back each process? A deep dive into their strengths and weaknesses can highlight potential issues or improvements. Without a strong infrastructure, you risk confusion, resulting in higher costs through mistakes.
Knowledge
Do your employees have the skills they need to do their jobs efficiently? Audits should evaluate hiring and training practices. After all, you can’t do the job if you’ve never been trained how.
Metrics
Which KPIs track the process' success over time? It's essential to know the goals of the process and how it's overseen. A disconnect between tasks and their ultimate purposes could lead to unnoticed inefficiencies.
Accountability
Who is your main point of contact? There needs to be one team member ensuring protocols are met and any issues during the audit are tackled effectively. The absence of this person could lead to errors and an absence of a clear way forward.
Key Components Of An Effective Business Process Audit
A thorough business process audit not only finds inefficiencies but also highlights potential areas for growth. Here are some key components that underline a successful audit.
- Collaborative engagement: The effectiveness of an audit depends largely on the collaboration between audit teams, process owners, and team members. Audit teams bring expertise in assessment and evaluation, while process owners possess knowledge of the day-to-day operations. Regular team members, being the executors of these processes, offer invaluable boots-on-the-ground insights. Together, they cover the full spectrum of your business, ensuring nothing slips through the cracks.
- Use of tools and templates: Templates offer a structured format for data collection, ensuring no details are overlooked. Information systems, on the other hand, provide a digital footprint of transactions and operations, making audits more data-driven and objective. Integrating industry standards into the mix adds an additional layer of credibility and relevance to your audit.
- Influence of ISO and other management systems: The International Organization for Standardization (ISO) and other similar management systems offer a set of criteria and best practices for various business processes. An audit influenced by ISO standards not only measures the organization against these best practices but also prepares it for potential external audits or certifications. Moreover, following such recognized systems instills confidence among stakeholders, assuring them that the business operations meet global standards.
Types Of Audits And Their Importance
Process audits can be conducted in various ways, each with a unique focus. Here are the most common types, when discussing business process audits:
Business Process Management (BPM)
BPM is your panoramic lens on the business landscape. BPM isn’t just useful for finding problems; it's also about seeing what's working, understanding why, and improving processes from those insights. In this way, BPM is a “big picture” type of audit.
Business Process Improvement (BPI)
BPI zeroes in on refining the processes already in motion. Its aim is to boost efficiency, make things cost-effective, and supercharge their overall performance. Whether it's leveraging tech better or cutting down on manual work, BPI is about doing more with less.
Business Process Optimization (BPO)
This audit goes into the specifics of task execution across company departments. BPO equips you with a magnifying glass to identify potential hotspots of inefficiency. For instance, if one department is burdened with a disproportionate workload, it might reveal inefficiencies, like staff bogged down with redundant tasks, hindering action where it's most needed.
The 5 Steps Of A Successful Business Process Audit
If you want to conduct a successful business process audit, you’ll need to follow these five steps:
Step 1: Define Objectives
There are various audit objectives for a business process audit, some key ones include:
- Aligning with top management's vision and targets.
- Managing risks effectively.
- Providing leaders with more insightful data for decisions.
- Facilitating comprehensive employee training.
- Evaluating the utilization of IT assets.
- Boosting overall productivity.
Step 2: Plan Your Audit
To successfully carry out an audit, a solid game plan is key.
Begin by picking the main processes to audit, focusing on important business goals like customer satisfaction or revenue. For instance, an ecommerce store might focus on its order fulfillment process because it directly affects customers.
Once you’ve set your target, start gathering necessary documents like process maps, performance metrics, and standard procedures. They offer insights into the current state of processes and areas that might need improvement.
It's important to involve stakeholders familiar with the chosen processes. Bringing in heads from various teams guarantees nothing is missed. As an example, when auditing procurement, involve experts from purchasing, finance, and stock management. Clearly define the audit's scope, set realistic timelines, and decide how you'll collect data - whether through surveys, observations, or ongoing evaluation tools.
Step 3: Collect Data
Data collection is key in a business process audit. Begin by figuring out what information you need. This could be metrics, timings, slip-ups, or even feedback, depending on your audit focus.
For example, if checking on customer service, you'd want data on how fast they respond and if customers are happy. It's also important to make sure the data is right. Using standard templates can help collect data the same way each time, and checking the data ensures no mistakes.
Finally, organizing the collected data intelligently, whether in spreadsheets or software, makes analyzing it later much easier.
Step 4: Analyze Your Findings
After gathering data from a business process audit, it's time to look at it closely. This step helps you understand the data, find patterns, and see if there are any problems in your processes. Look for things that keep happening or slow things down. For example, there might be an inordinate number of mistakes in one step, or some tasks might take too long when things get busy.
Compare your data with available industry standards to see if your processes are working well, then compare them against your goals. You can use statistical methods to get more details and see patterns or unusual results. By checking things like how long a task usually takes, you can find unexpected delays. After studying all the data, find out which areas need to get better. Focus on the ones that impact your business the most or are the easiest to improve.
Step 5: Present Results
After finishing a business process audit, it's important to share your audit results and other relevant information with other executives and your team. Summarize the main things you’ve found, highlighting any problems and areas that can be made better. Point out any slow spots, mistakes, or other issues, and explain how they affect things like costs, work speed, or customer happiness.
You could use visuals like charts to show your findings, as they make complex data easier to understand. Then, give straightforward suggestions on how to fix the problems. List them in order of importance and how easy they are to do. Explain why each suggestion is necessary and how it helps the company's goals. This way, everyone understands and agrees on the next steps to improve.
Embracing Automation In Business Process Management (BPM)
A BPM tool like Signavio or Appian provides you with a sleek, automated approach to audits, refining workflows, and efficiently handling tasks like alerts and data capture. By automating these key tasks, your business processes become more fluid and efficient. Without requiring loads of manual time, these tools:
- Pinpoint processes that consume considerable resources, indicating potential bottlenecks.
- Perform comprehensive analyses, pinpointing inefficiencies without compromising on quality or cost.
- Help recognize bottlenecks and suggest significant efficiency improvements.
- Help evaluate Service Level Agreement (SLA) performance, assessing its impact on customer satisfaction and providing insights into delays.
- Generate instant reports, offering insights into the operational quality and improvement areas.
Taking Corrective Actions And Implementing New Processes
Remember: none of this has any value if you don’t do something about it.
Beyond simply conducting the process audits, you need to ensure there are clear and decisive actions being taken to improve the results you’ve found, including:
- Automating repetitive tasks to enhance efficiency and reallocate employee time.
- Adopting productivity tools and adding (or removing) regular team meetings to bolster inter-departmental communication.
- Reevaluating and judiciously allocating resources to maximize productivity.
- Setting consistent operating procedures and documenting everything religiously.
- Addressing skill gaps with specialized training, promoting a performance-driven learning environment.
The CFO's Role In Process Improvement
The CFO, as both the scorekeeper and the sober second look at the business, has the specific privilege of being aware of the business’ performance and the opportunity to dig into its different parts. By taking this opportunity and running with it, you’re going to be even closer to proving yourself as a strategic CFO in your business, cementing your value today and in the future.
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