In times of fiscal distress many companies begin to cut expenses in a draconian fashion, 10% cut on all expenses. While this may yield immediate results, this can hamper growth in the long-term. This methodology of cutting expenses may negatively impact the inherent competitive advantages of an organization. Expense reductions need to be more strategic and precise. Instituting process and expense audits are a key piece to finding the right reductions and streamlining processes. The following are key components of the process/expense audit.
- Key Stakeholder Buy-In
A process or expense audit requires some level of vulnerability from senior leadership as well as the process stewards. Intuitively people are frightened with audits. When people think of audits they think of an “accounting audit”. An accounting audit is an independent examination of financial records to determine if they comply with generally accepted accounting principles. People want to avoid “findings” in an audit because it can make an organization look bad. A process/expense audit has a different aim. While this audit does review policies to determine if practices are in compliance the primary purpose is to implement “continuous improvement”. The buy-in of key individuals is a foundational step toward that end.
- The Team
The team assembled to perform the audit should contain a mix of individuals to be effective. First there is the subject matter expert (SME). Typically, this is the person with the most intimate knowledge of the process. This person is responsible for assisting in documenting the process, supplying data on transactions and providing insights into transactional anomalies. The second member of the team would be an Analyst(s). The Analyst helps to crunch numbers, visualize data and provide insight. Finally, there is the Project Manager. This person’s role is to provide a vision of the end deliverable, guide the reviews of the Analyst and probe the SME to deliver key insights and quality recommendations.
- The Data & Insights
The data analyzed and the insights derived are inextricably linked. Scarce data can only lead to high-level generic recommendations for improvement. In order to effectively audit a process or expenses quality data is needed. This audit would need to answer questions like: How much do we spend on this process? How long does it take? What are the steps from start to finish? Who is involved in this process? All of these questions require data and information from systems and tacit knowledge from experts.
- Senior leadership Review
The next step in the process should be a review by Senior Leadership. The key stakeholders should review the details of the report with special attention to the recommendations. Are the recommendations reasonable? How quickly can they be implemented? What is the net impact of the adjustments? These are all questions that should be answered within the final document.
The final step in the process is implementation. This is arguably the most important step. All of the hard work in analysis, debriefing sessions and benchmarking would have been wasted had it not been for this step. Senior Leadership should look to incorporate some of the recommendations as soon as possible. Neglecting to implement changes within a reasonable time frame can lead to depressed employee morale and resistance to audits in the future. In conclusion, in times of economic downturns or market shifts expense reductions are typically implemented in a haphazard way. However, basing reductions on analytical insights will produce a more resilient organization in the future.