EFFICIENCY AUDITING B.H. WALLEY

Transcription

1 EFFICIENCY AUDITING

2 By the same author PERFORMANCE AND PROFITABILITY (with M. j. Clay) MANUAL OF OFFICE ADMINISTRATION HOW TO MAKE AND CO NT RO L A PRO FIT PLAN HOW TO APPLY STRATEGY IN PROFIT PLANNING HANDBOOK OF MANAGEMENT SERVICES

3 EFFICIENCY AUDITING B.H. WALLEY M

4 ISBN ISBN (ebook) DOl / B. H. Walley 1974 Softcover reprint of the hardcover lst edition All rights reserved. No part of this publication may be reproduced or transmitted, in any form or by any means, without permission. First published 1974 by THE MACMILLAN PRESS LTD London and Basingstoke Associated companies in New York Dublin Melbourne Johannesburg and Madras SBN Typeset in Great Britain by PREFACE LIMITED Salisbury, Wilts

5 Contents List of figures Foreword Preface PART I MAJOR PROBLEM FINDING AND GENERAL ANALYSIS lx Xl xiii 1 Symptoms, diagnosis and treatment: the diagnostic survey 1.1 Introduction Basic diagnosis Diagnostic evaluation routines 5 2 The company overview 2.1 Introduction The chief executive Company style Management ability The company and the manager Management methodology Measurements Key result areas Resources, accountability and control Comparisons of company performanceadded value Company analysis through the balance sheet 33 3 Environmental analysis 3.1 Introduction External environment The international scene The internal environment 42 4 Establishing objectives 4.1 Introduction The need for objectives 4 7 v

6 VI Contents 4.3 Who should have objectives? Establishing objectives Some factors which may help to establish quantified objectives Steps in objective setting Objective setting 51 5 Product market analysis 5.1 Contribution analysis Product profit analysis 65 6 Motivation and morale 6.1 Management audit Behavioural situations and aspects of change 72 PART II ASSET UTILISATION 7 Money 7.1 Uses and sources of funds Money management and accounting for inflation Budgets and budget validation Overhead allocation and justification 95 8 Fixed capital 8.1 Return on investment Utilisation of fixed capital Replacement routine Project control and post audits Working capital 9.1 Definition and purpose Materials management Management and men 10.1 Manpower utilisation Job study Organisation analysis 137 PART III AUDIT OF FUNCTIONAL EFFICIENCY Introduction Marketing 11.1 The sales force Market research Production 12.1 Manufacturing planning Plant maintenance 159

7 Contents VII 13 Personnel 13.1 Training Recruitment Welfare Industrial relations Planning and data collection General administration 14.1 Introduction Administration data and key areas General analysis and validation procedures Administrative efficiency Methods of reducing administration costs Research and development 15.1 Introduction Initial audit data R & D evaluation Planning and control of R & D Computers and computer usage 16.1 Introduction Steps in introducing a computer 197 PART IV PLANNING METHODS AND GENERAL SYSTEMS EV AL UA TION 17 Planning 17.1 Planning methodology and strategy Profitplanning Cost reduction planning and cost control programs Market planning General systems audit 18.1 Introduction to systems auditing Sales order processing Inventory control Production planning and control Standard costing and budgetary control 243 PART V TEr.HNIQUES APPLICATION 19 Performance improvement procedures 19.1 Introduction Setting up the efficiency auditing function Assessment of priorities 255

8 Vlll 19.4 Use of company resources 19.5 Planning the function 19.6 Skills acquisition 20 Performance improvement techniques 20.1 Introduction 20.2 What is wrong with techniques? PART VI POST AUDIT SITUATIONS 21 Implementing changes 21.1 Introduction 21.2 Key results 21.3 Methods of carrying out change 21.4 Action plan and timetables 21.5 Reporting 21.6 Adjustments to action programs 21.7 Achievement of the action program Contents PART VII ORGANISATION FOR EFFICIENCY AUDITING 22 Organisation for efficiency auditing 279 Appendix I: Appendix II: Index Evaluation of stock levels Data books

9 List of Figures Figure 1.1 Figure 2.1 Figure 2.2 Figure 2.3 Figure 2.4 Figure 2.5 Figure 2.6 Figure 2. 7 Figure 3.1 Figure 4.1 Figure 4.2 Figure 5.1 Figure 5.2 Figure 5.3 Figure 5.4 Figure 5.5 Figure 5.6 Figure 5.7 Figure 5.8 Figure 6.1 Figure 6.2 Figure 7.1 Figure 7.2 Figure 7.3 Figure 7.4 Figure 8.1 Figure 8.2 Figure 8.3 Figure 8.4 Figure 8.5 Figure 9.1 General diagnosis 5 Role of the chief executive 8 Company style 10 Management ability 12 The company and the manager 14 Management methodology 16 Key results areas 29 Resources, accountability and control 30 Environmental analysis 45 Hierarchy of objectives 52 Objectives establishment 53 Production-contribution analysis 56 Sales-contribution price/discount analysis 58 Sales-contribution analysis 59 Salesman-contribution analysis 60 Marketing objectives and achievement sheet 62 Contribution analysis 63 Pricing policies 64 Product profit analysis 65 Management audit 71 Behavioural relations and attitudes to change 75 Uses and sources of funds 82 Money management and accounting for inflation 90 Budgets and budget validation 95 Overhead allocation and justification 99 Methods of measuring capital 101 Return on investment 104 Utilisation of fixed capital 110 Replacement routines 113 Project control 117 Working capital- definition and purpose 121 lx

10 X Figure 9.2 Figure 10.1 Figure 10.2 Figure 10.3 Figure 10.4 Figure 10.5 Figure 11.1 Figure 11.2 Figure 12.1 Figure 12.2 Figure 13.1 Figure 13.2 Figure 13.3 Figure 13.4 Figure 13.5 Figure 14.1 Figure 15.1 Figure 16.1 Figure 17.1 Figure 17.2 Figure 17.3 Figure 17.4 Figure 18.1 Figure 18.2 Figure 18.3 Figure 19.1 Figure 20.1 Figure 20.2 Figure 21.1 Materials management Weekly factory report Manpower utilisation Job study: list of component activities Job study Organisation analysis Marketing - the sales force Marketing - market research Manufacturing planning Plant maintenance Training Recruitment Welfare Industrial relations Planning and data collection General administration Research and development Computers and computer usage Planning methodology and strategy Profit planning Cost reduction planning Market planning Sales order processing Inventory control Production planning and control Performance improvement procedures Technique usage Performance improvement techniques Implementing change List of Figures

11 Foreword This book is not intended to be a complete answer to every possible question which might be raised during an efficiency audit. It is not a map on which every topographical feature is marked. Rather it is a guide book which directs attention to all the areas o!' major importance needed in discovering whether an organisation is as efficient as it could- or should be. It is starting the journey which is of most importance. Efficiency auditing is something that very few organisations consciously perform. Few people are trained to carry out the function. Too many think that accountancy, engineering, systems or even business skills are all that are required to determine how well an organisation is performing. A brief glance at the chapter headings will indicate the knowledge and particularly the analytical ability required. Appraisal of the type suggested should lead very quickly to performance improvements. Line managers in particular should welcome the approach, bedevilled as they often are by the techniques which are the stock in trade of systems personnel. Senior management should not rest content until efficiency auditing is as well established as the accounting audits which are now carried out in their organisations. Though much of the proposed diagnosis is carried out in the Turner & Newall Group, this book in no way reflects company policy. xi

12 Preface Efficiency auditing provides the means of appraising company performance and diagnosing its ills and weaknesses. While helping to solve problems, the method has a vital role to play in highlighting deficiencies and inefficiencies where often it is believed none exist. In the past the rigorous application of management techniques known to improve performance has been synonymous with applying cures for diseases which were only half known; while at the same time other more serious ailments have not been diagnosed at all. It is extremely important therefore that line managers are able to appraise their own operations. They must be competent to determine operational weaknesses and general ills, and only after such a line appraisal should the use of consultants and management services staff, cost reduction and performance improvement techniques be considered (though management and services personnel too should be well skilled in the diagnostic techniques used in efficiency auditing, and may often need to carry out efficiency appraisals, in conjunction with line managers). Four main diagnostic methods are used. These are: 1. General analysis - for example of the organisation's environment. 2. Measurements - of return on investment, cash flow and performance, etc. 3. Comparisons with generally accepted standards of excellence- what factors constitute a standard costing and budgetary control system, for example. 4. The use of weighted check lists which help to determine whether the correct use is being made of resources, control systems or management techniques. Xlll

13 XIV Preface The appraisal must be systematic and should largely follow established and well conceived audit procedures. The results should provide answers to three fundamental questions: How well are we doing? Can we do better? How can we do better? The book is divided into six main parts: Major problem finding and general analysis Asset utilisation Audit of functional efficiency Planning methods of general systems evaluation Techniques applications Post audit situations The order of importance of the items quoted will differ from organisation to organisation, but normally the company overview and especially the measurement activity should have the greatest priority. During the initial audit, the functions, controls and general activities where the organisation is weakest should be highlighted and subsequent investigations carried out accordingly. Fundamental to carrying out an efficiency audit is the need to highlight and evaluate the key facts in each of the activities or functions being analysed. The key questionnaires have been established to be directive in the search for the most important organisational areas or operations where efficiency might be improved. It is anticipated that each questionnaire will be completed during an efficiency audit. The result will be indicated by either a negative or affirmative answer wherever necessary or a mark where this is appropriate. It will be seen that only those questionnaires at the beginning of the book have been weighted as examples. It is assumed that the factors quoted in the questionnaires will have relative importance according to the particular organisation where they are applied. A general weighting therefore has little value, and it is anticipated that each organisation will insert a weighting

14 Preface XV appropriate to the view it has of its own weaknesses and its need to improve. Weighting of questionnaires and questions should be carried out early in the audit. Once the key questionnaires have been completed and the need for subsequent investigation determined, the brief, prior outline should be reviewed to help to propose what changes might be made to improve company performance. What is 'best practice' may not always emerge and further investigations will be needed beyond the content of each chapter. The audit can be regularly carried out and the results compared with other audits. There should therefore be a built-in probability that the organisation will improve its efficiency from year to year. Line managers will need to become more introspective about their performance and objectives, considering in detail how their performance can be improved along the guidelines proposed. These are benefits which no organisation should want to forgo.