by Eugene A. Razzetti
It has been wisely said that what can’t be measured can’t be managed. CEOs need the ability to subjectively and objectively quantify the success or failure of operations, products, or services; measure components of those operations; and compare their findings with established standards. They also need to be able to do these things as completely, accurately, and rapidly as possible.
You rely on your car’s dashboard to provide critical bits of information (e.g., engine temperature, oil pressure, fuel remaining), accurately, reliably, and in time for you to do something when the measured quantity is outside safe parameters.
Several years ago, as a military analyst, I used the U.S. Army’s “dashboard” concept to capture and display vital pieces of operational information for port commanders in places like Kuwait, where operations were constant, deliveries critical, and real-time assessment of threats mandatory. Less dramatic perhaps, but no less mission-critical, are accurate, custom-tailored audit dashboards for executives in both the public and private sectors. Auditors can help executives to ensure that their audit dashboards provide timely, accurate feedback and are a basis for continuous improvement.
A word about benchmarking
We can’t discuss performance measurement in general or audit dashboards in particular without first discussing benchmarking. That is, determining and quantifying the expected performance from an operation or a process to compare it to its actual performance. Benchmarking identifies the amount of improvement possible. Once completed, an accurate benchmarking process allows management to assess those operations or processes on a continuing basis to identify areas for improvement. Figure 1 shows the relationship between expected and actual performance. The gap may be strategic, tactical, or operational, depending on the subject of the benchmarking process.
Figure 1: Audit dashboards–Performance gaps
Internal benchmarking examines an organization’s activities, those taking place inside its own walls. Areas always in need of internal benchmarking include facilities, manufacturing and material-handling processes, administration, training, waste, work in progress, and reject rates.
External benchmarking can include customer satisfaction, competitors’ products, recommendations from external consultants and auditors, public databases, and the annual reports of other companies. The paragraphs that follow provide examples of performance indicators which, once benchmarked, will form viable dashboards for executives.
Ten dashboard-ready indicators for assessing organizational performance
Here are ten areas of fast feedback and actionable information for auditors and executives alike.
- Budgeting and cost control. The budget is one of the oldest areas for performance monitoring and measurement, and the reason the term “audit” still brings with it mainly thoughts of finances and taxes. The budgeting process, especially with the advent of activity-based costing (replacing the less precise “cost accounting”) can include such indicators on your audit dashboards as:
- Hours and funding obligated against milestones actually achieved
- Revenue generated
- Inventory and turnover
- Accounts receivable and payable
- Operating expenses broken down for each process
- General operating and administrative costs
- Other overhead not specifically covered (e.g., the help desk)
- Tracking risk assessment and risk management. Organizations that implement accurate risk management programs and strategies can maintain control of both the present and the future. However, to accomplish this, they must be able to identify the three basic components of risk: threat, criticality, and vulnerability as they apply to their operations. Once these components have been identified and assigned consistent numerical values, management can further refine the display by gaming other considerations. Figure 2 displays:
- The basic level of risk (threat × criticality × vulnerability)
- The effect of an additional consideration. (For example, customs requirements. If the additional consideration reduces the risk by 50 percent, multiply the risk in step one by 0.5.)
- The projected level of risk after implementing a notional course of corrective action. A corrective action, like installing perimeter fencing to increase security, can reduce vulnerability. You then replace the vulnerability value used for step one with a lower number and re-compute risk.
It is in that final step that risk assessment becomes risk management.
Figure 2: Audit dashboards–Risk management total picture
When executives compute risk like this and add it to their audit dashboards:
- Risks are identified, as well as their effects and interactions.
- Contingency plans and courses of action can be developed, including preemptive responses that mitigate or reduce potential consequences.
- Expected costs can be reduced and an appropriate balance between costs and risk exposure achieved with the goal of reduced risk exposure.
- Feedback into the design phases and planning stages is developed as part of the evaluation of risk vs. expected cost.
- Opportunities and responses are recognized and planned for in advance.
- The integration of planning and cost control is improved.
- Members of project teams develop an analytical understanding of the likely problems and responses in their own and other areas that will affect them.
A simple spreadsheet model is all it takes for executives to perform risk management like this right at their desks. After that, incorporate the spreadsheet model into audit dashboards and update it as often as needed.
- Tracking early, on-time, and late deliveries. During a recent ISO 9001:2008 audit, a client who had a strategic objective to increase on-time deliveries by 10 percent per quarter confessed to not having monitored his delivery processes as required by the standard. As a result, the company now had late deliveries running at the rate of 33 percent. The transparent excuse that the quality manager gave was that vendors were delivering late to him. A simple trip into the inventory records (which is what the organization should have been doing all along) revealed that late arrivals from the vendors were only a small part of the problem (and getting smaller). Figure 3 was drawn largely from memory of the actual graph that I created for the CEO using his data depicts the unfortunate situation.
Figure 3: Audit dashboards–Late arrivals and deliveries
The reason for the late arrivals and deliveries is for the organization to discover. The reason for the problem becoming horrific was early, on-time, and late deliveries weren’t monitored by management, and certainly not as part of a dashboard. Penitent, contrite, and resolute (and still employed for reasons I don’t fully understand), the quality manager is now monitoring deliveries from vendors and to customers on a continuous basis. So is the CEO. In other words, deliveries are now part of the dashboard.
- Tracking return on investment (ROI). Expenditures for major equipment are usually well-vetted and routinely evaluated for effectiveness. Lesser investments, such as those involved in product marketing (e.g., advertisements and trade shows) can and should also be tracked as part of an established process. Management, increasingly held accountable for ensuring that limited funds are effectively invested, must develop timely and actionable intelligence on its expenditures. Break-even analysis is simple in concept, credible in that simplicity, and actionable in its findings.
Simple predictive and tracking graphs like figure 4 (as part of audit dashboards) allow executives to monitor ROI to confirm expected outcomes or indicate when they may not be forthcoming.
Figure 4: Audit dashboards–Break-even analysis
Other ways of determining ROI may be even simpler. Say, for example, that a trade show must produce a certain number of sales or (at least) leads to justify the expense. Comparing actual sales or leads with those required can confirm or deny the success of the investment.
- Tracking personnel qualifications. ISO 9001:2008 requires organizations to operate effective, well-documented programs to maintain the competence, awareness, and training of their personnel. Regrettably, these programs often do poorly in audits because their administration is cumbersome, outdated, and too narrow. Worse than that, auditors routinely find that workers are inadequately trained and/or don’t know how to do their jobs. Evidence of the absence of competence, awareness, and training often takes the form of (to name a few):
- Scrap, waste, or re-work
- Product returns and/or customer loss
- Pollution or some form of noncompliance with environmental regulations
- Workplace accidents (and even deaths) and other safety violations
Organizations operating programs involving employee competence, awareness, and training should focus on the qualifications they want their personnel to achieve and then (working backward) determine the training required for those qualifications. Executives can track achievement of qualifications in the following areas from their dashboards (as specific to the organization):
- Occupational safety and health
- Energy conservation
- Transportation safety specialist (including commercial driver’s licenses)
- Hazardous material control and management (e.g., storage, transport, or transfer)
- Pollution prevention
- Contract management and enforcement
- Internal auditing
- Testing and calibration
- Tracking major projects. Project management, as a discipline, has provided excellent monitoring and predicting techniques with which executives can help to assure the success of even its most multifaceted initiatives and operations. Basic to project management is the project schedule. At a minimum, project schedules should include planned start and completion dates, milestones, and inspections. Project schedules show what must be completed before subsequent stages can begin, and how a delay in one project component can affect the entire project.
Project schedules (e.g., PERT or Gantt charts) like the sample schedule in figure 5 can be used to monitor and/or predict:
- Resource requirements by time period
- Alternative schedules or approaches such as optimistic, most likely, and pessimistic end dates
- The need for contingency operations or reserves
- Personnel augmentation (e.g., a second shift)
- The requirement for process changes or modifications
- Cash-flow requirements.
Figure 5: Audit dashboards–Project schedules
Auditors, by reviewing the accuracy and comprehensiveness of the project schedule can provide invaluable support to executives.
- Tracking emergency preparedness and response. Emergency preparedness is often neglected in the press of day-to-day business. Nonetheless, organizations have an ethical responsibility to ensure not only that facilities and working conditions contain a minimum of safety hazards but also that documented plans exist to preclude or minimize on-site emergencies, such as fires. Moreover, organizations should ensure that preparedness and response plans are adequate through a structured program of periodic training, drills, inspections, and exercises (as appropriate) for the organization.
Executives can use audit dashboards to track the creation or management of:
- Potential disasters or emergencies
- Preplanned responses
- Fire and safety hazard mitigation and workspace cleanliness
- Emergency evacuation aid and assistance procedures
- Employee awareness training
- Emergency reporting
- Community relations initiatives
- Tracking corporate responsibility management. Management responsibilities with regard to the development and maintenance of a corporate responsibility management (CRM) system are essentially the same as for any other management system, and organizations realize that success or failure of management systems (e.g., ISO 9001:2008) can be quantified. Management’s ethical responsibilities with regard to the environment are also quantifiable.
Management’s operation of its stated corporate responsibilities requires that it establish performance metrics and routinely assess company activities to those metrics. Additionally, management must act on the findings of those metrics, assign responsibilities, implement corrective actions, and follow up on the effectiveness of those corrective actions. A dashboard tab or page such as the one in figure 6 tracks CRM indicators for monitoring and trend analysis.
Figure 6: Audit dashboards–CRM indicators
|Hazardous wasteEnergy costs
- Tracking ethical performance. The need for ethical conduct on the part of corporations has never been greater, but the ability to monitor and measure performance has never been better. Ethical performance has its place on the executive’s dashboard. Pursuant to effective ethics and corporate responsibility programs in place, executives can monitor such key indicators as:
- Internet use and abuse
- Access control
- Timesheet and travel claim preparation
- Overtime vs. productivity
- Reported ethical violations and instances of unacceptable ethical behavior
- Use of company or customer property (physical or intellectual)
- Hours logged to charge numbers and/or working from home
- Ethics awareness training (administration and effectiveness)
- Complaints and required follow up actions
- Tracking customer feedback. Customers are people too! Some are loyal, some are vulnerable, and some are downright risky. They have attitudes and perceptions when it comes to the product or service that organizations provide. Accordingly, organizations need to establish and track auditable indicators of customer satisfaction, such as:
- Customer complaints, recommendations, and satisfaction surveys
- Early, on-time, and late deliveries
- Product returns (or other evidences of product or service nonconformity)
- Increasing costs of production or overhead (i.e., decreasing profitability)
Only the most consequential and actionable performance indicators should be included in the dashboard of an organization. Optimally, audit dashboards and the performance indicators that they contain should be:
- Simple and straightforward
- Stand-alone, permitting all analysis “in place”
- Predictive (for better or worse)
- User-friendly, with simple concepts and architecture
- Sufficiently granular to identify data errors and to spotlight root causes and accountability
- Attached to measurable goals and/or objectives in the strategic plan
Management must identify, benchmark, and validate their goals then track and monitor them to meet commitments and stay in business. And auditors can help.
About the author
Eugene A. Razzetti, CMC, retired from the U.S. Navy as a captain in 1992, a Vietnam veteran, and having had two at-sea and two major shore commands. Since then, he has been an independent management consultant, project manager, and ISO auditor. He became an adjunct military analyst with the Center for Naval Analyses after September 11, 2001. He has authored two management books and co-authored MVO 8000, a corporate responsibility management standard, and is an adjunct lecturer on strategic management and ethics at Argosy University. He is a certified management consultant with the Institute of Management Consultants and has served on boards and committees dealing with ethics and professionalism in the practice of management consulting. He is a senior member of the American Society for Quality and recently assisted the government of Guatemala with the ISO 28000 certification of its two principal commercial port facilities. He can be reached at www.corprespmgmt.com or firstname.lastname@example.org.