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TAX & AUDIT - NEW METHODS TO MEASURE EFFICIENCY

Auditing of processes picks up steam

BUSINESS consultants say it is no longer enough to evaluate success on the basis of profits and losses. To succeed in an increasingly global marketplace, companies have to focus on the customer or risk losing them to the competition.

BUSINESS consultants say it is no longer enough to evaluate success on the basis of profits and losses. To succeed in an increasingly global marketplace, companies have to focus on the customer or risk losing them to the competition.

To serve the customer well, a company's business processes must function smoothly and efficiently. In Slovakia, companies are hiring outside consultants to conduct audits of their business processes in an effort to improve them.

Business process reengineering (BPR) is a well-known method to improve business performance in the Western world. In Slovakia, a watered down version, called auditing of processes, is starting to pick up steam. According to experts in the field, the main purpose of auditing of processes is to make businesses more efficient, simpler and more flexible so that they can respond more quickly to customer demands.

The best way for managers to learn how their business processes work is to, in effect, staple them to an order. Every time an order is handled, a customer is handled. Every time an order is neglected, the customer is neglected.

Auditing a company's business processes reveals the snags. Petr Knap is a senior manager in the economic and financial advisory services department at Ernst & Young. "The least this process improvement approach can bring to an organization is improved knowledge of how activities are performed within the organization and an identification of weaknesses and inefficiencies," he said.

Martin Guerin, a senior manager at Pricewaterhouse Coopers in Slovakia, says a company can almost always improve its position if it is thoroughly aware of its current performance and true strengths and weaknesses. Auditing of processes provides companies with that knowledge. "Aiming to improve performance without this knowledge is like driving in the fog - it can be hard to correctly know where you are and where you need to go," he said.

Knap cautions that auditing business processes is best left to professionals. "By drafting and implementing any changes, it is necessary to consider carefully whether the measures to be adopted are feasible. This is a key decision as the process is usually irreversible".

Guerin sees an advantage in hiring a professional consultancy to do the job. "Involving an independent third party view in an audit of processes is to ensure that the information and perspective gathered is not clouded by internal company politics or personnel who are reluctant to change or have a conflict of interest."

Audits offered through consultancies are directly tied to detailed objectives. Sometimes the audits centre around financial, operational or compliance issues. Sooner or later, however, business process audits "will involve some element of looking at processes," says Guerin from Pricewaterhouse Coopers.

Business processes often go beyond departmental boundaries. "The scope of the work will cover some combination of input, core activities and output [from a variety of departments] that make up a process," says Guerin.

Consultancies that offer business process audits identify core and supporting business processes. In the past, this often involved "de-layering" widespread redundancies.

Business process auditing should not be confused with BPR, consultants say, which goes several steps further in terms of design and gradual implementation of the improvements. According to Guerin, business process auditing can be regarded "as a logical first step in initiating a BPR project".

It is inevitable that by analysing core and supportive business processes, some companies will come to the conclusion that it is more cost effective to outsource what they have been doing internally. This could lead to eventual job cuts. Pricewaterhouse Coopers' takes a conservative view on outsourcing. Despite the general trend towards outsourcing, especially in larger businesses, Guerin says that "experience has shown that it is not a good option in all cases".

"There are various risks associated with outsourcing and a company should be diligent and resourceful in selecting potential business partners, establishing contracts and service level agreements and reliable monitoring and performance measures," he said.

Ernst & Young may recommend outsourcing in order to improve the overall efficiency of the organization. This recommendation would have to go hand-in-hand with a cost-to-benefit analysis. "As a basic rule, organizations usually outsource those processes that are not key to their competitive position," said Knap.

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