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Management Resource Library

Considering the Operations Audit

Do the organizational problems (both in number and severity) of your clients seem to be developing at an accelerating pace as they attempt to cope with growth, competition, information needs, tax and regulatory requirements? It is increasingly apparent that a well-managed organizational structure and procedural mechanism is no longer the luxury of the larger organization but is rapidly becoming a necessity for organizations of all sizes. We can assist our clients in their search for increased efficiency and effectiveness in planning and controlling their operations by performing an operational audit to assess the current status of their operations and offer recommendations for operational improvement. The operational audit can be broad as is considered appropriate (for the operational audit itself must pass a cost/benefit evaluation by management prior to its initiation), with general or detailed coverage in such areas as organizational philosophy, structure, objectives and functional reviews in finance, accounting, marketing, production, information systems, personnel, etc.

Since our clientele are likely to be increasingly receptive to the idea of such studies, we practitioners should understand some of the benefits and limitations of the operational audit and also be cognizant of the role our clients should play for the operational audit process to be effective.

Operational Audits Can:

  • Provide an independent and objective appraisal of the current strengths and weaknesses of the organization.
  • Stimulate constructive thinking by internal personnel who, while working with the independent auditor or reviewer, are forced to analyze their positions, procedures and environment from a different perspective.
  • Sometimes provide reassurance to management regarding the overall performance of the organization. It can be comforting to know, for instance, that although areas for improvement do exist, the general status of the organization is relatively healthy and consistent with management’s evaluation of the state of affairs prior to the operational audit.
  • Provide insight for management to better understand the “wholeness” of the organization and the interwoven relationships of the various functional areas. (Helps them to see the forest made up of the trees.)
  • Highlight areas of inefficiency and ineffectiveness and provide recommendations for appropriate remedial measures. (Lets management deal with specifics for improving the organization as opposed to discussing broad generalities.)

Operational Audits Will Not:

  • Prove to be a panacea or cure-all for the entire multitude of organizational problems.
  • Generally have an overnight dramatic effect on overall organizational performance, as any recommendations deemed appropriate will need adequate time for implementation.
  • Reduce the necessity for the continued internal appraisal of operations of the organization, for this is an ongoing responsibility of management.

What Our Clients Should Do:

  • Advise organization personnel of the intent of the operational audit and insure their cooperation with the independent auditor or reviewer.
  • Develop and maintain an organizational atmosphere that fosters improvement and adaptability.
  • Perform an adequate benefit/cost analysis for each recommendation generated from the operational audit to ensure that each suggestion is both warranted and economically sound. (Remember to consider more than just monetary benefits and costs, as psychological, physiological, environmental and other factors are also important.)
  • Set up the mechanism for insuring that appropriate recommendations generated from the operational audit are enacted. This entails: developing implementation priorities for the recommendations, assigning responsibility for their enactment and monitoring the success or failing of their implementation.

The operational audit, if properly understood, can be of significant assistance to our clients in achieving increased organizational efficiency and effectiveness as well as being a lucrative and professionally rewarding service area for us practitioners.