Session 6C Internal audit value Developing metrics to present IA value Lawrence J. Harrington CIA QIAL CRMA, Vice President, Internal Audit, Raytheon Company, USA and Chairman of the Board, IIA-Global
Metrics Help Build Internal Audit s Brand Customers demand value from IA. Metrics often fail to communicate IA s value. Most IA metrics are inward facing. Few outward metrics resonate with customers. Metrics help build the function s brand, but they depend on the personal brands of every member of the audit team.
Demonstrating Value is Crucial More demanding stakeholders means little margin for error and less time to react. Stakeholder perception is reality; we must provide more value to customers. Meaningful metrics, internal and external, strengthen and promote internal audit s brand.
Meaningful Metrics A Challenge in 2009 Auditors place great emphasis on evaluating the relevance and effectiveness of a client s performance measures. However, internal auditors themselves find it difficult to monitor and report the performance of their own activities. (1) IA View Customer View (1) IIA Research Foundation, Performance Measures for Internal Audit Functions: A Research Project, 2009
Meaningful Metrics Still a Challenge Today With ever-increasing business complexity and 7 X 24 Global connectivity, there is a growing list of ways internal auditors must deliver organizational value. How can internal auditors identify and focus on the activities that are of most value to their clients and key stakeholders? (1) (1) IIA Research Foundation: Delivering on the Promise IA View Customer View
Today s Challenge Customer Satisfaction How satisfied are you that your company s internal audit function delivers the value to the Company that it should? (1) Sixty percent of audit committees are less than fully satisfied that the internal audit function delivers the value that it should. (1) KPMG -- 2015 Global Audit Committee Survey
Inward Facing Metrics CAE Survey % of audit functions using the metric (1) Percentage of audit plan completed 66% Timely closure of audit issues 42% Completion of mandated coverage 41% Budget to actual hours 29% Performance against IA financial budget 23% Cycle time end of fieldwork to final report 23% Cycle time entrance to draft report - 19% No formal performance measures 15% (1) IIA CBOK, Delivering on the Promise Inward facing metrics provide some assurance of audit efficiency and audit quality, but they may not reflect effectiveness and value to customers. Do they enhance the IA function s brand?
Outward Facing Metrics 2 of the top 10 metrics face outward. Client satisfaction goals (38%) Fulfillment of specific expectations agreed to with key stakeholders (32%) How can an internal audit function demonstrate and communicate its value added brand?
Metrics Should Reinforce Your Brand Simply put, your brand is your promise to your customer. It tells them what they can expect from your products and services; it differentiates your offering. Your brand is derived from who you are, who you want to be and who people perceive you to be. Defining your brand is like a journey of business self-discovery. It can be difficult, timeconsuming and uncomfortable. (1) An effective brand resonates with customers. Use metrics that reflect and reinforce your brand. (1) John Williams, The Basics of Branding, Entrepreneur
Align Performance Measures and Value Add Activities (1) 1. Learn the customer s expectations 2. Validate understanding with stakeholders 3. Develop outward facing and inward facing performance measures 4. Start measuring 5. Report back to stakeholders 6. Repeat the cycle periodically (1) IIA CBOK, Delivering on the Promise
Measuring Value: Customer Feedback Audit objectives were clearly communicated to customer. Opportunity to give input to objectives, due dates, deliverables. Customer received timely updates. Audit timeline/duration was reasonable and minimized disruption. Internal Audit took time to understand the business. Internal Audit effectively addressed key business risks. Internal Audit conducted activities in a professional manner. Audit report was accurate, relevant, clear, concise, and timely. I would recommend Internal Audit as a value-added service.
Building the Brand: Teaming with Customers Be inclusive to increase knowledge of the business Create a GRC council with other functions Recruit non-auditors from the business Have customers provide functional overviews Utilize guest auditors / SMRs from the business Invite customers to co-present with you Publicly praise your peers for their successes Align individual incentives to collaboration goals ٠ Performance measurement based on overall audit satisfaction ٠ Create team value-add deliverables leave behinds
Use Metrics That Build Your Brand A strong, effective brand builds trust and creates a positive emotional response from the customer - Apple, McDonalds, Nike, Starbucks. Metrics must be meaningful and support the brand. Inward facing metrics can help promote quality but must ultimately support outward facing metrics. Lesser used metrics may be impactful. Internal auditors hired from the business Internal auditors placed back into the business Performance ratings of auditors hired into the business Retention of auditors hired into the business
Strong Function and Personal Brands Metrics for building the brand of an audit function depend on the brands of your team members. Brand building metrics for team members include: Professional certifications Continuing personal and professional development including company provided training and investments in yourself Involvement in company initiatives or councils Networking, exposure to leadership Performance on special projects
Metrics and Branding Self Analysis What is your function s brand? What do you want it to be? How do your customers perceive your brand? What are your outward facing metrics? What should the metrics be? What are the personal brands of your team? Do their brands support the function brand? How are you measuring and managing them? How can you manage metrics to build the brand? Will your brand be stronger tomorrow?
Questions Please share your success stories with me. Larry_Harrington@raytheon.com