What is an operational audit of the organisation?

An operational audit of an organisation consists in evaluating the organization of a company. But the scope of the organisation is so vast (strategy, governance, functions, leadership, business processes, tools and information systems...), and the objective of the audit so varied, that no two audits are the same.

Nevertheless, we have identified nine types of operational audit of an organisation. We have categorized according to two key criteria on the approach used and the skills required to conduct these audits.

These two criteria are:

the functional or organisational scope
the level of staff commitment required right from the audit phase.

Operational audit criteria 1: Functional or organisational scope

Is the scope of the organisation evaluation relatively small, such as a simple work process, a work tool or a particular production machine, and are the issues more related to people or technology? Or is it the whole company or one of its relatively large subgroups (subsidiary, production site...) or an integrated information system such as ERP covering many functions, with problems also related to the complexity of the organisation (human and technical ones still exist!)?

Depending on the size and complexity, expertise or generalist skills will be required.

Operational audit criteria 1: The involvement of staff

To simplify, there are two reasons for involving staff in the operational audit. The first is obvious because it is a matter of interacting with people who know the scope of analysis and can therefore provide useful information, both in identifying the causes of problems or levers for improvement and in identifying solutions. This is what we call the "rational" reason.

The second reason is less obvious and is often underestimated. The aim is to involve people to facilitate their adherence to the solutions that will be implemented to accelerate the deployment phase. This commitment allows more than just acceleration, as it is often a necessary condition for successful and sustainable implementation. This is what we call the "commitment" reason.

This involvement is often understood for the implementation phase but not for the operational audit phase. This is a major error, because it is precisely during the evaluation that the foundations of staff engagement are laid; it is because it has contributed to the evaluation, the identification of levers for improvement, and even the definition and acceptance of the transformation plan that staff will later accept more precise solutions and face the difficulties of change better.

The purpose of this document is not to detail the reasons for involving staff at the operational audit phase, but it is an important element in the approaches of operational audit of an organisation

Nine types of operational audits

The nine types of operational audits are shown in the figure below.

Organisational evaluations - all types

We will focus on opertaional audits that concern a relatively large or complex scope, which we consider here as "organisational".

This consideration does not detract from the other types because although their scope is narrower, they can also be very complicated. They may also require very high levels of expertise. And they are also often part of broader audits. We will also detail them in some detail.

"Non-organizational" operational audits

Machine – Workstation

It is the analysis of the performance of a machine, often a production machine, or a workstation held by an employee with the frequent objective of improving the productivity or quality of the process performed by the machine and/or the employee.

The analysis methods used generally combine observations, time measurements of the different operations and data analysis (actual production time, execution speed, quality, etc.). Workshops with employees and their managers can be conducted to identify causes of performance loss and also to define solutions.

This is a privileged field of application of the six-sigma and Lean methodologies; six-sigma for the power of the statistical tools that compose it to identify the most important causes of performance losses; Lean for the identification of value losses (muda).

Process

We include here work processes involving several actors to go beyond the previous scope of activities carried out by a machine or an individual alone.

The evaluation of a process can also, as before, include the analysis of certain activities (machines or workstations) but it will also include the analyses of:

the sequencing and coordination of activities and in particular waiting times (or stocks in the case of a production process) between activities,
the proper definition and understanding of roles and responsibilities between the different actors,
the provision of "inputs" (data, product, tool...) necessary to carry out the activities of others.

The methods can also be observations, measurements or data analysis, and will most often include workshops with the main actors acting throughout the process to map it as it exists and jointly identify problems and levers for improvement.

Here again, six sigma and Lean methodologies can be used; a frequently used tool is the Value Stream Map to describe the process and identify areas of value creation or loss.

Some processes are quite simple, but others can be very cross-functional and involve many different departments across the organisation. We also see that we are beginning to deal with more organisational issues (roles and responsibilities between actors). As a result, the functional and organisational scope is positioned in the middle of the matrix. Similarly, solutions can be a source of significant change for many people, hence the need to involve individuals not only for the "rational" reason but also for the "engagement" reason.

Leadership

Leadership is often defined as the ability of a leader to positively influence team members, or even beyond, to carry out activities that achieve the organisation's objectives with all the necessary motivation. It does not generally include systems for governance or management of the organisation's performance (dashboards, decision-making meetings, etc.).

The evaluation of Leadership can be done at different levels of the company, at the top as well as at intermediate levels of the organisation. It will be very different from previous audits because it will be based mainly on individual interviews with managers, specific tests (psychological profiles, leadership styles, etc.) and potentially surveys of the professional entourage of each targeted manager (employees, colleagues, superiors).

Although a significant number of people may be involved, the scope remains quite specific. We believe that although the involvement of individuals is important, since it is about themselves, the "commitment" required from the analysis phase remains quite average because the evaluation must provide a very important external perspective; on the other hand, the definition of solutions and the Leadership Development Program must demonstrate a very important part of "commitment".

Information Systems (IS)

Diagnostics concerning information systems are mainly carried out during the installation of a new system or a major evolution having a significant impact on working methods.

The objective of the Information System evaluation may vary between two extremes:

choose the IS or identify how to adapt it to the organisation's process
identify which elements of the process are modified by the implementation of the IS and how to modify them.

These two objectives often stem from the general approach to IS implementation, which can be oriented or "driven" by the IS or oriented or "driven" by the business lines.

In both cases, the evaluation consists mainly of a mapping of the current processes "without IS" and a gap analysis with the process "with IS"; depending on the approach or objectives, the solutions will be different.

We do not generally classify IS evaluation as a company evaluation. However, when the IS covers a large area, such as an ERP (Enterprise Resource Planning) that covers several functional fields (e.g. management control, sales forecasting, planning and production management) and the approach is very "business driven" until it becomes an integrated approach with a "transformational" approach, it becomes an operational audit, or at least part of it.

"Organisational" operational audits

We keep in our definition of organisational operational audits those who have a sufficiently broad or complex scope.

These five types of operational audit may appear to be similar or even have similar names. In addition, an evaluation may be a combination of several of these types. We differentiate them here, in a way that may seem artificial or caricatured, but which we hope will help you understand the differences that can exist.

More precisely categorize these five types of operational audit by adding the "Level of involvement" dimension, which represents the type of population involved in the evaluation, ranging from "operational" to senior management, as indicated below.

Organisational operational audit 1: Operational Excellence

Definition and objectives of the operational audit

The "Operational Excellence" operational audit is carried out as part of a project to significantly improve a significant part of an organisation. At Wevalgo we consider that the main objective of the evaluation is not only to identify WHAT to implement in the project phase (post-evaluation) but to launch this second phase with the maximum chances of success. This objective is generally broken down into four detailed objectives:

identify possible levers for improvement as well as the main causes of performance losses,
define the priorities or issues associated with these levers, or even estimate a complete "financial case": increase in turnover or quality, cost or time reduction.....,
define a more or less detailed improvement project plan,
obtain a sufficient level of consensus and commitment from the organisation's main stakeholders to move to the implementation phase.

Our experience at Wevalgo is that this last point is essential to get the implementation phase off to a good start and that it is the one that differentiates this type of evaluation most from the other four. These can all include the first three objectives to varying degrees, but not the last, or at least much less so.

Level of involvement

All levels of the company are involved:

managers to take into account their vision, understand the motivations or obstacles to change and make them adhere to the organisation evaluation and improvement plan they will have to carry out
operational staff or intermediate managers to fully understand the reality of operating modes, identify realistic solutions, show that their opinions are taken into account and facilitate their ownership of the improvement plan they will have to apply

The process is also made visible through important communication.

Approach and types of analyses carried out

The approach generally has the following characteristics:

a balance between a top-down and bottom-up approach; analyses, levers for improvement and draft solutions will come as much from working with managers as with operational staff
a high level of detail; this makes it possible to identify concrete, realistic levers for improvement that give confidence to the main actors in the transformation plan
an inductive and sampling approach: given the high level of detail with a broad scope, it is simply not possible to carry out exhaustive analyses; they will be chosen according to several factors such as listening to managers or preliminary data analysis
a large quantity of field analyses such as observations (of substations, production equipment, meetings, etc.) or group workshops (mapping and process criticism, etc.)
Other analyses are conducted with little or no difference from other audits:
financial analysis: the focus is rather on analysing fairly operational data such as costs, stocks, margins or turnover and on estimating the benefits of improvements in line with the organisation's management system
analysis of operational and documentary data: this is an important part of the evaluation, with a focus on recent data and frequently used documents (dashboards, checklists, etc.)
interviews with managers or key people

Organisational operational audit 2: Scoping

Definition and objectives of the operational audit

As its name suggests, scoping is an initial or preliminary organisation evaluation to help management define or specify a direction to take. Most of the time, this framework is carried out as part of an Operational Excellence improvement project; it will make it possible to specify the scope, priorities and level of challenge and expected efforts. However, it may also lead to the inclusion of solutions of the type included in "restructuring / Cost Killing".

Level of involvement

As this organisation evaluation is in fact a preliminary step, the level of commitment is much lower than in a complete "Operational Excellence" evaluation; nevertheless, there must remain a good level of involvement, even commitment at the management level because this evaluation gives structuring directions for the future.

Approach and types of analyses carried out

The approach generally has the following characteristics:

Short and inexpensive while being able to cover a potentially large area,
Be the right compromise between involving the main actors (who can be many in a large company) on qualitative criteria and a purely quantitative and top-down approach
The analyses will focus mainly on:
Analysis of operational and financial data, with some benchmarks
Guided interviews with key managers to identify opportunities for improvement and the level of maturity of operational practices compared to industry best practices
A balance between:
- Some in-depth analyses (observations, data analyses, interviews, workshops) on targeted areas
- The collection of a large number of operational notices such as more or less elaborate online surveys or questionnaires

Organisational operational audit 1: Standards audit

Definition and objectives of the operational audit

There are multiple forms of standards audit; we limit ourselves to organisational audits, which do not include, for example, financial and accounting audits.

A standards audit is an assessment of an organisation's practices against a pre-defined standard. This standard can be a recognized standard, such as ISO 9001 for quality, or an auditor's own standard. The auditor may be called by the organisation that wishes to be audited or imposed on it, such as a client who wishes to certify or qualify its subcontractor.

The main objective is therefore to identify deviations from this standard, either to be qualified or certified, or to define actions to be certified.

Level of involvement

Even if the stakes of a standards audit can sometimes be very high (e. g. ISO 9001 certification can lead to customer contracts), staff involvement is often lower than for an Operational Excellence evaluation/audit because:

the scope is often smaller so fewer people will be involved
the stakes are lower (often, not always) so management is less involved
the need for staff buy-in is often lower, as either the change is lower or it is partly imposed by the standard to be met

Approach and types of analyses carried out

The approach generally has the following characteristics:

an almost exclusively top-down and systematic approach in relation to the specific points of the standard to be verified
a significant level of detail on the precise scope of the standard

The analyses will focus mainly on:

interviews based on questionnaires developed according to the practices of the standard to be verified
review of working documents and operational data to measure deviations from the standard

Organisational operational audit 4: Due diligence

Definition and objectives of the operational audit

Due diligence is a special form of operational audit. We reserve this term for operational audits carried out as part of an investment project in a third-party company, and covering the operational/organizational aspect (and not just the financial aspect). For example a merger, and acquisition or an equity investment.

It is therefore never a evaluation carried out in one's own company, unless it is a preparation for a Due Diligence that is planned.

The main objective is to evaluate the level of performance of a company, the synergies or possible consolidations between the two parties in order to better value the company; this may also include estimates of the potential for improvement, the level of cultural or managerial compatibility, as well as scenarios for the sale of activities.

Level of involvement

Due Diligence" is very often, if not always, very confidential and therefore involves only a very limited number of people: the general management, and a few more operational people who usually sign a confidentiality agreement.

There is very little involvement in change management, given the confidentiality of this type of organisation evaluation.

Approach and types of analyses carried out

The approach and analyses carried out generally have the following characteristics:

“dark room" data and document analysis with high use of external benchmarks or comparisons with the company performing the audit
modelling of scenarios for restructuring or reorganisation, consolidation, disposal or cessation of activities, including workshops with authorized persons and management
targeted interviews with authorized persons to identify the level of operational practices or corporate culture

Organisational operational audit 5: Restructuring and Cost Killing

Definition and objectives

The main objective is to identify opportunities for cost reduction, which must generally be significant in order to meet a business imperative such as a loss of competitiveness or a significant deficit, or even to ensure the company's survival. The solutions sought are often quite radical: reorganisation, restructuring, downsizing, cessation or disposal of activities. These types of solutions are generally not very compatible with operational improvement solutions, at least initially. Nevertheless, these are possible, if not necessary, to successfully implement the envisaged reductions, but this is done in a very sudden manner.

Level of involvement

Given the type of objectives, which can have significant impacts on employees, the level of confidentiality is often very high, particularly to avoid risks with trade unions or employee representatives. The level of commitment is therefore generally low, the implementation of solutions is more of an imperative.

Approach and types of analyses carried out

The approach and analyses carried out are quite similar to those of a "Due Diligence", except that this is done by the company itself without a third party company (except for possible consultants):

- “dark room" data and document analysis with high use of external benchmarks

- modelling of restructuring or reorganisation scenarios, divestiture or cessation of activities

- targeted interviews to identify the level of operational practices compared to industry best practices, including workshops with authorized persons and management