12 Ways To Add Value to Audits
by J.P. Russell
Much has been said and done in the last couple of years related to organizational improvement and value added auditing:
- The ISO 9001 baseline standard requires continual improvement.
- The Six Sigma folks have reinvented continuous (never ending) improvement and reinvigorated the quality community.
- Lean practices help us refocus our attention on improving efficiency.
- The new ISO 19011 quality and environmental auditing standard includes an example audit objective of evaluating effectiveness of the management system and identifying areas for potential improvement.
- Some people believe system-process auditing is needed to comply with the new Sarbanes-Oxley legislation1 designed to prevent another Enron or Global Crossing debacle.
- Others say we should be conducting value added audits anyway, but many are not sure exactly what these are.
In doing all this, are we straying from the primary contribution of system and process auditing? Are we going beyond the training and ability of most system and process auditors? Can system-process auditing really contribute to continual improvement?
My first assumption for this article is that continual improvement is desirable. Organizations desire to remain competitive and improve their effectiveness and efficiency. Yet continual improvement seems to elude us or may be difficult to sustain from year to year or manager to manager.
One of the contributing factors for the recurring difficulties is that very few top managers have firsthand knowledge of the quality profession or continual improvement and have received minimal quality management training.
Even now, at the start of the 21st century, quality management principles are rarely taught to university business students. Nor are there programs to integrate quality into preuniversity curricula. The same is true for other specialty fields such as safety, health and environment.
In general, top managers need additional information to make informed decisions regarding areas in which they have very little background or experience. One of the primary management tools for collecting unbiased information is auditing. Perhaps auditing can help support management in its quest to achieve and sustain continual improvement. Perhaps auditing is the missing link needed to monitor, promote and sustain improvement programs.
Can auditing really help overcome the following most common difficulties in sustaining ongoing improvement?
- Lack of management commitment.
- Failure to change a culture of shooting the messenger.
- Mind-set that conformance to specifications and procedures is sufficient.
- Mind-set that quality costs instead of creating wealth.
- Failure to prevent recurrence of problems.
- Failure to find inputs to continually challenge the organization to meet higher competitive standards.
- Failure to involve people in the continual improvement process.
The 12 audit action items, summarized in Table l (p. 82), will result in an audit program strategy that overcomes each of these difficulties and promotes and sustains continual improvement.
Lack of management commitment is the number one cause of quality improvement program failures. It is both that simple and that complex.
Lack of management commitment can come about for several reasons. It may be evident at the onset of a quality improvement program when management isn’t involved and hasn’t provided sufficient resources for the program’s implementation and maintenance. Audit program services may be able to bring to the surface issues concerning inadequacy of resources in hopes management will be able to resolve the problem.
AUDIT ACTION ITEM 1.
Monitor implementation of continual improvement projects and programs to report progress and ensure adequacy of resources.
Lack of management commitment can also evolve over time through a series of poor decisions and actions. Top management must realize that as soon as it makes a commitment to a quality management system and continual improvement, its sincerity will be tested by customers, suppliers and employees to determine the level of its commitment to the change.
The informal and formal testing or verification of the system is an absolute. The only unknowns are when and how frequently. Management must be prepared to respond to customer, supplier and employee testing to reaffirm its commitment. An active continual improvement audit program could help show management’s commitment.
AUDIT ACTION ITEM 2.
Monitor the conformance to quality management system program requirements and report to management.
Tests of management commitment will also come during times of high stress or crisis. During a business crisis it may be necessary to temporarily waive quality criteria, but management should carefully weigh the consequences and be sure employees don’t misinterpret decisions to bypass controls.
Top management should be aware quality has a virtuous characteristic about it. To some, any deviation from a set of quality rules that ensures product and service quality would be considered a lack of management commitment. Although management cannot always avoid this perception, it should be aware that quality can be a sensitive subject, similar to the environment. Most employees will understand the need to respond to a business crisis as long as it is atypical.
Audits can point out when rules
are not being followed to highlight the potential consequences. As a
follow-up, management must change the process to avoid or be better prepared for future crisis situations. Management must be prepared to make short-term compromises for the long-term good of the organization.
Management must also be aware of all the consequences of a decision to implement a quality improvement program and seek buy-in by middle managers. Everyone should buy into the program, but middle managers can derail an improvement program if they believe their performance will be judged the same way it was before the program began. Management incentives and objectives should be aligned with the continual improvement program. The same is true of the audit program. Audit results should not be used to reprimand employees but to improve the organization.
Implementation of a quality improvement program should not be a leap of faith. Expected results should be stipulated. When it comes to forecasting results, a team may be necessary to sort out the initiative, how it will be realized in the business environment and how to word it in monetary terms. Management should know what benefits the organization can expect from the continual improvement program.
Monitoring results will help keep the program on track and ensure the ongoing commitment of management and employees. Continual improvement auditing2 services could be used to verify continual improvement programs and projects are benefiting the organization.
AUDIT ACTION ITEM 3.
Audit improvement projects to verify claimed benefits and ensure they add value to the organization.
Part of the quality process is to identify and fix problems. This always seems to work well at first, but after the first round of problem solving and management anguish, there is a tendency to revert to status quo.
It is natural for people to want the business to run smoothly, but this reversion to the status quo has resulted in problem avoidance or failure to admit problems exist. When a manager of an area appears to have too many problems, top management may have the individual terminated or replaced for being incompetent.
In some cases, employees (customers and suppliers, too) who report problems are discredited by being judged as nonteam players, disgruntled about work or always protesting or pushing their personal agendas or by being labeled complainers or whiners. There is not a positive term in any English dictionary to describe someone providing feedback for the good of the organization. I would like to coin the word “vancour” for a person who provides feedback for the sake of improvement and without malice (see “A New Word”).
In most business cultures it is important for management to maintain an image of a ship operating in smooth waters. But this should not be accomplished at the expense of missed opportunities for organizations to improve or remain competitive.
AUDIT ACTION ITEM 4.
Listen and be the messenger to convey problems and opportunities to top management so the organization will learn and improve.
Auditors can operate independently of organization politics. Quality improve?- ment programs are ineffective when issues are hidden and unresolved. Listening to customers, suppliers, employees and other interested parties and being the messenger to top management can be a key contribution of the audit program.
Reliance on documentation cannot become a substitute for quality improvement. Conformance to a set of requirements cannot guarantee quality or continual improvement. Sets of requirements such as ISO 9001, TS 16949, ISO 9004 and the Baldrige criteria don’t seem to be the magic key to continual improvement. Overempha-sis on documentation and records can waste resources and not achieve customer satisfaction.
The notion that quality means having procedures and inspection records stems from a mind-set from more than 50 years ago. Governments required high risk industries, such as food and drug, to establish and maintain procedures and records as a means of control and subsequent verification.
The prevailing image of quality for the general public remains its inspection and recordkeeping aspects. Yet in the late ‘70s and early ‘80s, the industrialized world started to realize quality through procedures and inspection was too expensive and inefficient compared to other techniques and strategies. Unfortunately, quality has not been able to rid itself of the inspect and control label.
Because people relate to tangibles such as a quality manual, it is easy for management and employees to slip into a comfort zone of having procedures and records as evidence of quality.
Auditing to verify conformance or compliance is important to management, but the audit program could also provide information about organizational performance. This is especially true of first- and second-party audit programs. Even third-party audit programs seek ways to add value beyond the documented procedure. Many auditors are switching to process auditing techniques to identify ineffectiveness and inefficiencies and to add value.
AUDIT ACTION ITEM 5.
Promote process performance auditing as well as conformance.
A sure sign of “quality is compliance” thinking is when employees defend actions based on documentation. Some typical responses when a problem surfaces are:
- All the procedures were followed.
- We have the records to prove it.
- That method has always worked for us in the past.
- Our customer service is the best because we are 100% compliant with our procedures.
This mind-set is self-indulgent and avoids having to improve.
AUDIT ACTION ITEM 6.
Carefully scrutinize audit finding corrective actions that make the system-process more complex.
Overcoming the thinking that quality is procedures and records is a major hurdle for organizations with mature quality systems based on regulatory compliance. Adherence to a procedure is a wonderful tool, but when overemphasized this practice can inhibit quality and continual improvement.
In some cases, managers and employees prefer not to make changes to improve a process to avoid the risk of receiving a nonconformity or noncompliance as a result of the procedure or process change.
Another document and records
pitfall occurs when organizations establish new documented quality management systems. Before planning and documenting their processes, organizations were disorganized. After documenting their quality management systems, staff members become pleased with their handiwork and how they were able to plan their operations. They consider themselves to be organized.
But pride and confidence can lead to overconfidence and arrogance. During this ego stage, new problems that crop up are rationalized as already addressed or designed into the existing system. An active continual improvement audit program can keep the organization vigilant.
Everyone must remember documents and records are only tools to be used (the means) to achieve quality, continual improvement and customer satisfaction—not an end in themselves.
Another reason for quality program failures is management believing quality costs and detracts from the real goals of profitability or coming in under budget.
When the quality program is treated as a burden or an extra cost of doing business, it is constantly targeted as a source of cost reduction. Yet modern concepts show quality improvement is a necessary strategy to stay competitive and gain wealth. Auditing programs can contribute to that strategy.
AUDIT ACTION ITEM 7.
Link findings with economic pain to the organization.
Quality strategies have improved both parts of the income statement by opening new marketing opportunities to increase revenue and improving competitiveness by lowering costs.
Audit findings can be linked to organization cost, missed opportunities or avoidance of risk.3
Audits (system or process) can evaluate effectiveness and efficiency of processes to identify opportunities to improve.
This can be another source of input to continual improvement. Eliminating the causes of problems and improving efficiency contribute to customer loyalty, satisfaction and goodwill.
AUDIT ACTION ITEM 8.
Audit process performance to identify inefficiency and processes that need to be optimized.
If continual improvement programs are viewed as an extra cost or luxury, they will always be on again and off again. Process auditing can ensure ongoing inputs into the continual improvement program are sustained. Auditing is the most effective management tool we have to ensure programs are sustained. If it works for safety and environmental programs, why not for continual improvement?
Continual improvement programs are both optimization and creation tools for organizations. Some cultures are strong in creating and innovating and improve by constant change. Others are strong in optimizing or evolving an existing system or process.
One of the cornerstones of continuous improvement programs is elimination of the causes of problems. If the problem causes are eliminated, the problems will not recur. This is another simple and effective quality concept.
However, many organizations complain their organizations are not improving as a result of the quality program actions. These complaints may demonstrate a lack of understanding of the process for eliminating causes of problems.
An audit program can be a prime offender in generating lists of problems whose causes are never eliminated. Audit program managers must take a strong position that systemic problems must be analyzed and causes identified and eliminated. This will ensure improvement actions are effective and add value to the organization.
AUDIT ACTION ITEM 9.
Ensure causes of findings are identified and eliminated.
It is imperative people be trained in the corrective action process and understand the underlying (or fundamental) cause of an action or problem. Finding the underlying or root cause is a difficult task that must be monitored by management.
It is too easy for people to react to problems as if they were a list of minor defects that must be fixed. The thinking is that the sooner the listed items are addressed, the sooner people can get back to work. Some organizational cultures recognize those able to work through problem lists as excellent expeditors and reward them accordingly. The result is no improvement and the items on the list recurring because the system was not changed. In this situation, organizations are not even learning from their mistakes.
AUDIT ACTION ITEM 10.
Monitor the corrective action program to ensure there is added value.
Management is interested in actions that make the organization more valuable, more efficient and more competitive. It is not enough to follow the corrective action procedure, complete the required records and implement the action plan. Actions must add value to the organization.
It is far too easy to accept superficial corrective actions when there is pressure to fix things and move on. When organizations reward expeditors too much, there will be less problem solving and actual improvement. The audit program can evaluate continual improvement actions and report their actual contribution to the organization.
Another common reason continual improvement programs are not ongoing is they run out of gas. Everyone is so interested in the latest successful project that the pipeline is allowed to run dry. There must be a constant input of ideas. If people are running out of ideas, change the people or find other new sources.
AUDIT ACTION ITEM 11.
Provide assessment services against mature standards, award criteria and best practices, and benchmark against best in class organizations.
New ideas and innovation are evolving, and many are rooted in the audit program (assessments against higher level standards such as ISO 9004, the continual improvement quality management standard) or comparison against quality award criteria (the Baldrige criteria, for example). Benchmarking and best practices information is readily available for evaluation and consideration.
During audits, an auditor may observe a best practice. If so, the best practice should be recorded and shared with other members of the organization.
What is incredible about best practices is people say they don’t have time to implement them or rationalize reasons they will not work. But implementation of a best practice is just as important as other actions to improve the organization.
When the quality program is designed, implemented, maintained and improved by a select group, it risks failure and ineffectiveness when a person or group changes jobs or leaves the organization. An entire quality management system can collapse when one person leaves. Involving more people results in a broader base and healthier program.
AUDIT ACTION ITEM 12.
Develop and conduct surveys4 to test management policy and program deployment.
In general, people are more satisfied with their jobs when they have some input into planning and solving problems linked to their work environment. When asked, employees will share their opinions and insights regarding situations top management may not have considered. When work or task results are linked to quality objectives, employees can better see how they are contributing to the organization, which increases their self-worth.
The 12 audit action items in this article can be implemented to support organization objectives for continual improvement. The system-process auditing function has an opportunity to provide a value added service beyond traditional self-imposed limitations.
But you will need audit team members who have the appropriate training, education and experience. Audit team competencies may include auditing conventions, accounting practices, process knowledge or experience, and use of quality tools and concepts.
REFERENCES AND NOTES
- Sarbanes-Oxley Act of 2002 requires top management to certify the appropriateness of financial statements it releases.
- J.P. Russell, Continual Improvement Assess-ment, ASQ Quality Press, 2004.
- J.P. Russell and Terry Regel, After the Quality Audit, second edition, ASQ Quality Press, 2000.
- Russell, Continual Improvement Assessment, see reference 3.
J.P. RUSSELL is an independent consultant at www.JP-Russell.com and operations director for Quality WBT Center for Education at www.QualityWBT.com. He is a Fellow of ASQ, secretary of the American National Standards Institute/ASQ Z1 committee, member of the U.S. technical advisory group for ISO Technical Committee 176 and secretary of Technical Group 9001/4. Russell is an ASQ certified quality auditor and author of several ASQ Quality Press books, including Continual Improvement Assessment, Process Auditing Techniques, Internal Auditing Basics and the ISO Lesson Guide 2000.