SOPAC 2013 AUDITING BUSINESS STRATEGY

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This paper was presented at the national IIA Conference (SOPAC) in Brisbane in March 2013 - it talks to the issue of Internal Audit's role in Auditing business strategy.

This paper was presented at the national IIA Conference (SOPAC) in Brisbane in March 2013 - it talks to the issue of Internal Audit's role in Auditing business strategy.

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  • October 2012 – The International Standards (IPPF) requires auditors to evaluate the adequacy and effectiveness of controls in responding to risks within the organisation’s governance, operations, and information systems regarding the: Achievement of the organisation’s strategic objectives
  • Key Principles of the approach
  • Initally developed by Ken Wilber, developmental psychologist and philosopher and touted as the theory of everything!
  • Over the Journey the nature and mix of work changed – in conjunction with an expansion of skills and capacities
  • IIA Chairman of the IIA Phil Tarling and the CEO and President Richard Chambers recently discussed the optimal blending of your technical capacity with relationship skills on the road toward Trusted Advisor status. The message here – to be influential and successful requires a blend of technical and relational capacity

Transcript

  • 1. Internal Audit andOrganisational StrategyIncreasing the influence, relevance and value of Internal Audit David Mallard
  • 2. WHAT WE WILL SHARE Topic 1 The impact of strategic risk 2 Are we doing enough? 3 Recent research into the profession 4 The standards 5 Three common strategy failure points 6 Auditing strategy development 7 Auditing strategy execution 8 The Australia Post experience 9 Saying it right 10 Insight over the journey 11 Implications of auditing strategy 12 Auditing strategy is only part of the story
  • 3. THE IMPACT OF STRATEGIC RISKStrategic risks pose amuch more significantthreat to companiesthan more easilyauditable risk areasStrategic risks cause68% of severe marketcapitalisation decline
  • 4. ARE WE DOING ENOUGH? Percentage of Risk Percentage of Time Spent Strategic risks Strategic risks Failures Leading to By Audit Departments onaccount for 68%account for 68% Significant Market these Risk types of severe of severe Decline Risk Categoriesmarket declinesmarket declines 68% 68% 6% 6% 7% 7% 13% 13% Audit Audit departments departments 12% 12% 49% 49%report spendingreport spendingonly 6% of their only 6% of their time auditing time auditing strategic risks strategic risks 13% 13% 32% 32%
  • 5. RECENT RESEARCH To deliver real value, To deliver real value, audit plan’s must be audit plan’s must be responsive, flexible responsive, flexible and aligned with and aligned with company strategy company strategy 61% of survey 61% of survey respondents said respondents said Internal Audit did not Internal Audit did not have a mandate have a mandate aligned to business aligned to business strategy strategy Top Priority -- be more Top Priority be more relevant to achieving relevant to achieving the organisation’s the organisation’s objectives objectives
  • 6. RECENT RESEARCH TOP PRIORITY? BE MORE RELEVANT
  • 7. INTERNATIONAL STANDARDS FOR THEPROFESSIONAL PRACTICE OF INTERNALAUDITING OCTOBER 2012 2130. A1 – The internal audit activity must evaluate the adequacy and effectiveness of controls in responding to risks within the organisation’s governance, operations, and information systems regarding the: 1.Achievement of the organisation’s strategic objectives 2... 3...
  • 8. THREE COMMON STRATEGYFAILURE POINTS Flawed Business Assumptions: Management assumptions may not be Flawed Business Assumptions: Management assumptions may not be rigorously tested resulting in organisational objectives that are rigorously tested resulting in organisational objectives that are inconsistent with the enterprise’s capabilities or the realities of the inconsistent with the enterprise’s capabilities or the realities of the business environment. business environment. Business Unit Misalignment: Lack of communication or a strategy Business Unit Misalignment: Lack of communication or a strategy development framework for business units can result in business development framework for business units can in business unit objectives and operating plans that fail to align to enterprise unit objectives and operating plans that fail to align to enterprise objectives. objectives.
  • 9. AUDITING STRATEGYDEVELOPMENT 1. Strategic Planning Process Audit: Review the strategic planning process to ensure there is a common framework for the development of business unit strategic plans and assess the alignment between business unit, department, and corporate level strategic plans. Does the company Does the company Are enterprise Are enterprise Are Business Unit Are Business Unit Is there alignment Is there alignmenthave a documentedhave a documented level strategic level strategic objectives objectives between betweenprocess for strategicprocess for strategic objectives objectives reasonably reasonably enterprise and enterprise and planning? Has the planning? Has the documented and documented and related to related to business level business level process been process been measurable? measurable? enterprise enterprise strategies? strategies? complied with? complied with? objectives? objectives?
  • 10. AUDITING STRATEGYDEVELOPMENT 2. Audit of Assumptions: Identify and validate assumptions about the internal and external environment made at the enterprise, business unit, and project level. Are key assumptions Are key assumptions Are key assumptions Are key assumptions underpinning the plan underpinning the plan reasonable given all the reasonable given all the for achieving objectives for achieving objectives evidence? evidence? documented? documented?
  • 11. AUDITING STRATEGYDEVELOPMENT What level of awareness What level of awareness To what extent do To what extent do Do incentives and/or Do incentives and/or do employees have in do employees have in employees believe in employees believe in performance criteria performance criteria the strategy? the strategy? the strategy? the strategy? link to strategic link to strategic objectives ? objectives ?
  • 12. AUDITING STRATEGYDEVELOPMENT 4. Strategic Execution: Evaluate major initiatives at critical points in the project lifecycle against key factors of project success beyond execution and timeline, such as leadership capability, business readiness, sustainability and value investment.Assess project Assess project Identify talent Identify talent Evaluate Evaluate Identify gaps Identify gaps management management or development or development confidence levels confidence levels between betweencapabilities andcapabilities and gaps to meet gaps to meet in the successful in the successful objectives and objectives and processes processes execution goals execution goals execution of execution of strategy strategy strategy strategy outcomes outcomes
  • 13. AUDITING STRATEGYDEVELOPMENT Test elements of strategy development and communication in regular audit engagements to provide ongoing monitoring of the strategic planning process Evaluations of strategy development and communication can be incorporated into every audit to monitor the effectiveness of strategy deployment in between assessments of the strategic planning process
  • 14. AUDITING STRATEGY EXECUTION My experience at Australia Post My experience at Australia Post
  • 15. AUDITING STRATEGY EXECUTION Strategy Execution
  • 16. AUDITING STRATEGY EXECUTION
  • 17. AUDITING STRATEGY EXECUTION Fortune Magazine famously stated that organisations fail to successfully implement strategy, not because of bad strategy, but because of bad execution. Failures are not for lack of a well-defined strategy but due to the absence of a well- orchestrated implementation plan bridging the gap to execution.
  • 18. AUDITING STRATEGY EXECUTION ‘Large Program’ Risk ‘Large Program’ Risk is in the bottom is in the bottom quartile of ‘well quartile of ‘well managed’ risk managed’ risk 82% of stakeholders 82% of stakeholders regarded Internal regarded Internal Audit’s role as very Audit’s role as very important or important or important important
  • 19. AUDITING STRATEGY EXECUTION- THE AUSTRALIA POSTEXPERIENCE Regularly polled senior Regularly polled senior executives and Board executives and Board members about their members about their perception of Internal perception of Internal Audit – particularly Audit – particularly their sense of value their sense of value received from Audit received from Audit
  • 20. AUDITING STRATEGY EXECUTION- THE AUSTRALIA POSTEXPERIENCE Stakeholder Stakeholder feedback resulted in feedback resulted in the question: the question: How does Internal How does Internal Audit address Audit address strategic risk more strategic risk more effectively? effectively?
  • 21. AUDITING STRATEGY EXECUTION- THE AUSTRALIA POSTEXPERIENCEWe viewed the organisations strategic plan asWe viewed the organisations strategic plan as an inventory of organisational change an inventory of organisational change programs programs Ranked each program by importance to Ranked each program by importance to company objectives, complexity, scale etc company objectives, complexity, scale etc Diagnosed history of previous investments, Diagnosed history of previous investments, where they had struggled and/or been where they had struggled and/or beensuccessful, and understood the organisationalsuccessful, and understood the organisational capability ‘soft spots’ capability ‘soft spots’
  • 22. AUDITING STRATEGY EXECUTION- THE AUSTRALIA POSTEXPERIENCE• In-Flight – Real Time Assessment• In-Flight – Real Time Assessment  PIR’s not optimising limited Audit resources and  PIR’s not optimising limited Audit resources and unhelpful to operating the day to day business unhelpful to operating the day to day business• Rapid arms-length feedback – ‘contemporary• Rapid arms-length feedback – ‘contemporary assurance’ and actionable assurance’ and actionable• An Integral view – considered typical technical• An Integral view – considered typical technical issues in conjunction with humanistic elements issues in conjunction with humanistic elements – collective and individual – collective and individual• Relevant to objectives of stakeholders, both• Relevant to objectives of stakeholders, both organisationally and personally organisationally and personally
  • 23. AUDITING STRATEGY EXECUTION- THE AUSTRALIA POSTEXPERIENCE THE INTEGRAL FRAMEWORK The Integral Framework makes clear The Integral Framework makes clear that every event or situation may be that every event or situation may be understood within the context of interior understood within the context of interior and exterior dimensions in both the and exterior dimensions in both the individual and the collective individual and the collective Regardless of the scope and depth of Regardless of the scope and depth of the organisational situation, by applying the organisational situation, by applying the Integral Framework, we are able to the Integral Framework, we are able to analyse and assess even the most analyse and assess even the most complex issues in a balanced and complex issues in a balanced and comprehensive manner. comprehensive manner. This holistic process is what makes This holistic process is what makes this approach so powerful and this approach so powerful and leading-edge leading-edge
  • 24. AUDITING STRATEGY EXECUTION- THE AUSTRALIA POSTEXPERIENCEProject Health A 360 O STRATEGIC PROJECT HEALTH CHECK REVIEWChecks includeassessmentsfrom multiple 1. Project Team Membersperspectives inorder to provide Direct participants in thea balanced project team provide theevaluation. inside view of the status of project execution 2. Impacted ProcessDesigned to 4. Internal Audit Ownersdeliver Future end users‘contemporary Audit offers an provide an outsidersassurance’ on in- independent appraisal of perspective onflight strategic the project including its execution, effect on the risk and 3. Management or otherproject communication and key stakeholdersimplementation. control environment. sustainability. Key members of the senior management team provide perspective on the value contribution of the project.
  • 25. AUDITING STRATEGY EXECUTION- THE AUSTRALIA POSTEXPERIENCE
  • 26. AUDITING STRATEGY EXECUTION- THE AUSTRALIA POSTEXPERIENCE  Online polling of stakeholder perceptions/confidence levels horizontally and vertically in the organisation
  • 27. AUDITING STRATEGY EXECUTION- THE AUSTRALIA POSTEXPERIENCE  Triangulate stakeholder feedback - deep dive on the ‘hot spots’
  • 28. AUDITING STRATEGY EXECUTION- THE AUSTRALIA POSTEXPERIENCE  Independent of Project Management Office – leverage PMO’s work
  • 29. AUDITING STRATEGY EXECUTION- THE AUSTRALIA POSTEXPERIENCEKEY SUCCESS FACTORS ASSESSED:
  • 30. AUDITING STRATEGY EXECUTION- ‘SAYING IT RIGHT’
  • 31. AUDITING STRATEGY EXECUTION- ‘SAYING IT RIGHT’ Audit Headline Conclusion Is Here Audit Headline Conclusion Is Here
  • 32. AUDITING STRATEGY EXECUTION- ‘SAYING IT RIGHT’
  • 33. AUDITING STRATEGY EXECUTION- INSIGHT OVER THE JOURNEYEXAMPLE OF INFLUENCE, RELEVANCE AND VALUE
  • 34. AUTOMATE THE PROCESS- www.projectaudits.com
  • 35. THE IMPLICATIONS OFAUDITING STRATEGY Strategic Operational Strategic Risk Expand Skills Operational Risk Compliance Traditional Audit Skills Compliance Risk Enhance Finance Engagement Financial Risk
  • 36. AUDITING STRATEGY IS ONLYPART OF THE STORY A focus on auditing organisational strategy is very important, however is only part of the story to being influential, relevant and more valuable
  • 37. OPTIMISING TECHNICAL ANDRELATIONAL CAPACITY IS KEY Requires higher levels of systems and people thinking EQ is twice as important as technical competence * • D. Goleman, Emotional Intelligence: Why It Can Matter More Than IQ (Bantam Books, 1995)
  • 38. david@davidmallard.com In my presentation this afternoon I will be discussing a key foundational issue for becoming more relevant, influential and valuable – addressing non-technical capability development with the aim of achieving ‘Trusted Advisor’ status in your organisation.