BOLLYWOOD SURKHIYAN

Strategic Sourcing – A Bridge Too Far?

You are missing out!

It is no secret that purchasing has a significant influence on cost. External purchases represent over half of cost in many firms. While savings of up to 40% or more can be realized on these cost [Anderson and Katz, 1998]! Most companies have spent significant energy on volume consolidation and supply base optimisation, thus realizing up to 15% savings. Good sourcing processes and sourcing as a true strategic function can help your company realize up to 25% more saving. It can even help increase revenue. Imagine, sourcing as a profit centre, not just a cost centre.

A lack of sourcing skills can have dramatic results, as the recent Dutch government construction fraud case shows. In the past years, the government paid 30% too much for its construction projects. Public opinion speaks of fraud from the construction companies. However, a good government sourcing function might have prevented this from happening. Structural supply analysis and a thorough insight in supply cost structures could have made a whole lot of difference.

Introduction

The concept of sourcing is gaining popularity and impact in both organisation and management studies. There is no argument about that. Yet sourcing is still as far away from becoming an autonomous discipline as ever. The term sourcing is used for too many different purposes. There is just not one definition. Sourcing might be used in dialog with the purchasing process, or as a part of this process. Sourcing might be used for the process of acquiring input from multiple countries. Or sourcing is used as a synonym for outsourcing. When the concept of strategy is being introduced to sourcing, the definition becomes even more confusing. How can strategic sourcing be used if there is not even common ground on what sourcing actually means? This article will first create common ground by analysing definitions in search of a common denominator in order to suggest a new definition. Secondly, it will show that strategic sourcing is, in many cases, not as strategic as it is claimed to be, and suggests how strategic sourcing should be defined. Furthermore, a conceptual framework will be presented on how sourcing can be used as a true strategic function. Sourcing has come a long way; this article tries to make a first step on an even longer road that is still ahead.

Sourcing: finding a definition

As stated earlier sourcing is becoming increasingly popular and a very relevant topic in organization and management studies. Basically, the goal of all companies is sustainable and competitive selling of goods and/or services. In order to produce these goods and services input is needed. This input can be tangible, like raw materials or employees, or intangible, like information or skills. They all originate from some source and this is were sourcing activities come into play.

Several definitions of sourcing have been given in literature. ‘Sourcing is researching the market for potential input sources, securing the continuity of these sources, searching for alternative sources and keeping the relevant knowledge up to date’ [Vollman, Berry, Whybark, 1984, p. 148; van Weele, 1994].

Sourcing Management (Kraljic, 1983) is labelled as ‘Bottleneck Supply’ and consists of supply that is also uncertain, but of relatively low importance for companies in terms of volume purchased, total purchase cost, or impact on product quality or business growth. Bottleneck suppliers can be found in Figure 1.

‘Sourcing is the way an organisation acquires its needed goods and services in such an integrated manner that functional and hierarchical organisational boundaries are permeated’ [Groeneveld, Hofstra, 1995].

‘Sourcing is the process of finding and subsequently managing a source for the input of production’ [Mol, 2001, p. 1].

Figure 1: Supply Management Model. Source Kraljic (1983)

The definitions are different but have some things in common, for example, ‘sources for the input of production’.

The definition used in this article is:

“Sourcing is the process of analysing potential input sources, choosing and securing the continuity of these sources for input of production and, subsequently, managing these sources”.

This definition is chosen for several reasons. First, for the purpose of analysis of potential sources, not just existing sources. Secondly, there is an emphasis on continuity. Thirdly, because it concerns not just closing a deal, but true management of the source. This article emphasizes both external and internal sources.

Historic overview

As can be concluded from the sourcing definition, sourcing is a specific topic but highly related to purchasing. The rise of sourcing is also related to the way we think about purchasing. For a short historic impression, some points of development of purchasing are presented here [Ellram, Carr, 1994]. In the early 1970s Ammer noted that top management looked at purchasing as playing a passive role in business organization. Ansoff supported this view, stating that purchasing could be described rather as an administrative than a strategic function. The 1973-74 oil crisis and related raw material shortages drew significant attention to the importance of purchasing and sourcing. However, in spite of the crisis, the role of purchasing and sourcing did not improve. Later on Porter, in his seminal work on forces that shape the competitive nature of industry, identified buyers and suppliers as two of five critical forces. Thus, the strategic importance of suppliers and the company as a purchasing entity (acquiring sources) began receiving recognition in main stream strategy literature. In the 1980s many authors noted the benefits of greater strategic involvement of the purchasing function. However, until late in the decade only limited gains appeared to have been made. During the early 1990s the research focus appeared to have shifted towards integration, and how the purchasing and sourcing function can become recognized as a more significant contributor to the company’s success.

Purchasing and Supply Management Trends

So the position of purchasing and sourcing in management literature changed over time. Purchasing was once regarded as a reactive activity capable of only neutral or negative contribution. Nowadays the purchasing and sourcing process at leading companies is at the forefront of responding to and creating change. The ability of purchasing and sourcing-often in collaboration with other functional groups to affect cost, quality, time, technology and ultimately customer satisfaction-is substantial.

Now what trends influenced this change in view? Based on a research survey among purchasing and sourcing executives the following categories of change and trends can be identified [Trent, Monczka, 1998]:

1. Performance improvement requirements;

2. Supplier and purchasing and sourcing importance;

3. Organization;

4. Systems development;

5. Performance measurement;

6. Supply base management;

7. Purchasing responsibilities and activities.

Performance improvement requirements

The need for continuous improvement is a widely accepted necessity. Commonly expected targets are continuous improvement of cycle time, cost, quality and delivery performance, both internally and from external suppliers. While quality and cost have always been important, time-related capabilities are rapidly becoming the next generation of ‘order winning’ characteristics.

Supplier, purchasing and sourcing importance

The shift in supplier importance is a result of at least five factors which affect most industries:

– The need to control unit cost;

– The need to reduce the total cost of acquisition;

– The increasing influence that suppliers have on the purchaser’s ability to respond to end customers particularly as it affects time-related requirements;

– An increased reliance on fewer suppliers;

– A willingness of purchasers to rely on suppliers to design and build entire subassemblies and subsystems.

Organization

The right organizational structure is essential for implementing leading-edge procurement strategies and plans. Today this often means using higher level teams to evaluate, select, manage and develop sources. Furthermore, there is a shift towards end-item focus instead of commodities, which results in hybrid structures reflecting a growing need for purchasing and sourcing to become more integrated with other parts of the organization.

System development

There is an emphasis on purchasing and sourcing systems development due to the need to co-ordinate purchasing and sourcing activities across buying locations, assuming an organizational rather than a functional perspective, and take on complex and strategic responsibilities with existing staff.

Performance measurement

Performance measurement is essential for gauging the overall effectiveness of functional and team-based strategies and plans. Specifically, purchasing and sourcing managers should rely on measurement systems to identify:

– supplier performance and opportunities for improvement;

– performance trends;

– the best suppliers to select, both for routine purchase requirements and critical items that would benefit from long-term purchase agreements;

– where to commit limited supplier/source development resources, the overall effectiveness of source management improvement efforts.

New measurement areas will emphasize purchasing and sourcing effectiveness rather than efficiency, reflecting a shift toward an increasingly strategic sourcing perspective.

Supply base management

Not long ago, it was common practice for buyers to play suppliers off against each other, switch suppliers frequently and offer only short-term contracts. Now changes are occurring in the way companies approach and manage their supply base. Most companies will continue to reduce the total number of suppliers they maintain. Another related trend is to rely on larger full-service suppliers to design and build entire subsystems, instead of many suppliers providing components of the subsystem. Many supplier base reductions involved a smaller group out of the original group of suppliers. Supply base improvements might have been greater if purchasing and sourcing had broadened their supply/source search. Supplier/source optimisation can create a foundation to pursue more complex activities that will further accelerate improvement.

Purchasing and Sourcing responsibilities and activities

If an increase in purchasing and sourcing importance is taking place, then shifting responsibilities over time should reflect this importance. A continued increase in strategic and external focus can be expected. Furthermore, a decrease in tactically oriented tasks can be expected.

Case: Siemens

In 1997, purchasing at Siemens Medical Systems was a strictly local affair [Carbone, 2001]. It was then decided that a strategic purchasing organization should be created. Its mission would be to leverage Medical Systems group material purchases with suppliers, tap into their technical expertise, and form long-term relationships with them. The idea of strategic purchasing was to reduce cost, guarantee supply and making sure Siemens had access to the latest and best technology needed for medical equipment. In order to make the reorganization a success, Siemens developed a survey in order to identify problem areas it needed to address. This survey was based on a benchmarking study of the purchasing organizations of IBM, Hewlett-Packard, ABB, Ericsson, Nokia and others. The survey was used at Siemens’ various purchasing departments at various facilities. The results were evaluated and the departments were rated to determine their strengths and weaknesses.

Strategic sourcing

So historic developments and trends all push towards a more important role for sourcing and show a need for a more cross-functional and strategic focus.

What is this new strategic role of sourcing and what sorts of strategies are possible? It appears that there are three distinct types of strategies for purchasing [Ellram, Carr, 1994] which can also be used for sourcing:

1. Specific strategies employed for the sourcing function;

2. Sourcing’s role in supporting the strategies of other functions and those of the company as a whole;

3. Utilization of sourcing as a strategic function of the company.

While these three issues are related, they are distinct areas in terms of their execution and impact on the sourcing function. At the first level sourcing draws up its own strategies and plans, while at a larger level these might prove to be dysfunctional for the organization as a whole. At the second level the sourcing strategies are drawn up to maximally support the company strategy. At the third level sourcing is an integral part of the strategic planning process of the company. One of the statements in the introduction was that strategic sourcing is in many instances not as strategic as it is claimed to be. Two gaps can be identified to explain this.

Firstly, although the sourcing function is reported to be strategic there is no empirical evidence of this.

Example: the intention gap

The purchasing function is caught in a gap between strategic intentions and tactical realities [Moody, 2001]. In a study called “Purchasing’s strategic Role and team usage” researchers looked at what purchasing leaders regard as important strategic work, applying their knowledge about suppliers and technologies to help the company make decisions on outsourcing, new product development and market planning, and compare it with what their organizations actually do. Their findings indicate a wide gap between intentions and reality. To determine purchasing’s role in strategy, the researchers asked chief purchasing officers to rate their involvement in 13 major corporate activities using a five point Likert scale. Even top-ranked outsourcing was rated at 3.46, only a moderately important level; the 13th parameter had a 2.01 standing, indicating that purchasing departments were only slightly involved in marketing planning. Clearly the buzz about strategic purchasing is supported by the data.

Secondly, while strategic sourcing or purchasing is being reported, the question is what type of strategy is being referred to.

Example: Strategic buying

An article on strategic buying [Sherer, 2000] has the subtitle: ‘nine steps for getting the right IT system for your organization’. Instead of dealing with the strategy of the sourcing function or sourcing as a strategic function, a nine-step method is being described which secures the right purchase of an information system for a healthcare organization. In light of the three strategy types, this would be at best a ‘type one’ strategy.

The authors claim that most of the employed strategies are of type one or two and that strategy of type three is still very unusual.

In this article strategic sourcing is considered to make an explicit contribution to the organizational strategy and long term success. Therefore it is either level two or three.

The definition of strategic sourcing used here is:

The process of analysing potential input from internal and external sources, choosing and securing continuity of these sources for the input of production and subsequently managing these sources in order to create sustainable competitive advantage for the organization.

This definition contains the popular activities of in- and outsourcing.

Some differences between traditional sourcing and strategic sourcing are presented in Figure 2.

Figure 2: From traditional to strategic sourcing. Source Nolan Norton Institute (1999)

Pathway to improvement

There is probably no such thing as a ‘big bang scenario’ to introduce strategic sourcing from scratch. The development of strategic sourcing within an organization is more like an evolving process. Most literature refers to several ‘phases’ or ‘stages’ sourcing must go through before it can truly become strategic in nature, and contribute to organizational strategy. This evolving process includes development of new skills for the sourcing function and a different mindset by top management and other functional areas. Sourcing must be considered an important contributor to the organizations long-term success and strategy. Now if sourcing grows in strategic posture, what kind of gains can be realized? In figure 3 several levels of procurement development are discussed. In order to achieve higher levels of development, the sourcing function must also gain in sophistication and strategic posture.

Figure 3 Source Anderson (1998)

For each level of development, higher value adding for the organization can be achieved. The first three levels are mainly focused on cost, taking a total cost of ownership (TCO) view, and furthermore on quality and making time related issues predictable. Level 4 is focussed on achieving higher extra value for the end customer, thus realizing higher revenues. Value drivers in level 4 are again cost and quality, but also shorter time to market and leverage technology and skills from the entire value chain.

Case: Siemens

Forming a strategic purchasing organization allowed Siemens to improve its purchasing coordination and streamline its logistical and information flows. This took Siemens into to the second improvement level. However, the strategic purchasing project did not stop there. Siemens formed eight material groups to handle its strategic sourcing issues. This resulted in reduced complexity and increased standardization. Furthermore, suppliers were involved in the process of new product development, thus taking Siemens into the third improvement level. All these reorganizations did not go without reward. Siemens reduced its material costs by 25% over a three year period and brought products to the market quicker.

What do these levels mean for the three types of sourcing strategy? With a specific strategy for the sourcing function an organization can reach level 1 or 2. To really make the most out of level 2 and reach level 3 the sourcing strategy must really be aligned with the organization strategy. In order to make more out of level 3 and to reach level 4 sourcing must be fully integrated within the organization’s strategic planning, thus really achieving the strategic sourcing posture.

Example: why improve?

By improving the sourcing function significant benefits can be realized. Reaching level one yields cost savings between 5-15%. Level two 5-25%. Level three varies widely and level four will increase revenue. Leaders in procurement are highly developed at the first three levels. Level four is a “new frontier”; few companies are pursuing its potential in their situation [Anderson and Katz, 1998]

Concluding Remarks

Enterprises are increasingly turning to multiple internal and external sources, making sourcing a hot topic within companies. Each company must define its intended sourcing strategy and most appropriate implementation in order to create sustainable competitive advantage for the organization. There is probably no such thing as a ‘big bang scenario’ to introduce strategic sourcing from scratch. The development of strategic sourcing within an organization is more like an evolving process.

As can be concluded, different levels of improvement in the sourcing function can be attained. Each higher level yielding an increased payoff. Attaining a higher level does also acquire a more sophisticated sourcing function. Most companies do not seem to surpass the basic cost cutting level and are losing out on additional cost savings and increased revenue. Acquiring your input for less is only the beginning. A company should assess how strategic their sourcing function really is. Changes are the sourcing strategy comes closer to transactional optimisation than a cross-functional process to attain competitive advantage. Furthermore a company should asses its sourcing goals. Most likely the goals will correspond with buying for less or taking the total cost of ownership view and thus try to buy better. Most companies do not make the most of their sourcing function and are losing out on a change to gain competitive advantage.

This article gives the initial impetus to the overview of strategy in sourcing. While the topic strategic sourcing is not a new phenomenon, much research is still needed.

As the concept of sourcing matures, a need to validate and build on sourcing concepts exists. There is still much academic work required in creating sophisticated concepts that will help organizations to actually acquire higher levels of improvement for their sourcing function.

Literature

– Anderson M., Katz P.; Strategic sourcing; 1998

– Ansoff, H. I. (1965). Corporate Strategy: An Analytical Approach to Business Policy for Growth and Expansion

– Carbone J.; Strategic purchasing cuts cost 25% at Siemens; 2001

– Carter J., Narasimhan R.; Is purchasing really strategic?; 1996

– Degraeve Z., Roodhooft F.; Determining sourcing strategies: a decision model based on activity and cost driver information; 1997

– Diromualdo A., Gurbaxani V.; Strategic intent for IT outsourcing; 1998

– Ellram L., Carr A.; Strategic purchasing: A history and review of the literature; 1994

– Ellram L., Maltz A.; The use of total cost of ownership concepts to model the outsourcing decision; 1995

– Garr D.; Inside out sourcing; 2001

– Giunipero L., Monczka R.; Organizational approaches to managing international sourcing; 1997

– Groeneveld J., Hofstra N.; Strategic sourcing; 1995

– Groot E., Leewis P.; Strategic sourcing; 1996

– Henderson J., Venkatraman H.; Strategic alignment: leveraging information technology for transforming organizations; 1999

– Laseter T.; Balanced sourcing; 1998

– McFarlan W., Nolan R.; How to manage an IT outsourcing alliance; 1995

– McIvor R., Humphreys P.; A strategic model for the formulation of an effective make or buy decision; 1997

– Mehltretter S.; Strategic sourcing means just that-sourcing strategically; 1996

– Mol M.; Outsourcing, supplier relations and internationalisation: global sourcing strategy as a Chinese puzzle; 2001

– Monczka R., Carter P.; The future of purchasing and supply : A ten-year forecast ; 2000

– Monczka R., Morgan J.; Competitive supply strategies for the 21 Century; 2000

– Monczka R., Trent R.; Worldwide sourcing : assessment and execution ; 1992

– Moody P.; Strategic purchasing remains an oxymoron; 2001

– Nooteboom B.; A balanced theory of sourcing, collaboration and networks; 2002

– Penner R.; Sourcing strategies and spatial patterns of production in the automotive industry: a dutch survey; 1990

– Oudijk, S.; Niet meer wachten op alle handtekeningen; 2000

– Quinn J.; Strategic outsourcing: leveraging knowledge capabilities; 1999

– Schorr J.; Purchasing in the 21st century: a guide to state of the art techniques and strategies; 1998

– Sherer J,; Strategic buying: Nine steps for getting the right IT system for your organization; 2000

– Sislian E., Satir A.; Strategic sourcing: A framework and a casestudy; 2000

– Trent R., Monczka R.; Effective cross-functional sourcing teams : Critical success factors ; 1994

– Trent T., Monczka R.; Purchasing and supply management : Trends and changes throughout the 1990’s; 1998

– Venkatraman N.; Beyond outsourcing: Managing IT resources as a value center; 1997

– Venkatraman N.; Five steps to a dot com strategy: How to find your footing on the web; 2000

– Weele van A.; Inkoop in strategisch perspectief; 1997

– Zee van der H., Wijngaarden van P.; Strategic sourcing and partnerships: challenging scenarios for IT alliances in the network era; 1999

– Dreyfuss C.; The promising journey towards the sourcing offce; 2002

– Da Rold C.; How good is your sourcing strategy, 2002

– Stone L.; Management update: The chief sourcing offcer- a new role and a new reality; 2002

– Harris K.; Sourcing and strategic knowledge management; 2002

– Da Rold C.; The five dimensions of strategic sourcing; 2001

– Da Rold C.; Sourcing strategies: evaluate your ability before moving; 2001

– Freling R., Romeijn E., Morales D., Wagelmans A.; A branch and price algorithm for the multi-period single sourcing problem; 1999

BB Chart: A Method for Targeting Benefits and Barriers in Business Opportunities

Business leaders are always looking for new opportunities to reduce costs or increase profits. However, these opportunities may only be discussed during strategic meetings, often by doing an analysis of Strengths, Weaknesses, Opportunities, Threats (aka SWOT). SWOT is a great tool for leaders to see where the business has been, where it is now, and where it could go. However, the result of SWOT falls short when some of the opportunities identified may not be immediately pursued. This can be due to management feeling they need to do further research before proceeding with an opportunity. This follow-up research can take lots of time, effort, dollars, and possibly result in lost opportunities. Instead, decide if additional research is necessary and which opportunities are immediately implementable by following the SWOT exercise with a quick Benefits and Barriers (BB) review.

To do a BB review, simply make a T-chart with each opportunity listed on the top of a separate page. Then put the words “Benefits” on the left side of the T and “Barriers” on the right. Once the chart template is ready, leaders can begin to brainstorm ideas to place into each side of the chart.

Benefit examples: rapid influx of cash, easy to do, profit increase, already have expertise, low cost to implement, matches long-term goals/objectives, can use existing equipment, cost savings, strong market for product, easy to sell, fits into corporate values, improves customer satisfaction, etc.
Barrier examples: costly to implement, do not have expertise, requires training, quality concerns, special equipment is necessary, expensive to implement, takes too much time, government restrictions, outside current customer base, legal issues, requires additional insurance, more space needed, etc.

Once the ideas for the chart are exhausted, leaders can easily see where benefits outweigh barriers to quickly implement some opportunities. If barriers are much larger than benefits, those opportunities may not be worth pursuing at this time. Where benefits and barriers appear equal, further research may be warranted to make a decision and determine potential for return on investment. For those opportunities that will not be immediately implemented and still look promising, the leadership can now make a plan for overcoming the barriers so that the business can reap future benefits.

An alternative method to quickly analyze each opportunity during a strategic meeting is to break the leadership team into sub-groups of three to four people. Each sub-group would be assigned two or three of the most interesting opportunities to do a BB chart for in a short period of time. Once the charts are complete, the sub-groups would re-unite into the larger leadership team to vote on which opportunities to pursue, which to research more, and which to abandon for now.

SWOT analysis is a useful tool for business leaders to determine where the business is and where they want the business to go. However, do not stop there as it can let easy opportunities slip through the cracks by trying to do too much research before starting them. Instead, use the BB chart to target the benefits and barriers of potential opportunities. This charting method allows for quick execution of those opportunities that will quickly result in immediate benefits to the business. As well as identifying which opportunities are worth the time and effort of additional research versus those that may not be as advantageous as they appear when brought before the business leaders.

Mind Mapping and Information Gathering For Successful Drafting Of a Business Plan

Information Gathering Prior To Drafting the Business Plan – The planning phase.

Business or hobby?

A question begging an honest answer is, “Is it a business you want to start or is it a hobby?” This is a vitally important question because these are two very different enterprises or entities. To start and run a business takes a lot of extensive, in depth analytical thinking, legal steps need to be taken, and a lot of planning and budgeting needs to be done. One can’t stress this enough.

Entrepreneurial skills

Entrepreneurial skills are naturally inbred in very few people. The Indians and Chinese seem to have it as a natural trait. Many people think that because they’re starting a trading business, that it should just succeed because they are buying at a low cost and selling at a higher price. So, therefore then, a profit should be shown and all should be in order. Not true in many cases, many hidden costs are not taken account of. Hidden costs exist such as telephone, petrol/transport, stall or rental, packaging, owner’s salary, and so forth.

Many times the business owner uses the money, which should be in reserve for purchasing more stock, for his personal use and then he wonders how all the money or profit has “disappeared”. Now he would need to raise more money somehow to purchase his next batch of stock and/or raw materials. Such a business owner is actually getting poorer each day and he is hardly aware of it.

If one approaches only one’s friends and family with a business idea, and none of them have the necessary knowledge to advise one, the rot will begin to set in. Wrong or ill-informed advice is not what you need.

Drafting a complete and accurate business plan is a very important step that anyone can take who wants to start any new business, or expand an existing business. The business plan covers all the important steps, decisions, reports and forecasts needed to assess the likelihood of success or failure in the new venture. At least one then has a foundation from which to work. It can always be used for reference purposes during the life of the business and it can easily be adjusted for future expansions or changes to the business process.

Planning the business, mind mapping and information gathering

The act of planning helps you to think things through thoroughly, study and research if you are not sure of the facts, and look at your ideas critically. It takes time now, but avoids costly, perhaps disastrous, mistakes later.

Bankers and financiers presume that one means business when one approaches them in this regard and they expect to receive honest and accurate information. There is no quick and easy way to deal with this; it’s their way or no way.

We all have skills, talents and learned abilities. These can be used to operate a business, which will generate an income. Extensive, in depth analytical thinking and planning is very important though because, without it one is destined to fail.

Discuss your business plan with people who can give you advice; Bankers, Dept. Trade and Industry, Business Partners Inc., other institutions who grant money for small business initiatives, an attorney, an accountant and various other people who have a wealth of experience in their fields of speciality.

When planning to start a business take the following steps:

Speak to product specialists for their advice concerning your products and/or services.
Speak to bankers, a lawyer, an accountant and a number of institutions offering grants or loans to small business initiatives.
The above people will give you a blank Business Plan form, among other forms, to complete.
The business plan is normally of great assistance in planning and budgeting for the business. And it is a good guide to all that needs to be done and decided upon.

Meet with whoever your partners will be, if any, and discuss the whole planned business process, including:

The type of business ownership best suited to your business
The products or services to be offered
The premises needed
The machinery and vehicles needed
Start up expenses need to be established and discussed
Capital requirements and directorship of the business
Decide on who will perform which functions in the running of the business.
Your target market
The environment of your area to be covered
The economy relating to that area, current demand, future growth, etc.
Determine what barriers exist at present which may hinder your success
Promotion of your products and/or services
Distribution channels
Operational plan i.r.o purchasing, production, sales, etc. needs discussing
Legal environment and requirements
Inventory and suppliers
Insurance and other professional advisory requirements like, lawyer, accountant.
Establish a system of record keeping
Bank services needed
Personnel requirements and Human Resource policies
Do the costing of each product very accurately.
Calculate selling prices based on all costs plus mark up
Draft the projected financial plan or budget for twelve months
Draft the projected cash flow for twelve months
Draft a starting balance sheet

This key information will then be used to draft a meaningful business plan. And the information is all inter related an in sync. In closing, the pre-planning phase takes time and effort but it is very necessary as a step to ensuring success.

3 Keys To Starting A Small Business

Since the majority of startup small businesses fail, how can you succeed?

Before we answer this, who am I? I have set up and sold 4 small businesses over the last few years, all of which continue to be successful, so I know a few things about the subject.

Now, let’s get to the main points:

Planning

It is important to know what, when, why, where and how you are going to start your business. Unless you have clear focus, don’t even try, it will just be a waste of your time and energy.

In addition, you will want to do whatever courses are available that might help you achieve your goals. For instance, in my case, before starting my most recent venture, I completed a Certificate 3 in Business Studies, a Diploma in Digital Marketing, a Diploma in Sales, and, a Diploma in Project Management.

Practice

What I mean by practice is not to just dive straight in and learn on the job, no, what will really help you is to observe how SUCCESSFUL people have started the same kind of business that you are attempting to start. How can you do this? One effective way is by getting a job in the industry where you intend to work. Once you have done this, observe the process. If it truly is a successful business, they will have a highly organized and effective process.

Another possibility is actually starting the business. I know, I know, I said don’t do this, however, this suggestion has a little difference. Start the business with no expectations. Become the marketing director, accounts manager, sales director etc… do everything yourself. The problem with this approach is that it will take up huge amounts of time, amounts of time that will be saved, if you are able to work in a successful business that someone else has started. Yes, this suggestion is the harder of the two routes, however what it does do is go from theory to a complete practical knowledge of the industry, to become fully immersed in it.

Pursue

There is a reason why 4 out of 5 small business start ups fail, the rewards are hard to achieve and take inordinate amounts of time to achieve. How can you get over this obstacle?

The key is to Pursue. You need to be focused on your goal, and, never to look away or be distracted from this purpose. How long can you focus on your goal? Only you can answer that! However, realistically, it will take you some years to truly progress in your endeavor. If you are someone who gives up easily, you should really not try to start a business. Instead, look for a well paying job.

The Benefits

If it is all such hard work, why bother? The rewards can be huge. Consider just a few:

*Time – Have a flexible schedule, spend more time with your family or other priorities.

*Passive Income – Depending on the type of business you intend to start, it may keep paying you even when you are not working.

*Capital Gains – You have the possibility of achieving significant R.O.I on the outlay involved in starting your business.

Want to start a business? Go for it! But, remember to Plan, Practice and Pursue!

CFO Succession Planning – 3 Tactics to Use If You’re Not Being Groomed for the CFO Position

CFO succession planning doesn’t exist in a majority of companies. As a result, talented mid-level executives are left with considerable uncertainty about their opportunities for continued professional advancement. However, there is a way for aspiring CFO candidates to prosper and grow within this environment of uncertainty.

It’s very natural to want to be your company’s next CFO. After all, you’re smart. You’ve worked hard. Your college degrees and professional designations have provided you with the insight and skills required for success. And deep down, you know you deserve the promotion plus the recognition and rewards that go with it. As country music superstar Tim McGraw accurately sings, “Everybody wants to be the big dog, Wanna wag that big dog tail.”

But, to position yourself as the candidate of choice the next time a CFO position opens up (and they tend to open up rather frequently), you must do much more than shape the company’s balance sheet. You must understand the company’s business. You must understand the company’s politics. You must understand your own strengths and weaknesses. And last but not least, you absolutely must play a very active role in the long-term succession planning and candidate grooming process.

Here are the facts. The November 2007 issue of CFO magazine reports that your company’s current CFO is not planning his successor. And, on a more personal note, neither your company nor your CFO is actively grooming you to assume the duties of the CFO. This article is based on interviews with 1,400 CFOs who were asked, “Have you identified a successor for your position,” and the results were astonishing. A full 83% of respondents indicated that they have not identified a successor for the CFO role. And further, when asked, “If not, why not,” 74% of the respondents replied, “Not planning on leaving in the near future,” and 12% answered, “No qualified candidates currently working in the organization.”

Bottom line, only 17%, or less than one in five companies, have identified a successor for the CFO position. Their reasons may vary, but CFO turnover statistics indicate that companies would be wise to have a well defined CFO succession planning process in place. And that spells opportunity for you.

Although 74% of CFOs may not be planning to leave in the near future, the reality is that the average CFO tenure is less than five years, which is south of recent years when the average tenure was seven to twelve years. Regulatory liabilities and overall business pressures have driven CFO tenure downward simultaneously with the increased complexity of CFO recruitment. With the average executive tenure decreasing you can expect the number of internal promotions to decrease also, unless a real and robust succession planning process exists organizationally. Your career is in your hands.

Prior to evaluating your succession planning goals, answer this question, “Am I ready and capable to be the CFO of this or another organization?” Your ego and confidence will say yes. However, for greater clarity you should talk with mentors, cross-functional leaders and an executive recruiter you have developed a relationship with. They see you in comparison to the broader CFO ranks and will give you candid feedback to balance your self-perception with market demands. Once you are certain of your readiness to become CFO you can assess your company’s succession planning process.

With more than 225 executive searches behind me, I’ve identified three key areas that you can explore to help you better evaluate your personal CFO succession planning preparedness, as follows:

1. How long have the current CEO and CFO been in place and what was their previous tenure? CEOs turn over more frequently than CFOs and often, a new CEO will bring his or her own CFO. While it’s hard to predict CEO and CFO tenure, the best future predictor is past performance.

2. Does your CFO have a track record of successfully developing others into a CFO role, either internally or externally? The fact that your CFO has been there a while or looks to be settling in is not necessarily bad for your development. In fact, this can be positive situation as long as your CFO has experience developing leaders to the point they are recruited away.

3. Ask for a specific succession plan and the relative frequency and style of communication you can expect throughout the process. Lack of a plan or lack of interest to discuss a plan will give you flashing lights of caution. In addition, ask for a thorough annual or semi-annual evaluation relative to your capabilities, experiences and acumen from cross-functional leaders. These individuals will share breadth they see valuable to a successful CFO. If your company is committed to a succession planning process, these steps will be built into it and will be relatively easy to self-administer. On the other hand, if your company is not actively involved in a succession planning process, your efforts will typically be recognized and rewarded with an informal roadmap to success. Either way, you win!

It’s crystal clear that you are responsible for assessing your company’s succession planning and driving your career into the CFO suite. Answering the above questions will give you a better understanding as to whether you are in control of your career trajectory or whether others are planning the process with you.

Cartesis Business Performance Management Solutions

Most financial executives use some form of rolling forecast to guide their financial planning and budgeting efforts, but do so in rudimentary fashion, employing mostly manual business performance management processes and spreadsheets that inevitably fail to deliver the accuracy and manageability they are seeking.

A recent survey of more than 320 senior finance executives in North America and Europe showed that over 68% of companies have developed and deployed rolling forecasts. However, most of these executives still feel they need to improve the accuracy of their financial forecasts as well as the time it takes them to produce these forecasts.

The study, conducted in September 2006 by CFO Research Services (Boston, MA) and Cartesis also showed that:

Companies need better forecasting methods, which solutions such as Cartesis Business Performance Management software can provide. These solutions allow the expanded use of operational drivers, better what-if scenario creation and increased collaboration throughout the forecasting process
Finance executives — hampered by a shortage of time and resources — endorse an incremental approach to changes in their forecasting technology and business processes

Forecasting With a Moving Horizon

The manner in which a company forecasts its financial and operational activities is a key factor in how efficiently and effectively that company can allocate its resources, make investments, guide shareholders and achieve and measure results. Finance executives in the survey agreed that better forecasting would lead to tangible benefits, such as reduced risk and increased profitability.

The survey also showed that two-thirds of respondents who use rolling forecasts utilize a basic 12-month time horizon, when 15 months or more is actually preferred. And nearly one-half of respondents use only spreadsheets for financial forecasting, while an additional 21 percent use custom applications built around spreadsheets. Less than one-fourth use a dedicated financial planning, budgeting and forecasting application, such as Cartesis Planning, or a fully integrated business performance management software solution, such as Cartesis 10.Steps to Better Budgeting and Rolling Forecasts

In order to help companies address the financial forecasting and budgeting challenges discussed above, Cartesis recommends a pragmatic approach. The approach ensures that early wins will save time and money, which can be later “spent” on additional improvements that create long-term value.

Quick wins through automation — The use of planning and forecasting applications, such as Cartesis Planning, enables companies to automate processes and reduce reliance on spreadsheets for immediate benefits.

Ease of use as a priority — Rolling forecasts are simple to create, even for multi-year horizons; forecast templates adjust to each business unit; and benchmarking and what-if analysis are easy, enabling managers to better predict and measure business performance.

Collaboration with flexibility and control — Collaboration, made easier with workflow management, results in forecasts that are more accurate and aligned with the corporate strategy.

Adaptive financial planning for continuous change — Adaptive planning involves continuously improving the planning process to capitalize on previous gains.

Introduction to Strategy and Strategic Management

What is Strategy?

We hear the term strategy almost every day in some context or the other. Business leaders lay out their strategies for the years ahead and military generals speak of strategy to contain and conquer the enemy. Even as individuals, we often use the term strategy to describe a set of actions that we would take to control the future and arrive at outcomes that are beneficial to us. Hence, strategy is an integral part of our world and it can be defined as a general, un-detailed plan of action, encompassing a long period to arrive at a complicated goal. It is also defined as the set of actions to realize intent as a ploy, part of a plan. It follows from these definitions that strategy and strategizing involve drawing up plans to arrive at a predetermined goal.

What is Strategic Management?

We have defined strategy. Turning to strategic management, it can be said that the term refers to the management of strategy by having dedicated, detailed, and descriptive plans of actions that form the strategy. It is also the field in management thought that deals with planning, executing, controlling, and closing out the strategic moves.

If a firm has a strategy in place to realize its targeted revenues and profits, the management of the process by which it hopes to realize its goals falls under strategic management. An ongoing process evaluates different sets of strategies, assesses competitor moves, sets goals and targets, and actualizes the feedback loop to incorporate learning’s into its strategies. Indeed, it can be said that strategic management identifies the purpose of the firm and helps organize the plans and actions to actualize the purpose. By definition, it is a long-term process and it is the business function that is considered the repository of the firm’s future.

Strategy/Strategic Management and their place in the Firm

The previous sections have discussed how strategy and strategy management are integral to the success of the firm. In any organization, strategic management is a level of managerial activity that is below setting goals but above tactical planning. Strategic management in a firm is thus concerned with the future direction that the firm takes and hence, it is an important function of management.

Typically, the corporate planning function in any organization draws up the strategies and sometimes-outside help from management consultants is sought in this regard. In recent years, it has become the norm in the corporate world for the senior management to get actively involved in the formulation of strategy.

Hence, it can be said that strategic management is no longer the important function but has become the most important function. This has happened because of the uncertain and unpredictable world that we live which has resulted in organizations scrambling to devise ways and means of controlling future outcomes. In this regard alone, strategic management has become a valuable function without which no organization can hope to succeed in the turbulent marketplace.

Cost Effective Small Business Marketing Strategies and Tips – Part Two

In my previous article (part 1), I discussed Marketing Keys, Marketing Plan Components and Creative Marketing. Now I will get into specific, cost effective marketing methods and strategies you can use today to increase your company’s exposure and profits.

MARKETING METHODS

Internet

-Highly targeted and extremely economical

-Extremely Interactive

Magazines

-Targets your niche

-Creates credibility

-Establishes Identity & Brand

TV

-Can be very cost effective

-Great for demonstrations

Direct Mail

-Highly targeted

-Medium that allows you to go through the entire sales process.

-Augmented with Follow-up Mailing and Telemarketing is very effective

Canvassing

-Provides personal contact, which can be the most effective

-Backed by targeted mailings and TV advertising increases its conversion ratio

Outdoor Billboards

-Constant Reminder

-Especially good for “Next Exit” Location traffic targeting

Indoor Signs

-Capitalizing on your marketing’s momentum

-Can be the most important sign – even more crucial than outdoor signage

-Signs don’t have to be static: i.e. Video Message, Slide Show, etc.

Online Marketing

-Absolutely the best medium which economically blends high interactivity with action

-Examples: Email, video & audio postcards, forums, blogs, websites, texting

-Very effective when content based

-Prospective customers are not constrained by time

-Good, targeted, updated content means repeat customer visits

-Great Follow up, Resale, Cross-sale and Up sell medium

-Exponential results when augmented by offline marketing

Classified Ads

-Very cost effective for a broad customer base

-Targets the very hottest prospects

-Confronts your competition head on

Brochures

-Only effective if combined with online and offline marketing

-Always a good after sale piece to keep the customer thinking of you

-Code the brochure, ask the customer to pass it out and provide discounts or referral fees back

Phone

-Telemarketing only effective if part of an Opt In Marketing Campaign, whether online or offline or both.

Reminder Tools

-Refrigerator magnet is the most effective

-Double sided or folded business card which provides mini-brochure capabilities

Trade Shows

-Targeted and motivated prospects

-Consider online versions

Publicity

-Public Relations driven marketing can be cost effective. Establish reputation and credibility

Community Relations & Sponsorship

-Establish powerful contacts and connections

-Great for image

-Great constant reminder

-Create an edge over the competition

-Needs to be sincere

COMBINE MARKETING TOOLS & METHODS

Creative Strategic Marketing is based on developing multiple Marketing Tools in concert to achieve an out-of-the box, competitively advantaged Creative Strategy. Marketing Methods should be integrated together for each cohesive Marketing Strategy, and then adjusted as the campaign proceeds and develops. Personally, I believe one of the most lethal combinations of Marketing Platforms are:

–Developing a Content Rich Internet Presence

–Online Marketing through Opt In

–Advertise free Articles, Newsletter, Guides, Webinar, etc. in a targeted Magazine Ad

This combination of print and online marketing is very cost effective, yet lucrative. Explore the possibilities.

The important thing to keep in mind when executing multiple Marketing Tools, Forums and Methods in a synergetic strategy is to carefully track and monitor the results, making Key changes as the initiative develops. This is where an online / internet marketing platform is so valuable because it can adeptly track results (i.e. conversion rate, response rate) in real time.

ONLINE MARKETING CALENDAR

A good Marketing Calendar is based on a 52 week year and helps considerably in planning and budgeting a Marketing Strategy. At any point in time, you can determine the best ads to run, what needs to be in inventory for the anticipated sales, the project costs and projected sales. The calendar should be an online platform for maximum interactivity, utility, access, flexibility and integration. The Marketing Calendar should be fully integrated with the Marketing Strategy, Strategic Plan and Budgeting Process for maximum utility. The calendar should be in an expandable spreadsheet format to reveal all necessary details for each marketing method within an overall strategy.

COST EFFECTIVE MARKETING STRATEGIES

Profitable Marketing does not have to be expensive! Some cost saving tips:

Cooperative Advertising

-Can save upwards of 50%. Partner up with a larger company, mention their name and get paid for the promotion. Spread the ad cost among fellow advertisers.

Per Order or Inquiry Payment Method

-Advertising costs subtracted after a sale or defined event.

Survey your Current Customers

-Costs pennies to do, yet gives you the most up to the minute market trends. Plus gives you an opportunity to Cross or Up Sell the customer at the same time.

Backend Products & Services

-Bundle your offerings to minimize your marketing cost per sale.

Code your Ads

-Codes allow you to track and measure your marketing strategy’s results. By keeping ahead of the campaign roll out you can adjust for maximum cost effectiveness.

-Online tracking is the most beneficial and cost effective means of keeping your marketing costs in line with your budget, while providing you where the most profits can be made per marketing dollar spent.

Don’t Use a Rate Card

-Make an offer for all your advertising – rates are always negotiable.

-A 30 second TV spot can be as effective as the more expensive 60 second one.

-Tap into Remnant Magazine Space

-Extra, unused ad space sells at substantial discounts.

TV Ad Tips

-Tight scripts and excellent prior planning cuts down the time costs.

-Do your Ad in 3-4 renditions move session.

-Use a production studio during off-peak times.

Concentrate Efforts on Established Customers

-Customers are 85% cheaper to market; Keep a good balance between Customer and Prospect marketing efforts.

-Exponentially expand your sales, cost effectively, through a Customer Referral Program.

-Up sell, Cross Sell, Cross Promote

Combination Marketing

A very cost-effective and successful combination is pairing a Magazine Ad with a Website. Offer a FREE Newsletter, Guide, E-book, etc and set yourself up as an Expert; mine the prospects data in a permission based, Opt In; Follow up free offering with product and service offerings. All your marketing efforts, mediums, tools and campaigns should be done in concert and combination as the results are exponential and the means cost-effective.

Website Design

-Web Design, Development and Optimization is very important, crucial in fact, but can be very expensive. –To cut Web design costs:

–Create your own content

–Write articles on areas you have Expert status or Knowledge

–Look at the web and decide what you want your site to look like and sketch it out, as well as, organize the link structure. Then have a designer lay out the website in a user friendly Content Management System, and you input all the content. Have the designer / developer review the site after your inputs for Search Engine Optimization tips.

Tip: Consider hiring a Web Designer / Developer overseas, such as from China or India, etc. They charge about $30 per hour (or less) verses $75 – 100 per hour. Make sure to carefully review a Designer / Developer’s credentials, referrals and past projects, to ensure credibility and reliability.

In the next article on Cost Effective Small Business Marketing, I will discuss Marketing Research and Targeted Marketing. Stay tuned!

A Tool For the Future – Assumption-Based Planning

The future is one of the most fascinating and talked about subjects today. You can see the future being practiced on a daily basis as people plan events and develop business ventures in a global dimension. Understanding the future is no longer achieved by performing magic or reading someone’s palm but is now recognized as a social science that can be identified as Strategic Foresight, Futures’ Studies, and Futuring (just to name a few), and becoming instrumental in developing new concepts and ideas in the fields of nanotechnology, neurotechnology, biotechnology, and electronics technology for the future.

One of the tools derived from strategic foresight or planning is called Assumption-Based Planning (ABP). This tool can be used to help people and planners from all walks of life recognize and incorporate assumptions in a plan during times of great uncertainty. James Dewar defines ABP as, “a tool designed for improving the robustness and adaptability of plans-reducing the number of avoidable surprises in any plan or planning.” You may be asking yourself at this moment how assumption-based planning can accommodate you for your future? The key is in knowing how to recognize assumptions through creative thinking and include the assumptions in your plans to avoid surprises that could destroy your plans. This article will demonstrate how assumption-based planning can become a tool to circumvent the element of surprise and utilize creative thinking and planning in the development of your own ABP.

Origination of ABP

The Rand Corporation developed the ABP in 1990 to assist the US Army in trend-based planning. James A. Dewar explains that the ABP is a “post-planning” tool (recognizing that planning is an iterative process) that concentrates on the assumption that there are possibilities in which a plan can fail; preparing for alternatives that affect an already-developed plan. “Specifically, the ABP works to decrease the risks that assumptions represent.” ABP originated as a five-step plan defining ways on how a plan could fail. Dewar maps the assumptions below.

Step 1 – Load-bearing and vulnerable assumptions – Load-bearing assumption is like a load-bearing beam; pull it out and the roof caves in. Vulnerable assumption is one that could fail within the expected lifetime of the plan. Both of these assumptions can resort to an alternative plan.

Step 2 – In a broken assumption, the hedging action prepares the planner for failure.

Step 3 – Signposts – warning signs that can be used to monitor assumptions that are mostly likely to produce surprises.

Step 4 – Shaping actions – help the assumptions play out to the planners’ satisfaction.

Step 5 – Hedging actions – prepares the planner for the possibility that the assumption will fail despite efforts to secure it.

Today’s global leaders need to consider the ever changing global environment and incorporate assumptions into their strategic foresight planning. On a personal basis, parents and children can learn to develop an ABP utilizing Dewar’s model, which can prepare them in creating and incorporating assumptions in the development of a futures’ plan for their activities, events, and their future. On a personal dimension, let’s visualize how an ABP can be applied to a family reunion event.

Forecasting a Family Plan Using an ABP

Let’s take the ABP into a personal level utilizing the imagination and creative abilities of the family members who will plan a family reunion. Imagine your family is planning a family reunion one year from today’s date. This is the plan; you incorporate assumptions into your post plan to develop a plan that ‘might’ meet the satisfaction of the family. Here are the assumptions:

Consider the family members that need to ask for time off from employers, which employers may not grant.
Consider travel costs over a person’s budget.
Consider the additional expenses each family will incur in case an unexpected emergency occurs and cancels their travel plans.
Consider the donations needed from each family to cover expenses for reunion and family member unable to supply. Will you pick up their tab?
Consider the possibility of some family members cancelling at the last minute.
Consider family members that do not contribute their part financially and need to be confronted.
Consider if hotel accommodations do meet with standards of family members.
Consider if reunion plans do not accommodate all age groups.
Consider any health or meal restrictions.
Consider available health professionals locale in case of emergency.
Consider activities for children and adults.

I believe you are seeing the picture of an ABP. It is taking all possible, probable causes and creating assumptive behaviors and/or actions that could alter a strategic foresight plan. If you write out Dewar’s model, and you are a visual learner, the model can be converted into a visible table that can benefit both planner and family member. Taking the location as part of the assumptive process, the ABP helps identify the ‘what if’s’ to the reunion’s ABP. Consider some of the assumptions in the example below:

Load-bearing vulnerable – Location provides for indoor and outdoor events
Broken assumptions – Location is vulnerable to inclement weather and power outages
Sign-Post – Family reads reviews of previous customers
Shaping Actions – Family asks location manager to guarantee generator in case of power outage.
Hedging Actions – Family makes back-up generator reservation in case with 24-hour cancellation allowance.

Conclusion

People use the ABP on a daily bases and do not realize the creative abilities involved in the assumptions’ process. From the personal spectrum to the corporate environment, the ABP is an adaptable instrument that can benefit those who utilize the plan. Regardless of the structure of a leadership environment, whether top to bottom initiatives or flat, leaders, corporate executives, and everyday people can adapt the ABP process into their daily agenda. Cornish wrote about the lessons learned from great explorers such as Lewis and Clark, for example, in his book. He mentioned how these famous explorers used maps and ‘hearsay’ about the territory to develop their expedition. There may have been a prototype of an ABP in their plans which allowed them to consider assumptions and work around failures to successfully complete their ventures. Whatever the case may be, they were able to succeed and accomplish the task set before them.

Can an ABP tool work for you? Do you have the ability and imagination to interject assumptive planning into your daily agendas, work plans, strategic plans? The Book of Jeremiah, chapter 29, verse 11 in the Old Testament states, “For I know the plans that I ‘have for you’ declares the Lord, ‘plans for welfare and not for calamity to give you a future and a hope…” If we can draw inspiration that our plans can be successful, then tools such as the ABP can help us make our dreams come true. I like to compare the ABP to an apple, you can count the seeds in an apple but can you count the apples that will come from the seeds when they are planted and produce fruit? Creativity and imagination will forge the future of successful planning instruments.

A Guide to Auditing Top Management and the Internal Audit Checklist

Organizations must audit the processes associated with top management as part of an effective internal audit program. These processes include those relating to strategic planning, the establishment of policies and objectives, ensuring effective communication and ensuring the availability of resources.

Auditing management or directors is often seen as a sensitive issue but by considering each management activity as a normal organizational process, it becomes much easier to focus on determining whether the outputs of their activities are effective.

How to Audit Top Management

By using a formal risk-based approach to internal audit planning, as required by ISO 9001, auditors have a great opportunity to engage top management in the audit process. By making management part of the planning process and by giving them ownership of the areas to be audited, the internal audit becomes a valuable mechanism for development.

A good starting point is to copy, into the audit checklist, all requirements from the standard that say ‘top management shall’, almost every clause of section 5 starts with ‘top management shall’ and it’s the auditors job to find if management ‘did’. The audit checklist must cover the requirements from the following sections:

5.1 Management Commitment

5.2 Customer Focus

5.3 Quality Policy

5.4.1 Quality Objectives

5.4.2 Quality Management System Planning

5.5.1 Responsibility and Authority

5.5.2 Management Representative

5.5.3 Internal Communication

5.6 Management Review

5.6.1 General

During the Internal Audit

When undertaking the internal audit of top management, the auditor should collect and corroborate evidence of top management’s commitment from within the quality management system itself. The auditor should ask how the quality manual addresses management commitment issues and ask how they are accomplished; then, the auditor must find objective evidence that proves it’s actually being done. This method applies to management as well as the production machinist, and everyone else in the organization for that matter!

If the standard, documented procedures, policies and objectives are audit inputs, then the evidence sampled and the interview statements made by top management auditees are the audit outputs. If the input does not align with the expected output, the auditor simply states this misalignment as a non-conformance whilst providing an audit trail to the supporting evidence.

Final Reporting

Auditors should prepare the internal audit report in a manner appropriate for presentation. It might be necessary to present the executive summary of the audit report directly to the top management and other interested parties within the organization. The executive summary must highlight both positive and negative findings and suggest opportunities for improvement.