Using internal audits to improve profitablity

Ross Woods, 2012

Quality auditing is essential in quality-sensitive industries where errors are expensive in terms of lost income, lost reputation, and devalued market position. Other factors being equal, if you can reduce errors and improve quality, you can improve revenues, improve reputation and get a better place in the market.

This does invite a new approach to standards. You will look at a set of business ratios, such as ROI and profit, and your competitors

Static or fluid benchmarks?

Improvement is a moving target. If you meet your KPIs this year and keep everything exactly the same, you will fail your next audit because you have not shown any improvement.

Besides, the marketplace can change rapidly, so the goalposts also need to move. Your audit standard might not be a simple, static list of things that you have to get right. You might be benchmarked to competitive position in the current and foreseeable marketscape.

Advice

1. Focus on improvement and make people feel helped. Don’t take a "nasty policeman" approach.
2. Work on a set of improvement goals so that your organization can be more competitive. Figure out ways to improve quality and value Reduce the costs of errors and inefficiencies.
3. Consider the financial implications of quality decisions. You might need to differentiate between optimum quality (the best value for money) and maximum quality (the highest possible quality, regardless of the cost). In many cases, clients don’t want to pay for the gold-plated model. In other cases, only the best will do.
4. Assess the risks of fast-tracking processes. When is it streamlining and when is it cheating?
5. Depending on your scope, offer follow-up and consult with local managers what you role might be. Your auditees may need your advice to be able to implement improvements.
6. Static company standards or industry benchmarks are helpful if you fall below them. You know exactly what improvements are necessary. But meeting static benchmarks is not in itself evidence of optimum performance; you might be able to exceed them and become a market leader.

The challenges

• Avoid supplanting the role of the manager, who must weigh up a range of factors and make decisions on change. Your job might be done when you assess the entity and suggest improvements. This might limit your ability to offer follow-up.
• You will also need to examine the effects on staff morale. In fact, an audit is one of the few opportunities that staff have to express their opinions independently and anonymously, while still working within organizational communication protocols. The benefits of honest, open opinions are obvious. The dangers of gathering highly politicized or ideological views are also obvious.
• As an auditor, you might not have enough technical knowledge to suggest specialized technical improvements. Personally, I’d limit my comments to observations of apparent inefficiencies and suggestions that improvements be sought. Then again, it would be good to develop a toolkit of improvement strategies. The obvious ones are to improve team communication, improve staff training, integrate computer systems, better awareness of the quality system, proceduralize systems so that they work well with less staff training, and use a workflow system that is more like an assembly line.