Conducting Business Health Check
By: Tony Grundy
ALTHOUGH financial audits are well established, the idea of scrutinising your business strategy in a similar way is less common. But some form of strategic audit may prove essential to make sure that your company continues to generate value and that any governance issues are addressed.
Companies often run into trouble because the quality of their strategy has deteriorated. A strategic audit can help you spot the weaknesses before they become critical. It helps to address governance problems by forcing managers to consider whether they are running the business to generate long-term shareholders value, or trying to maximise short-term performance to increase their bonus payments.
In effect, a strategy audit is a business health check. It can be defined as a structured and comprehensive review of strategy and strategic processes to identify weaknesses, blind spots, reasons why profits are failing to reach predicted levels, and new areas where potentially more value can be added.
A strategy audit can take many forms, but may focus on three areas of competitive positioning: competitors, customers and cost base. This could involve asking some variation on these generic questions tailored to suit the context of your company.
In terms of competitors:
>Who are your rivals? What resources do they have?
>Do you understand how customers perceive your competitors’ value-added potential, and how does this compare with their perception of what your value-added services mean to them?
>Do you know your rivals’ cost advantages or disadvantages relative to yours?
>Which competitors pose the most serious threats to you, and why?
In terms of customers:
>Do you know how customers perceive the value you add and the characteristics of your products and services that distract from this? Can you break this information down by segment?
>Do you have a clear idea of what is most important to them?
>To what level do you understand the buying process of your customers, and what influence this?
>How well do you understand your customers’ competitive positions and strategic options?
In the case of customer benchmarking, it is important to check your beliefs using some objective market or customer research.
In terms of cost base:
>Do you have a clear idea of the main drivers of your cost base (cost drivers), and how best can you manage them?
>Have you targeted your unit costs in the medium and longer terms (one to five years), rather than the traditional one-year? To what degree are these supported by viable strategies?
Managers should then rate the importance of these questions on a scale of one to five and compile scores for each section of the audit. These can either be weighted of left unweighted and then be added up to give a total score, which ideally should be equivalent to over 70 per cent.
It is also essential to challenge the scores so you can achieve a detailed and objective set of views. This can be done by asking such questions:
>Why do we say this?
>What evidence do we have to support this?
>If we were customers or rivals, how would we rate these scores?
And it may be worth conducting some external research as well.
Another approach is to create matrices to assess overall strategic positioning, for example, by scoring existing strategies as if they were new options. You could base this on five criteria: strategic attractiveness, financial attractiveness, implementation difficulty, uncertainly and risk, and stakeholder acceptability. You can score these using three points for “highly attractive”, two for “moderately attractive”’ and one for “not very attractive”.
Each score should be supported by tailored, detailed questionnaire diagnostics. Again, it is wise to seek empirical justification for your judgements, rather than relying purely on subjective opinion.
A strategy audit can be implemented in a variety of ways. You may want to conduct it:
>Across the entire business or simply focus on a particular area;
>For all existing strategies or simply for evolving ones;
>As an individual accountant, as a finance team, with the chief executive, with the top management team, rolled out to all managers, using external consultants of financial backers;
>Quickly, to give a rough idea, or over a longer period with more rigour;
>With or without quantifying the potential costs of making identified changes; or
>With varying levels of empirical research.
A well-conducted strategy audit can add considerable economic value.
This might emerge from:
>Identifying areas for strategic development;
>Cutting unnecessary bureaucracy or inappropriate emphasis in strategic business planning and control processes;
>Reducing risks by highlighting blind spots and producing solutions for them;
>Focusing the top team on broad strategic issues, rather than narrowly functional ones;
>Making the top team more confident and helping it to proceed rapidly and decisively with a robust strategy; and
>Combating unhelpful politics.
Source: New Straits Times, Saturday, September 2007
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Thursday, October 25, 2007
ABCs of Internal Auditing
ABCs of Internal Auditing
By: Joseph Eby Ruin
Over the years, through practical observation and theoretical knowledge, I have come to recognise the qualities that an internal auditor should ideally have. Here are my ABCs of internal auditing.
A IS A FOR ASSERTIVENESS. An internal auditor should be assertive, yet at times he must be flexible and accommodating of others’ views and sensitivities.
B IS FOR BRAVENSS. This is an extension of assertiveness. To be effective, an internal auditor needs to be steadfast, defending and maintaining his stand with firmness and accuracy.
C IS FOR CPE. This is Continuing Professional Education through seminars, reading and networking with peers as well as interaction with other professions. Continuous training and self-development is paramount to maintain competency as an “internal consultant” to the management and other vested parties.
D IS FOR DISCIPLINE. An internal auditor needs to be conscientious and have the capacity for hard work. He must be able to see both “the forest from the trees” and “the tree amid the forest”. Discipline also entails dedication and loyalty to one’s organization.
E IS FOR ENERGY. This refers to the drive, enthusiasm and keenness to work, learn and unlearn. Knowledge and skill need no be confined to accounting/financial and auditing aspects alone. To have a holistic approach in operational review, for example, an internal auditor needs to be familiar with other aspects of leadership skills and commercial and managerial disciplines such as marketing, human resources, banking, insurance, total quality management, IT and management information system, engineering, sociology, research and development, and ergonomics.
F IS FOR FIRMNESS. This means the will to follow up on and monitor the recommendations in the audit reports. At times, an internal auditor needs to be resilient in the face of adverse responses from auditees and other critics. He should not display his emotions at such times, but maintain a positive attitude.
G IS FOR GOALS. This refers to the need to understand the objectives, roles and purposes of internal audit in the organization. An internal auditor’s role could change frequently depending on organizational needs. From being an internal consultant for one project, say, he could become the “the change agent” for another assignment, a fraud investigator for yet another, and play a check-and-balance role for the management and the board at a fourth.
H IS FOR HONESTY. Being honest at all tomes, it is easy for an internal auditor to win the trust and confidence of other staff and the management.
I IS FOR IT LITERATE. In today’s, cyberspace era, an internal auditor must be competent in the IT environment to be efficient. There are so many software packages that he can pick up to enhance his productivity, effectiveness and speed of making decisions.
J IS FOR JELL. An internal auditor should jell (mix) well and possess excellent interpersonal skills. He needs to have a good relationship with his clients (auditees), the management and the board audit committee. He should possess skills in report writing, fact finding and documenting, interviewing and negotiating. It pays for him to be “street-smart” and move within the “in” crowd to get more information about company management policies and changes.
K IS FOR KEENNESS. This means to add value to an organisation’s system and procedures, to share ideas and to present independent, unbiased views to the management.
L IS FOR LEADERSHIP. An internal auditor must have the skills of a manager. He should be able to lead plan, delegate, organise and cope with changes. When the occasion warrants it, he should be a problem-solver or trouble-shooter for the management.
M IS FOR MOTIVATION. An internal auditor should take the initiative to improve and fine-tune existing systems and procedures. In doing so, he would be able to advise the management in evaluating internal control systems in operational and financial activities, besides acting as a catalyst for change his organization.
N IS FOR NEARNESS. Tidiness is paramount to good, meticulous work and reflect and internal auditor’s noble character and professionalism.
O IS FOR OBJECTIVITY. This stand for the neutrality, independence and integrity that an internal auditor should display at all times to command the confidence of the management and other vested parties. It is not smart for an internal auditor to take sides in internal office politics: he should stay friendly with everyone and never carry tales. Audit findings should be kept confidential: they should not be divulged even to friends and family.
P IS FOR PROFESSIONALISM. This entails sound knowledge of the Standards for the Professional Practice of Internal Auditing. The internal audit department should hire qualified people to ensure quality and holistic audit approaches.
Q IS FOR QUALITY. This means fast service standards or turnaround time for fieldwork and reports as well as prompt monitoring of the feedback from clients.
R IS FOR REVIEW. To ensure continues quality in the audit work, there should be peer reviews, benchmarking, networking and note comparisons among fellow auditors in the market. Internal auditors should try something new such as subscribing to the Global Auditing Information Network. There may also be a need to reinvent the internal audit roles in organization to keep up with changes in time and ensure audit’s continued contribution to the company.
S IS FOR (HEALTHY) SCEPTICISM. There must be that tinge of inquisitiveness in an internal auditor so creativeness and ingenuity can come into play in his audit plans.
T IS FOR TRANSPARENCY. This means an internal auditor should be an advocator and a defender of corporate governance. To be meaningful to the management and the board, audit programmes should center on openness (transparency), honesty (integrity) and responsibility (accountability) in the organisational structure.
U IS FOR UNIFORMITY. Consistency and standardisation will ensure the effective discharge of an internal audit department’s duties.
V IS FOR VALUE-ADDED. An internal auditor should give values for money and justify his audit contributions to the company.
W IS FOR WILLPOWER. This refers to the determination and perseverance needed for an internal auditor to withstand the obstacles that may arise during his audit trail and field work.
X IS FOR X-TRA MILE. This refers to an internal auditor’s initiative, extra effort and concern for his organisation’s welfare. A modern-day internal auditor needs to remember that he is not an adversary, but an ally and confidant of the auditee and the management. It is vital to cultivate a healthy environment where there is no animosity between the auditee and auditor. It is proactive (rather than reactive) of an internal auditor to request that the management co-opt him onto a management working committee to revise or map new organizational policies and procedures.
Hard work and virtue are not sufficient to see an internal auditor through. It is useful to have high degree of visibility, so he should seek to be involved in steering or review committees of the management. It is erroneous to say it is not part of an internal auditor’s function to be involved actively in operational decisions.
Y IS FOR YIELD. At the outset, it is important to understand what an internal auditor’s contribution is to the management and the board. It may be in the form of assurance that an organisation’s policies are being adhered to.
Z IS FOR ZEAL. This means the zest for internal audit work.
The writer is principal of RiskFirst Consultancy & Training Services. He can be contacted at e-mail: jeruin@riskfirstconsult.com.my or jerwin001@hotmail.com
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By: Joseph Eby Ruin
Over the years, through practical observation and theoretical knowledge, I have come to recognise the qualities that an internal auditor should ideally have. Here are my ABCs of internal auditing.
A IS A FOR ASSERTIVENESS. An internal auditor should be assertive, yet at times he must be flexible and accommodating of others’ views and sensitivities.
B IS FOR BRAVENSS. This is an extension of assertiveness. To be effective, an internal auditor needs to be steadfast, defending and maintaining his stand with firmness and accuracy.
C IS FOR CPE. This is Continuing Professional Education through seminars, reading and networking with peers as well as interaction with other professions. Continuous training and self-development is paramount to maintain competency as an “internal consultant” to the management and other vested parties.
D IS FOR DISCIPLINE. An internal auditor needs to be conscientious and have the capacity for hard work. He must be able to see both “the forest from the trees” and “the tree amid the forest”. Discipline also entails dedication and loyalty to one’s organization.
E IS FOR ENERGY. This refers to the drive, enthusiasm and keenness to work, learn and unlearn. Knowledge and skill need no be confined to accounting/financial and auditing aspects alone. To have a holistic approach in operational review, for example, an internal auditor needs to be familiar with other aspects of leadership skills and commercial and managerial disciplines such as marketing, human resources, banking, insurance, total quality management, IT and management information system, engineering, sociology, research and development, and ergonomics.
F IS FOR FIRMNESS. This means the will to follow up on and monitor the recommendations in the audit reports. At times, an internal auditor needs to be resilient in the face of adverse responses from auditees and other critics. He should not display his emotions at such times, but maintain a positive attitude.
G IS FOR GOALS. This refers to the need to understand the objectives, roles and purposes of internal audit in the organization. An internal auditor’s role could change frequently depending on organizational needs. From being an internal consultant for one project, say, he could become the “the change agent” for another assignment, a fraud investigator for yet another, and play a check-and-balance role for the management and the board at a fourth.
H IS FOR HONESTY. Being honest at all tomes, it is easy for an internal auditor to win the trust and confidence of other staff and the management.
I IS FOR IT LITERATE. In today’s, cyberspace era, an internal auditor must be competent in the IT environment to be efficient. There are so many software packages that he can pick up to enhance his productivity, effectiveness and speed of making decisions.
J IS FOR JELL. An internal auditor should jell (mix) well and possess excellent interpersonal skills. He needs to have a good relationship with his clients (auditees), the management and the board audit committee. He should possess skills in report writing, fact finding and documenting, interviewing and negotiating. It pays for him to be “street-smart” and move within the “in” crowd to get more information about company management policies and changes.
K IS FOR KEENNESS. This means to add value to an organisation’s system and procedures, to share ideas and to present independent, unbiased views to the management.
L IS FOR LEADERSHIP. An internal auditor must have the skills of a manager. He should be able to lead plan, delegate, organise and cope with changes. When the occasion warrants it, he should be a problem-solver or trouble-shooter for the management.
M IS FOR MOTIVATION. An internal auditor should take the initiative to improve and fine-tune existing systems and procedures. In doing so, he would be able to advise the management in evaluating internal control systems in operational and financial activities, besides acting as a catalyst for change his organization.
N IS FOR NEARNESS. Tidiness is paramount to good, meticulous work and reflect and internal auditor’s noble character and professionalism.
O IS FOR OBJECTIVITY. This stand for the neutrality, independence and integrity that an internal auditor should display at all times to command the confidence of the management and other vested parties. It is not smart for an internal auditor to take sides in internal office politics: he should stay friendly with everyone and never carry tales. Audit findings should be kept confidential: they should not be divulged even to friends and family.
P IS FOR PROFESSIONALISM. This entails sound knowledge of the Standards for the Professional Practice of Internal Auditing. The internal audit department should hire qualified people to ensure quality and holistic audit approaches.
Q IS FOR QUALITY. This means fast service standards or turnaround time for fieldwork and reports as well as prompt monitoring of the feedback from clients.
R IS FOR REVIEW. To ensure continues quality in the audit work, there should be peer reviews, benchmarking, networking and note comparisons among fellow auditors in the market. Internal auditors should try something new such as subscribing to the Global Auditing Information Network. There may also be a need to reinvent the internal audit roles in organization to keep up with changes in time and ensure audit’s continued contribution to the company.
S IS FOR (HEALTHY) SCEPTICISM. There must be that tinge of inquisitiveness in an internal auditor so creativeness and ingenuity can come into play in his audit plans.
T IS FOR TRANSPARENCY. This means an internal auditor should be an advocator and a defender of corporate governance. To be meaningful to the management and the board, audit programmes should center on openness (transparency), honesty (integrity) and responsibility (accountability) in the organisational structure.
U IS FOR UNIFORMITY. Consistency and standardisation will ensure the effective discharge of an internal audit department’s duties.
V IS FOR VALUE-ADDED. An internal auditor should give values for money and justify his audit contributions to the company.
W IS FOR WILLPOWER. This refers to the determination and perseverance needed for an internal auditor to withstand the obstacles that may arise during his audit trail and field work.
X IS FOR X-TRA MILE. This refers to an internal auditor’s initiative, extra effort and concern for his organisation’s welfare. A modern-day internal auditor needs to remember that he is not an adversary, but an ally and confidant of the auditee and the management. It is vital to cultivate a healthy environment where there is no animosity between the auditee and auditor. It is proactive (rather than reactive) of an internal auditor to request that the management co-opt him onto a management working committee to revise or map new organizational policies and procedures.
Hard work and virtue are not sufficient to see an internal auditor through. It is useful to have high degree of visibility, so he should seek to be involved in steering or review committees of the management. It is erroneous to say it is not part of an internal auditor’s function to be involved actively in operational decisions.
Y IS FOR YIELD. At the outset, it is important to understand what an internal auditor’s contribution is to the management and the board. It may be in the form of assurance that an organisation’s policies are being adhered to.
Z IS FOR ZEAL. This means the zest for internal audit work.
The writer is principal of RiskFirst Consultancy & Training Services. He can be contacted at e-mail: jeruin@riskfirstconsult.com.my or jerwin001@hotmail.com
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