Lean Auditing Adding value and reducing waste

Session objectives This objectives of this session are: Provide a brief background of lean. The principals of lean. Customer focus approach. Influences of lean in audit planning. Influences of lean in performing audits.

Story of lean Lean is a set of principals that were formalized within Toyota at the end of WWII. The principals came to be known as the “Toyota Production System” (TPS). Less investment for a given production capacity. Went from concept to delivery with less time and effort. Delivered products with fewer defects and waste. Improved customer satisfaction. Increase capacity. Decreased response time for issues.

Five key principals of lean Specify value from the perspective of the customer. Identify the value stream. Create process flow. Establish pull. Seek perfection in ways of working.

Lean is not cost cutting Managing and reducing costs is a by product. Cost cutting, without changing the process, leads to cost consequences elsewhere.

Understanding customer needs Basic requirements Presence will not make customer happy, but absence will be a dissatisfier Audit report Performance factors or satisfiers The value perception of the customer will depend on the extent it is present Less business interruption from an audit Delighter or exciter Unexpected and delighted when present Positive findings in a concise audit report

Lean mindset Lean is not just about more efficient and effective internal audits. A lean mindset in IA will cascade throughout the organization. Viewing value from the perspective of the customer, analyzing activities where they occur, identifying waste and root cause analysis is a catalyst for positive change.

Customers of IA Lean activities aim to deliver value add, with the minimum of waste, to the customer. IIA standards do not explicitly used the term customer. They do use the term stakeholders: The board. Senior management. Internal and external providers of assurance. External auditors. Management of area being audited. The ultimate customer is the external customers of the organization.

Customers of IA Define and agree the key internal customers and stakeholders. Understand their needs and expectations. Always remember the importance of the external customer.

Adding value IA standards reference the role IA has in adding value, however: Some auditors may believe they are adding value but key stakeholders may not agree. Audits generate actions that are seen as bureaucratic. Senior and middle managers are not as concerned with objective assurance. The audits are performed in a manner that impedes management recognizing the value.

Focusing on adding value Identify what each stakeholder values. Revisit IA charter, strategy and methodology and consider how these add value. Consider how the IA function would resourced if cut to the bare minimum. Develop a process to articulate the value that IA delivers above the bare bones. Consider the cost of the value added activities.

Focusing on adding value Develop a culture within IA that actively looks to identify opportunities to delight. Incorporate innovation in audit reports (i.e. diagrams to speed understanding of impact). Reflect on when delighters have been delivered. Examine how often innovation within IA is tried. Look for opportunities to pilot new audit approaches. Try new ways to solicit feedback when survey response rates are low.

Q Q The audit plan Considerations when developing the audit plan: Does the audit plan align with the organizations objectives and risks (compliance vs strategy and operations)? If the audit plan involves mainly mandatory audits (compliance and financial controls), is there an opportunity for process managers to increase the coverage in those areas? Q Q

Performing the audit For specific audits to add value, there should be a reasonable understanding between stakeholders and IA on the value each audit will deliver. The answer to the question “why was the audit selected” should provide insight to the value the audit can deliver. A

Common Pitfalls Haste to get started Use prior audit scope and program. Balance against too much research. Insufficient thought on resources Audit schedule based on set time. Changes to audit scope Insufficient management input leads to misunderstandings. Excessive management input leads to focus on business unit. Information is not timely IA staff end up waiting for information (waste).

Recommended actions Invest sufficient time in audit planning What activities have taken place to determine the stakeholders and consider value from their perspective. If a previous program is being followed, is time spent considering opportunities to add value. Explicitly state the added value of the audit Forces thoughts beyond solely risk and controls. Engage management on potential outcomes and see if they value those outcomes. Engaged management is more likely to respond for requests I a timely manner. Plan audits like projects Establish time lines and milestones.

Conclusion Applying lean tools such as Kano (the voice of the customer) will help insure that IA continues to add value as seen by the organization. Applying lean principals regarding waste (Muda) will work to insure IA improves the efficient delivery of audits. Understanding lean tools will allow the IA department to affect change in the organization and increase the value of the organization and the IA department.

About MDA Training MDA Training is one of the world’s leading management development and training services providers. MDA Training works with organizations to enhance the financial skills of managers. We specialize in the design and delivery of tailored finance workshops for banks and corporates. MDA Training has offices in London, England, New York, and Vancouver.