Auditing Organizational Performance

At its most basic level, this is a straightforward tool that requires management to identify a critical area of business activity and audit performance in that area, comparing it to previous performance levels and, ideally, benchmarking against known best practises and performance levels. The information gathered during these audits will then be used to identify areas of unsatisfactory performance and to enable the implementation of corrective measures.

The following business areas should be audited on a regular basis in any business, whether public, private, or not-for-profit: External Environment: well-established tools and techniques are available for scanning the external environment for information on issues, events, and trends that will have an impact on the organization’s strategies and performance capabilities. The quality of this information, as well as its interpretations, is critical, as it serves as the foundation for the subsequent strategic planning activity. Auditing processes, tools, and techniques, as well as the output quality, is critical for ensuring that the strategic planning process receives high-quality, relevant, and valid data.

Although this is a subset of the external environment analysis activity, it deserves its own mention. It is critical to monitor and/or benchmark competitor performance – variants of auditing. By definition, competitors are in the same business, and gaining an understanding of competitor performance in as many key areas as possible will benefit any organisation in any sector.

Strategic planning is frequently under-evaluated, owing to the fact that it is carried out at the senior executive levels of management, but it should be. Along with the data collection discussed previously, the managers’ level of expertise in strategic planning, the rationale and justification for the chosen strategies, the processes used to communicate the strategies throughout the organisation, the level of support and resources provided for implementation, and the performance of existing and previous strategies are all areas that should be audited to ensure that optimum performance is continuously achieved.

Separate from the strategy audit, the leadership quality should be monitored on a regular basis. A set of leadership competencies should be developed for all levels of the organisation, and leadership performance should be measured against them. Additionally, development activities should be based on these competencies and on eliminating or reducing identified weaknesses during the audit.

Culture: The existing culture of the organisation, which is comprised of beliefs, values, perceptions, and behaviour, should be audited and compared on a regular basis to the culture desired by, and the objective of, the organization’s leaders. The information gathered during these audits will be invaluable, particularly during times when the organisation is planning or undergoing significant change.

Financial: where, while a framework of management and financial accounting processes is typically in place, the effectiveness of these processes must be rigorously and regularly audited to ensure that budgeting and accounting activities are as productive as possible.

Suppliers: as a critical component of any organization’s activity and the origin of the supply chain, supplier performance, as well as the performance of those within the organisation who audit supplier performance, must be rigorously and regularly audited. Now recognised, alongside research and design and strategic planning, as a cornerstone of quality assurance, any weakness in supplier performance can have a detrimental effect on the organisation, sometimes irreversibly. Auditing ensures that performance targets are met.

Physical Resources: the quality and utilisation of physical resources such as raw materials, operational equipment, technological equipment and systems, furniture, fixtures, and buildings all require regular auditing to ensure that the most appropriate resources are purchased, installed, maintained, and utilised effectively.

Human Resources: this entails auditing the organization’s human resources, their deployment, their training and development, as well as the opportunities and channels for advancement available. At all levels, from operational to executive, human resource activity should be audited.

Equality encompasses diversity, discrimination, and equal opportunity, all of which are critical areas that, if not regularly audited to ensure that they are not only complying with legislative requirements but also positively contributing to the organization’s culture, will result in conflict, dissatisfaction, low morale, low motivation, and ultimately lower levels of performance.

Internal Customers: Often overlooked, the degree to which internal customers are satisfied is critical for the next department, individual, or team responsible for the next stage of production or service creation. The overwhelming evidence indicates that internal customer dissatisfaction, which results in breakdowns in communication and cooperation, is one of the primary causes of poor overall performance.

Distribution of the organization’s products and/or services is critical to its success. Auditing this process will ensure that logistics best practises are followed and that distribution activity contributes positively to marketing, sales, and customer service efforts in terms of financial costs and corporate identity.

External Customers: auditing external customer satisfaction levels is a critical activity that should be conducted on a regular basis. Customers here refer to all parties involved in the distribution chain, from suppliers to buyers and end users. The data gathered during these audits will ensure that the organisation is aware of and responsive to the needs of its most critical stakeholders, its external customers.

Relationships with Stakeholders: A stakeholder is any individual, team, or external organisation that has a legitimate interest in the organization’s performance. This may include, depending on the sector and organisation, employees, unions, parents, relatives, local or national media, local governments, emergency services, shareholders, financial institutions, funding bodies, governors, national or international governments, strategic partners, and, of course, a diverse array of external customers. Each of these relationships is critical in its own way and should be audited regularly to ensure they remain as healthy as possible.

Quality System: Although listed as the final area to be audited on a regular basis, this is an audit that should be conducted in addition to all of the other audits listed above. Whether an organisation has an externally certified quality assurance management system or an internal-only system, quality criteria should be established for each critical activity, event, stage, and process, from the initial stages of design and supply activity to the point where the product or service is in the hands of the final, end-user customer. Quality criteria that define the required level of quality, performance, and outputs are critical to an organization’s success. The quality system, including internal and external auditing processes, should be audited to ensure that it is functioning properly, that is, meeting the required quality standards and, of course, continuously improving.

Auditing effectively will result in a number of benefits for the organisation. The first group of benefits pertains to identifying obvious weaknesses or problems, such as identifying areas where immediate improvements could be made; identifying emerging trends that may indicate the need for corrective, defensive, or offensive action. The second group of benefits is more subtle and includes the following: identifying the actual situation, rather than what management or specialists perceive; increasing the pool of knowledge from which individuals and teams can learn; and ensuring that operational activity is supporting the strategic objectives as intended: Establishing a culture that expects performance to be audited and evaluated on a regular basis fosters a culture of continuous improvement.

Unless an organisation audits and evaluates its performance in all critical areas on a continuous basis, it will never know for certain where poor performance is occurring and will be unable to take corrective action because it is unaware of the problem or lacks sufficient information on which to base appropriate action. Regular, rigorous auditing will generate a steady stream of valuable information that management can use to make operational changes that will improve performance in critical areas. When applied across the organisation, this provides a stronger foundation for strategic objectives, increasing their likelihood of success.

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