Value Added Auditing
John H. Johnson
Management/Quality Consultant, Vice President
J-E-T-S, Inc. Quality Consultants
First presented at the ASQ National Audit Conference, Baltimore
"Where’s the bang for the buck?" "Not enough value added..."
"We need to do more with less!"
If your organization is like most, you are hearing comments like these all too frequently these days! An important fact of reengineering, downsizing, rightsizing, or other major organizational change is that groups that are not perceived as providing value will be reduced or eliminated. That may even include the audit or quality assurance group! In order to survive, all groups must demonstrate added value to their customers. Value Added Auditing is one method that ensures a higher level and perception of value to the auditing customers, line management.
Basis and Need for Value Added Auditing
When we are helping our clients improve their auditing programs through training or consulting services, the J-E-T-S consultants always try to talk to line management. By line management, we usually mean management of the organization being audited. Two questions we often ask of line management are, "What do you think of the audit program?" and "What good does the audit do for you?". The response we often get to these rather subjective questions is surprisingly consistent, but also rather subjective; the response is "Not enough value added." Value Added?? What does that mean? How can the auditor increase the value of the audit to line management?
We have researched management expectations and opinions of audit value. The results of that research show some great opportunities for improved audit value; those improvements are reflected in an auditing approach we have named Value Added Auditing. Why a new or additional term? The answer is simple. By calling the approach Value Added Auditing, we force auditors and audit customers to constantly think about improving the value of the audit to line management. Audit customers? Is this another Total Quality Management application? The answer here is a qualified "yes." By using some TQM approaches, we can improve the value of the audit, but it takes a more than TQM to change line managements opinion and expectation.
In Value Added Auditing, the auditor must first identify the primary customers of the audit. Often there are two primary customers -- both line management and the audit sponsor. Sometimes there is only one customer. An example of a single primary customer is an internal audit where the sponsor is line management. One change in Value Added Auditing compared to traditional auditing is that in almost every case, line management must be considered the primary audit customer. In the past, the primary customer was almost always the audit sponsor. At times, this change can be challenging, because the sponsor has often been considered by auditors in the past to be more important than line management. In Value Added Auditing, the auditor constantly strives to improve the value of the audit to line management. We have proven through experience that keeping line managements needs and wishes at the forefront of audit planning, conduct, and reporting can greatly enhance the audit process. The challenge here is that we must first know what "added value" line management needs and expects. Once the auditor knows the needs and expectations, the audit can be designed to satisfy the customer.
What added value do audit customers want?
In the research that led to the development of the Value Added Auditing approach, one of the major challenges was getting past the "not enough value added" comment from line management. The "no value added" comment does not get to a solution of how to add value. The auditor must also often satisfy the sponsor of the audit; the sponsor may have different needs and wishes from line management.
Each organization is different, and an approach for adding value to the audit process requires adaptation based on the needs of the organization. However, our interviews with line managers from many organizations identified some very consistent comments regarding relative audit value. Although not all encompassing, these interviews indicated that line management often wants the following six areas of additional value from an audit:
Each of these six items will be discussed in detail later. So, if these items represent what line management wants, what does the audit sponsor want? Quite often, sponsors are interested in overall program compliance and/or effectiveness. As auditors, it is not unusual to find ourselves in a position where it is easier to satisfy the sponsor than line management. These two customers may want different things; often we are more comfortable with what the sponsor needs than the six items listed above.
How can we answer these challenges and improve audit value?
Each of the six items above needs to be addressed during audit planning to ensure value added audits. One of the key attributes of Value Added Auditing is for the auditors to strive for improved communication with line management. This communication must start early, with inquiries from the auditors regarding how the audit product could be of improved value. Our experience has been that line management will be somewhat skeptical the first few times that auditors ask how the audit could be improved to provide more value. The key is to make the effort to ask; then prove the sincerity of the auditor in fulfilling managements requests during the conduct of the audit. Remember this: Management responds to results, not promises. After the auditors demonstrate a higher level of value from a few audits, management will support and even stimulate efforts for further improvement.
So how can we best satisfy these six attributes management wants most? The following approaches have been proven to work.
1. Give whys, not just whats.
Consider the following discussion from one of our interviews with a senior manager:
It has been amazing how many senior managers consistently describe getting past the whats to the whys as the single biggest item that would improve the value of the audit. By whys, we are not suggesting that full blown root cause analysis be done for each item in an audit report. What is appropriate is simply going beyond an initial discrepant indication to the problem that allowed the discrepancy to happen. This really adds value because when a "what" is identified, the auditor is in the right place at the right time to fine the "why." It simply takes a little more effort to "pull the string" a bit more to get to the information that is truly useful to line management.
2. Conduct the audit openly; no secrets or hidden agendas.
Another comment we have heard from line management regards how some audits are conducted. The audit team develops a checklist, performs the audit, and finally has an exit and presents an audit report. In some organizations, the auditee is kept in the dark until the audit is nearly over. The checklist is not provided to the audited organization, so they do not know the criteria against which they are being measured. Value Added Auditing emphasizes open communication between the auditee and the auditor throughout the planning, conduct, and reporting phases of the audit. Auditors work to ensure effective communication and consistent expectations, both of work performance and of the audit process. Line management is kept informed as the audit progresses, to allow planning for effective corrective action and feedback to auditors as appropriate. The focus on effective communication has been demonstrated to improve audit results, as personnel understand the criteria used for evaluation and are less defensive about the audit process.
3. Put things in perspective; what is the impact of the condition?
No one likes to be "nit-picked" as part of an audit. Yet another consistent comment from line managers was that the results of many audits are a list of "nits" that have no real impact on effective work performance. We need to present discrepancies in a way that emphasizes their impact. If something is truly a "nit," we should present it that way. Line management can then dedicate resources for corrective action commensurate with the severity of the problem. An auditor taking time to determine the impact of the condition adds value to the audit results, but this determination does require more work for the auditor. In Value Added Auditing, discrepancies, findings, and recommendations are presented along with the impact of the condition on effective work performance. What if the discrepancy is left uncorrected? What will be the advantage of implementing this recommendation? These are questions that auditors should ask themselves during the audit, then provide the answers to line management, thereby increasing the value of the audit results.
4. Tell line management something new.
This can be a challenge, and it is important to keep in mind that confirming to line management something they know or suspect can be a very good audit product. However, during our interviews with line managers, many said that audits did not tell them anything they did not already know. We then challenged the managers with the question, "What information could the audit have provided that would have been of value?" Almost every manager, when asked this question, identified something; very few suggestions were outside the audit scope or would not have been appropriate for the auditor to consider. In Value Added Auditing, auditors should openly solicit opportunities to improve the value of the audit to line management. We, as auditors, should be asking, "What would you like to know?" and "How can this audit be of greater value?" This is part of open audit communication and is useful in targeting managements view of how value can be added to the audit.
5. Provide timely results.
Some audits seem to be like the "Energizer bunny" -- they just go on, and on, and on. Then when the audit is finally over, the report takes forever to be released. By the time the complete audit process is concluded, no one really cares about the results. To provide added value to the audit process, we as auditors can ask ourselves a few questions. When does line management want this audit completed? The answer is almost always as soon as possible (ASAP). When does line management want the results of the audit? ASAP. When does line management want the audit report? ASAP. In Value Added Auditing, auditors work in a disciplined and well planned manner to complete the audit and provide the report in a timely manner. Preparation becomes very important to this process, because the actual conduct of the audit will be accelerated. The results can be impressive. One client with whom we work has reduced the average audit duration by half, while improving the technical content and value of the audits. In the past, this same organization issued draft audit reports within 30 days of the audit exit, with final reports due 60 days from the exit. One manager at that company made an interesting observation. He said that if audits found anything of substance, either the problem would be fixed or the operation would have self-distracted within 60 days. Now a draft report is produced at the exit, with a final report (incorporating line management review) issued within seven days. In this organization, management now gets the information they need when they need it.
6. Make sure the audit helps improve the process.
This is probably the primary objective of Value Added Auditing. Each of the steps listed above will contribute to process improvement. However, our experience has shown that line managements recognition of added value results only when auditors demonstrate their commitment to process improvement through their actions, communication, and behavior during the audit. In J-E-T-S Value Added Auditing training, we emphasize the need to "sell" the audit process. In any organization, change is resisted until it is recognized as beneficial. It is therefore important to constantly reinforce the benefits of a Value Added Auditing approach. Auditors can demonstrate the benefits in the planning, conduct, and reporting for audits. Finally, line management will recognize the improved value of audits. Success leads to success; our experience has shown that as line management recognizes a greater value in audits, auditors will be provided support and opportunities to do even more.
Value Added Auditing is an approach to auditing that places the needs of the audit customer first. Through improved communication, a customer driven methodology, a balanced and fair method of problem identification, and timely reporting, the value of the audit in process improvement is enhanced. Some organizations look at auditing as a necessary evil; past audits in these organizations have done little to change that view. Value Added Auditing allows an approach that emphasizes the audit as a tool for improvement; it solicits input from line management and produces a product that line management can use. Audit results can then reflect the needs of the audit customer and provide additional value, enhancing the image of audits as a useful management tool. Value Added Auditing can also improve organizational morale through reduction of auditee defensiveness and recognition of auditors and line management as partners in process improvement and organizational effectiveness.
About the Author
John H. Johnson is an internationally recognized expert on auditing and is employed as a Principal Consultant of J-E-T-S, Inc., Quality Consultants. An ASQC Certified Quality Manager (CQM), Certified Quality Auditor (CQA), and RAB-certified Quality Systems Auditor. Mr. Johnson has been an active practitioner in the science and art of auditing for over 35 years. During the last 25 years, he has continued to actively participate in auditing while providing consulting and training services for some of the worlds leading companies trying to achieve measurable improvement in individual and organizational quality. He has authored and instructs many auditing-related training programs, including Value Added Auditing, Performance-Based Auditing and Surveillance, Performance-Based Assessment, Lead Auditor/Assessor Training, Investigating Employee Concerns and others. You can e-mail comments to firstname.lastname@example.org.
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