audit value factor: consulting tools for auditors tools for...• non-value added activity -...

© 2015 SRI International

Audit Value Factor: Consulting Tools for Auditors Dan Samson, CAE SRI International

San Francisco IIA June 15, 2016


SRI- Who We Are A world-leading independent R&D organization

SRIheadquarters,MenloPark,CA

SRIPrinceton,NJ

SRI Washington, D.C. SRI State College, Pennsylvania SRI Tokyo, Japan SRI Harrisonburg, Virginia SRI St. Petersburg, Florida

■  Founded by Stanford in 1946

◆  Based in Silicon Valley

◆  Non-profit corporation

■  Independent in 1970

■  2,100 staff members

◆  800 with advanced degrees

◆  More than 20 locations worldwide

■  Consolidated 2015 revenue ~$520M


SRI - Our Impact on Society

Technicalexper-seforDHS

CyberSecurityR&DCenter

Assessexposuretoradia-on

Radia?onDetec?on

RemovalofCO2fromatmosphere

CarbonCapture

FirstVPA

Siri

Preclinicaltherapeu-csforheart,lung,andblood

Noveldrugs Real-?meComputerVisionSystems

Acadia®II:theleadingvideoprocessor

Surface-climbingrobots

Robo?cs

SuperflexInc.

HelpingPeopleAchieveTheirPhysicalPoten-al AreciboObservatory


InternalandExternalCustomers

InternalAudit

Execu-vesandAudit

CommiJee

What is the common language among these stakeholders?

?


How much value did you provide customers last year?

Last month?

Last week?

How do you define Value?


Defining Value

Ø  Customer Value Definition

Critical for any Internal Audit Organization

Ø  Benefits and Costs are determined by the customer (not by us!)

Ø  Every engagement should have a value proposition – even those focused on compliance. Score and rank proposed audits by Value Factor.

6

•  !Value!Factor!=!!!!

Perceived!Customer!Benefits!

!!!Perceived!Customer!Costs!


Connecting Work to Value

•  When performing enterprise risk assessments, calculate the Audit Value Factor (AVF) for potential projects.

•  Traditional considerations: likelihood, impact, velocity of risk.

•  Additional consideration: AVF.

•  Rank audit universe, not only by risk, but also AVF.


How?

•  Collaborate with customers on universe of possible projects and solicit their priorities based on value.

•  Do advanced work via data analytics, benchmarking, initial diagnostics, and best practice research.

•  Guide customer on ways projects could generate benefits.

−  What are potential direct cost savings (process efficiencies, resource allocation, sourcing options, waste, etc.)?

−  What are potential ways to avoid cost (process inefficiency, fines / penalties, etc.)?

−  What are the potential revenue recoveries (royalties / licensing, warranties, overpayments, improper reimbursements, etc.)?

•  Collaborate with customers to understand potential costs – such as administrative time, system investments, etc.

•  Evaluate projects with highest Audit Value Factor for inclusion in Audit Plan.


Example

•  Suppose process X is supported by a $1.5 million budget.

•  Perceived benefits:

−  10% reduction in non-value added activity (benefit), translates to $150K in benefit, which can be reassigned to backlog needs, reallocated to other processes, or eliminated.

−  Perpetual benefit of $1.5 million ($150K/.10)

•  Perceived costs:

−  Process diagnostic administrative time of 16 hours x 3 individuals x $50/hour = $2,400. This is a one time cost.

−  Implementation costs of $25,000. This is a one time cost.

•  Audit Value Factor = ~55 ($1,500,000 / $27,400)


Always Monetize your Recommendations


Adding Value: Assessing Processes for Efficiency


Customer Value Stream

•  Customer = external, paying Customer

•  Value (usefulness, worth, utility) is translatable into something that Customers will gladly pay money for:

Products&FeaturesServiceAKributesQualityLevelsDeliveryRateConvenience

ResponseTimePricePointIntegrityandCommitmentReputa?on


Value-Added Terms

•  Value Added Activity

−  Done right the first time

−  Transforms or shapes the product or service to be delivered

−  Adds value to the external customer

•  Non-Value Added Activity - Unplanned (Pure Waste)

−  Those activities that take time or resources, but do not add to the customer requirements (goal = eliminate these!)

•  Non-Value Added Activity – Planned (Planned Waste)

−  Those activities that do not add to the customer requirements, but must be done for the business to operate (goal = reduce these!)


Seven Sources of Waste

•  Correction

•  Overproduction

•  Material movement

•  Motion

•  Waiting

•  Inventory

•  Processing


Waste (Product Development)

•  Correction – miscommunication, coding errors

•  Over Production – designing but not making, never gets to launch, no standardization, designing in features that customers don’t want

•  Material Movement – data hand-off

•  Motion – unnecessary analysis, testing, people involved, coordination of meetings, etc.

•  Waiting – for other elements/functions/disciplines

•  Inventory – design data not organized/not fully utilized

•  Processing – redesign/unfocused activities; poorly run team meetings


Waste (Administration)

•  Correction – incorrect data entry

•  Over Production – preparing reports, not acted upon

•  Material movement – extra steps in the process; distance traveled

•  Motion – unnecessary tasks

•  Waiting – processing monthly, not as the work comes in (closings)

•  Inventory – transactions not processed

•  Processing – multiple signoffs, reports, etc.


Value Add Analysis

Benefits:

•  Enables identification of waste and planned waste for elimination and further diagnostics

•  Leans processes

•  Facilitates knowledge sharing among stakeholders

•  Prioritizes improvement opportunities

•  Saves your company actual $$$!

•  Improves your external customer’s satisfaction

•  Can enable generation of revenue


Approach

•  Identify defined process to assess. You will need:

−  Clear beginning and ending points

−  Know all stakeholders for process

−  Understand systems, etc. involved or have stakeholder with knowledge

•  Review existing workflows or create new ones.

•  Validate and “level set” process owners based on existing workflows. Gain baseline agreement for discussion.

−  Avoid assessing multiple or related workflows at one time.


Approach continued

•  Facilitate discussion with process owners

−  Set Ground Rules

−  Map the steps in the workflow as if “you were the object”

•  Document workflow step description and responsibility

•  Identify the elapsed time since the prior step (i.e. step one will have a zero elapsed time from prior step)

•  Identify the actual time each step takes to complete in a common unit of measure (usually minutes)


Approach continued

•  Identify the amount of “dead time” associated with the step

•  Through discussion with stakeholders determine whether the step is value added or not

−  Done right the first time

−  Transforms or shapes the product or service to be delivered

−  Adds value to the external customer

•  Determine whether non-value added activities are pure waste or planned waste


Example – Value Add Analysis Utility Business •  New customer connections

ServicetakesCustomer

Infoandopensaccount

CustomercallsServiceCenterandrequests

Service.

ServiceRep.Supervisor

reviewsinputforaccuracy.

Newcustomerinfoloadedto

NewConnec?onsSystemovernight.

NewConnec?onsDept.downloads

NewConnectDailyReport

Verifiescustomerapplica?oncomplete

andforwardstoschedulerforappointment.

Start

End

OK?

Rework No

Yes

SchedulercontactsCustomerforAppointment.

Schedulerestablishesworkorderandforwards

tofieldoffice.

FieldofficeVerifiescustomerAddressandinfo

complete

Staffswork

forconnec?on.

Customerconnected


Which Steps are Value-Added?

ServicetakesCustomer

Infoandopensaccount

CustomercallsServiceCenterandrequests

Service.

ServiceRep.Supervisor

reviewsinputforaccuracy.

Newcustomerinfoloadedto

NewConnec?onsSystemovernight.

NewConnec?onsDept.downloads

NewConnectDailyReport

Verifiescustomerapplica?oncomplete

andforwardstoschedulerforappointment.

Start

End

OK?

Rework No

Yes

SchedulercontactsCustomerforAppointment.

Schedulerestablishesworkorderandforwards

tofieldoffice.

Fieldofficeverifiescustomeraddressandinfo

complete

Staffswork

forconnec?on.

Customerconnected


Calculating Waste and Planned Waste Step Description Responsible

PersonElapsed

TimeActual Time

(minutes)

Dead Time Value Add

Non-Value Add

1 Customer calls Service Center and requests service.

Customer, Call Center

0 0 0 0 0

2 Service takes Customerinfo and opens account

Call Center Rep 0 20 1 20 0

3 Service Rep.Supervisor reviews input for accuracy.

Supervisor 21 20 40 0 20

4 Rework Call Center Rep 60 90 40 0 905 New customer info loaded to

New Connections System overnight.Supervisor 130 30 480 0 30

6 New Connections Dept. downloads New Connect Daily Report

New Connects 510 30 60 0 30

7 Verifies customer application complete and forwards to scheduler for appointment.

New Connects 90 60 60 0 60Step Description Responsible Person

Elapsed Time

Actual Time

(minutes)

Dead Time Value Add

Non-Value Add

8 Scheduler contacts Customer for Appointment.

Scheduler 120 20 20 20 0

9 Scheduler establishes work order and forwards to field office.

Scheduler 40 60 120 0 60

10 Field office verifies customer address and info complete

Field Office 180 60 2880 0 60

11 Staffs work for connection. Field Office 2940 120 1440 0 12012 Customer connected Field Office 1560 60 120 60 0

Total 5261 100 470


Prioritize Waste Reduction

-140

-120

-100

-80

-60

-40

-20

0

20

40

60

80

1 2 3 4 5 6 7 8 9 10 11 12

Val

ue A

dded

Non

-Val

ue A

dded

Value AddedPure WastePlanned WasteDead Time

GiventhedatacollectedfromtheValueAddAnalysis,whichmajorstepswouldyoupriori?zeforfurtherdiagnos?cs/analysis?


Calculate the Value of Waste Reductions

Step #4 “Rework”

−  130 minutes of time dedicated to rework.

−  What are the root causes and conditions associated with the rework? Eliminate these root causes.

−  A 50% reduction in time associated with rework will save $$$

•  65 minutes x $50/hour = $54 x multiple connections!

World-classorganiza?onshaveprocesseswith10%-30%VA


How we work is our most important innovation


Questions?

Let’s Connect!

https://www.linkedin.com/in/danielasamson


Headquarters333RavenswoodAvenueMenloPark,CA94025+1.650.859.2000Addi?onalU.S.andinterna?onalloca?onswww.sri.com

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