20/6/2019

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 Operational audits and its contribution in business
excellence

1. Concept,
2. Objective,
3. Advantages,
4. Disadvantages,
5. Procedures of operational audit

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 Concept of Operational Audit

According to Institute of Internal Auditor -USA

Operational audits are systematic review of effectiveness, efficiency, and
economy of operation.
An independent evaluation of organizational activities.
Assessment of operational policies (SOPs) and the achievements related to
organizational objectives.
Report to related persons along with recommendations.

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 Objectives

To appraise the activities of any division, section, branch of a company in

meeting organizational objectives.

To understand the responsibilities and risks faced by the organizations.

To identify the opportunities of operational improvement and give insight of

results.

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 Advantages

Operational audits helps to make business more efficient and profitable in long
run.

Operational audits are supposed to provide new ideas.

It makes executive aware about problems which they otherwise were unable to
found.
Results can be used to motivate the employees.

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 Disadvantages

Time consuming and costly.

Due to engagements with auditors the production staff may found it difficult to
concentrate on their routine tasks.

Some times the changes are more difficult for employees to adopt.

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 Steps of Operational Audits

Preliminary preparation
Field Survey
Audit Program Development
Audit Execution
Reporting and Follow-up

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 Impact of Business Environment on
operational audit
• Internal Auditor can contribute more where management accept changes,
appreciate new ideas, management pay attention to those issues which may
have impact on operational impact.

• Identify the operational audit opportunities and the potential resistance/threats

associated with that business area.

• Construct a value added plan which can be shown to management.

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 Different Audit Dynamics

Risk Based Operational Audits

Identify operational risks, access the likelihood of risk crystallization and existing controls.

Process Oriented Operational Audit

Document the business process, use various tools to identity issues and improvement.

Performance Driven Operational Audit

a. Explain the bench marking concept to an operation

b. Perform comparative analysis benchmarking measurement criterion and indicators.
c. Summarize bench marking result.

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 How to gauge risks

Alpha= The risk stated in terms of probability such as 0.05 or 5% which means
alpha=0.05 correspondence to 95% confidence level.
Beta= The probability of having wrong results . It uses to calculate the
systematic risks.
R squared= helps to calculate the affect price change of item X with the bench
mark set by the organization.
Standard deviation
Sharp ratio= helps to analyze the return with its respective risks.

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 Various operational excellence tools
ISOs

CMMI= The Capability Maturity Model Integration, or CMMI, is a process model

that provides a clear definition of what an organization should do to promote
behaviors that lead to improved performance.

So many tools but are they applicable in our corporate culture.

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 Continuous monitoring.

Continuous audit of high risks activities.

Data analysis software applications

RFIDs for operational excellence.

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 Ratio Frequency Identification

RFIDs are very beneficial for retail industry.

RFID’s implementation and working methodology

RFID comprises on tag, reader, antenna and computer

Proctor & Gamble identified that RFIDs helps them to reduce 400 million USD.

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 Radio Frequency Identification

How the RFIDs are better than bar code scanning.

RFIDs can capture multiple information at the same time whereas bar codes system will
scan one by one.

RFIDs can capture information even from the rough surface whereas the Bar Code
system needs a clean and clear surface.

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 In continuance of previous slide

How the stuff works:-

In manufacturing concerns where wages paid on piece rate basis and specially where
units are small and a lot of time required to count; RFIDs are the best solution.I
garment.docx
At every work station where one process completes a machine needs to be installed for
scanning of pre programmed card.
Normally two cards are used one for normal work and second card for rework, if
required.
Scan result will be captured and uploaded into system.

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 In continuance of previous slides

Outcomes of RFIDs

1. Exact calculation of work in process

2. Helps to accurately calculate wages based on piece rate basis
3. Helps in identification and control of line losses
4. It makes possible to calculate SMVs ( standard value per minutes) in textile
industry.
5. Variable Labor cost overhead calculations can be reliable measure.

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 Practical examples & Issues

Lobbying of previous employees and hurdle in information sharing. Specially pole

industry.

When frauds, mistakes uncovered due to operational audits , how to handle issues.

RFIDs practical examples and post implementation issues.

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 Last slide

Thank you
Contact Detail 03234748040
Email ID muhammadali@accountant.com

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