MIS SuperStrategies - The Five Disciplines of Innovation for Internal Audit

Innovative Techniques to Drive Successful Audits

Sessions #A6, G6 Wednesday, May 1, 2013

3:15 – 4:15 Dan Samson

Executive Director, Internal Audit Services SRI International

MIS Training Institute Session #A6, G6 - Slide 2 © SRI INTERNATIONAL All Rights Reserved

• SRI – Our Story

• Five Disciplines of Innovation – how it creates focus for valueadded audits

• Leveraging the Need, Approach, Benefits and Competition (NABC)model to ensure value

• Calculating Audit Value Factor

Overview


SRI- Who We Are A world-leading independent R&D organization

• SRI headquarters, Menlo Park, CA

• SRI Princeton, NJ

• SRI Washington, D.C. • SRI State College, Pennsylvania • SRI Tokyo, Japan • SRI Harrisonburg, Virginia • SRI St. Petersburg, Florida

  Founded by Stanford in 1946

  Based in Silicon Valley

  Non-profit corporation

  Independent in 1970

  Acquired Sarnoff Corp (formerly RCA Labs) in 1987

  2,100 staff members

  800 with advanced degrees

  More than 20 locations worldwide

  Consolidated 2011 revenue ~$570M


SRI - Our Point of View Bridging basic research and commercialization


Diverse Technology Expertise and Interest Multidisciplinary teams leverage our value creation process

Health, Education, and Economic Policy


SRI - Our Impact on Society The past...

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SRI - Our Impact on Society …and the present

• Technical exper-se for DHS

• Cyber Security R&D Center

• Assess exposure to radia-on

• Radia?on Detec?on

• Removal of CO2 from atmosphere

• Carbon Capture

• First VPA

• Siri

• Preclinical therapeu-cs for heart, lung, and blood

• Novel drugs • Real-‐?me Computer Vision Systems

• Acadia® II: the leading video processor

• Surface-‐climbing robots

• Robo?cs


SRI Five Disciplines of Innovation


#1: Important Customer and Market Needs

Ø  What customers really want addressed • Does the Internal Audit Plan have a positive

impact?

• Review every proposed project – are they theone’s your customers want? What is missing?

• “Blue sky” approach

Ø  Help ensure your enterprise stays ahead • Will the audit advance the company’s success?

Ø  Allow you, your team, and your enterprise to make meaningful contributions

• Easier to raise the necessary resources

• Attracts the very best people

• Provides opportunities for team members tolearn new skills


#2: Value Creation

Ø  Customer Value Definition Critical for any Internal Audit Organization

Ø  How do you define value?

Ø  Benefits and Costs are determined by the customer (not by us!)

Ø  All efforts are devoted toward creating value (increasing benefits, decreasing costs) for customers.

Ø  Every engagement should have a value proposition – even those focused on compliance. Score and rank proposed audits by Value Factor.

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More on Value Factor

Ø  Collaborate with customers on universe of possible audits / projects to solicit their priorities based on value

§  Requires audit team to do advanced work using data analytics, benchmarking, initial diagnostics, and best practice research. If audit team hasn’t done its homework…why should customer invest time?

§  Guide customer on ways different audits could generate value

• Direct cost savings (process inefficiencies, resource allocation, sourcing options,waste, etc.)

• Cost avoidance (process inefficiency, fines / penalties, etc.)

• Recoveries (royalties / licensing, warranties, overpayments, improperreimbursements, etc.)

Ø  Collaborate with customers to understand potential costs – remember this includes cost, such as time, to their organizations too

Ø  Prioritize audits / projects with highest overall Value Factor


Value Proposition Definition

“Every organization needs one core competence, innovation” Peter Drucker, management consultant icon

Approach

Need

Benefits

Competition

per cost

and alternatives

Important Customer

or solutions


Value Proposition Definition

Need §  Specific customer need: pain killer, not a vitamin §  Articulate burning audit need – why is this a high priority?

Approach §  Offering: what the audit / project will deliver, quantitatively described §  Bring it to life: demonstrate importance through early analytics. Early “ah-ha”

moment for customer by telling them something they didn’t know §  Audit / project approach. How will it be executed? What resources, tools,

methodologies? Bring credibility to the business case for the audit

Benefits per Costs: Value §  Value Factor Analysis

Competition and Alternatives §  What are the implications of not doing the audit? §  Alternatives / other options to address the Need? §  Substantiate that audit / project is best approach


Value Proposition Example – SRI Project Deliverables

Deliverables compliance needs to improve to 95%.

Need

(1) SRI Contracts and Internal Audit will profile late deliverable data by division, project, and owner by XX XX, 20XX.

(2) Project directors will be engaged via survey and discussion to understand the underlying root cause/s, pain points in the process, and recommended improvements to empower staff to meet deadlines. Completion by XX XX, 20XX.

(3) Contracts and IA will present recommendations to executive leadership by XX XX, 20XX.

Approach

Value Factor of 40: 40 x return on cost. (1) Delighting the end user customer (2) Meeting contractual commitments (3) Staying competitive relative to peer firms - also see competition (4) Maintaining SRI’s strong brand of excellence (5) Reducing Contracts organization administrative time for tracking late deliverables (6) Increasing Contracts time available for new pursuits

Benefits per costs

Peer firms that do not have Late Deliverable disclosures to customers. Given the increasingly competitive award environment, all aspects of a contractor’s performance is evaluated including the timeliness of deliverables. Peer firms may use this metric as a competitive differentiator. Competition

/alternatives

How do you articulate customer

value?


#3: Innovation Champions

SRI’s Motto: “No Champion, No Project, No Exception”

Ø  Has a champion (Internal Audit and customer) been designated for the audit?

Ø  Does the champion have the right level of authority, commitment, and resources to see the audit / project through to success?

Ø  Mind set – championing innovative solutions to important problems


What Project Managers and Champions Do Best Leading the project versus Championing the cause

Project Manager

  Generally assigned

  More analytical/disciplined

  Managerial skills

  Hierarchical/positional authority

  Very current with project management systems & tools

  Commands respect

  Wants to make things “right”

  Solve problems as presented

Champion

ü  Self-selected, volunteers

ü  Passion and commitment

ü  Leadership skills

ü  Enrolls teammates

ü  Constantly learning innovation skills and sharing with others

ü  Cross-disciplinary

ü  Wants to create customer value

ü  Looks beyond immediate problems


#4: Innovation Teams

Ø  Forming a productive internal audit team is a project

Ø  Tapping into the genius of your teammates can transform your value proposition

Ø  Teams do not form naturally or easily

§  Dysfunctional teams are common

§  Projects often fail for “people” issues

Ø  Open innovation requires special skills

Ø  Vision, plan, milestones

Ø  Continuous review and …

Ø  There are “rules” that must be followed to have productive Innovation Teams


Key Elements of High-Performance Teams

Ø  Strong audit teams only exist with trust-based rules. No single team member hogs the spotlight. Share the risk, share the glory. No arrogance

Ø  Absolute integrity and respect for others. There are no bad ideas…need audit team to have open minds to spur ideas. Actively seek customer participation and ideas.

Ø  Complementary skills. Soft and hard skills.

Ø  Involvement & empowerment §  Audit team members do what it takes, don’t just follow directions. Champions.

§  Audit team members wear multiple hats. Flexibility. Especially important in small team environments. The Chief Audit Executive makes copies too!

Ø  Celebrate achievement – actual celebration!

Ø  Success starts with the Champion and is owned by the Team


#5: Organizational Alignment

Ø  Develop your value creation “architecture”

Ø  Common language & methodology

§  Use the language of innovation wherever possible

§  Establish innovation metrics for Internal Audit

Ø  Continuous Improvement

§  Always be vigilant to MUDA and value for every process audited

§  MUDA – waste. Unnecessary movement, excess inventory, waiting time, over processing / production, mistakes / defects. Toyota Production System.

§  Constantly challenging what’s working and what’s not

§  Best practices – actively seek perspective from other organizations with best practices.

“Every organiza?on is perfectly designed to get the results it is geJng.”

–Tim Kight, CEO of Focus 3


Ø  Prioritize the most important audits / projects using customer perspective. Articulate Need. Once an audit is scheduled, prioritize the most important scope items for your customer

Ø  Focus audit outcomes on Value Creation. Will your customer perceive that value has been created?

Ø  Create a Value Proposition for every audit. If a compelling Value Proposition doesn’t exist – the audit may not be justified.

Ø  Calculate the Audit Value Factor with your customer. Perceived benefits / perceived costs. Use the value factor to prioritize audits and audit scope.

Ø  Recruit and designate Innovation Champions for your audit team / project. This includes customers and subject matter experts that embrace change.

Ø  Empower and equip Innovation Teams to be successful. Establish runs rules for success.

Ø  Ensure Organizational Alignment. Establish systems, processes, and metrics to support and empower success. Align with customers.

Key Takeaways


The way we work is our most important innovation

SRI Internal Audit: Empowering High Value Innovations and Solutions

Dan Samson Executive Director, Internal Audit Services

SRI International

617.901.6022

www.linkedin.com/in/danielasamson

MIS SuperStrategies - The Five Disciplines of Innovation for Internal Audit

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