Internal audit function should improve organization’s processes and not only evaluating the effectiveness of internal controls. Million dollar question is that how to do that without reinventing the wheel. LEAN is one proven way/method/mentality to start working towards that direction.
Ok, so what is LEAN? Wikipedia tells the following:
- Lean, is a systematic method for waste minimization (“Muda”) within a manufacturing system without sacrificing productivity. Lean also takes into account waste created through overburden (“Muri”) and waste created through unevenness in workloads (“Mura”). Working from the perspective of the client who consumes a product or service, “value” is any action or process that a customer would be willing to pay for.”
This is usually the point, where most of the people in the audit gets freaked out as “I don’t really have any experience in manufacturing…”. Despite the fact, that Lean was originally developed for manufacturing environment, it has grown far away from the factories -environment only. Many of the LEAN techniques can be applied 100% to office environments as well.
For internal auditors, I would highly recommend of reading the “Lean Office” that takes very practical approach how to implement LEAN principles in the office environment
- You can buy it here for example: https://www.amazon.com/Lean-Office-Collected-Practices-IMPLEMENTATION/dp/1563273160
My personal experience with implementing LEAN can be summarized by the following: “Start small and make sure to show quick results“. This is somewhat contradictory to what you will read in many “Bibles” of LEAN where authors (of course who are more experienced than I am) pinpoint the importance in many cases to focus on big and long-term improvements.
Let me give you an example of this and how it massively failed in one of the companies I worked:
- Company wanted to re-design product design process as there were a lot of re-work and customization needed in the production line. Natural way to approach this was to conduct a Value Stream Mapping (VSM).
- We firstly mapped out the current process to visually show re-work, idle-time, re-work etc. in the process.
- Secondly, we selected the biggest problems in the process and do something called “Kaizen-Burst” to have a rapid solutions already ready during the event.
- Then we designed a future state of the product design process. We took into account the outcomes of Kaizen-Burst. In the paper total cycle time was cut down significantly. However there were “practical” issues to actually implement the future state (which would be the most important phase):
- Many of the improvement ideas had a huge price tag on them (to buy new software etc.).There are always some economic boundaries that needs to be taken into account
- We selected too big of process to be improved in one go. There were not enough resources to implement all the new ideas as people still had to deliver by using the old proces
Very good example that got people motivated to keep on applying LEAN techniques on the other hand was the following:
- We did similar VSM -event for monthly closing of books with the Finance team. The scope was well defined as the outputs of the process were known. Different teams (Accounting, FP&A, contollers, CFO) were brought to the same table. People saw also what other teams were doing and how their actions impacted others. With Kaizen-Bursts we identified few reports that were needed to be automated and developed. We were able to developed everything in-house. End-result was 40% reduction in total time it took to close the books. This was achieved already 2-3 months after the events. Finance team got really excited about this! It was quick and relatively easy exercise where results were shown almost immediately.
Starting LEAN journey could be as simple as making new standard work (e.g. standardize one part of your audit work program) or tidying up the office (this is 5S, by the way). Do whatever that shows quick results! That will get that buy-in from the people! Forget of concentrating to boost EBIT by 50% in one-go. Like with any learning, there’s a curve that cannot be magically skipped. Start with that book and get yourself familiar with LEAN!
More LEAN -oriented posts will follow! I’ll dig deeper into certain techniques that are usually in the audit world.