WEEK 7 and 8
Business Process Re-Engineering (BPR)
1. a strategically driven program of change which concurrently affects the organization’s structure,
human resources, systems and processes.
2. One cornerstone of the BPR approach is that it is holistic in nature.
3. a realignment of the business processes to the core organizational strategy of the business because
they are regarded as unsound.
4. It has been called a radical change program which is designed to:
● reduce costs significantly
● make operations significantly more efficient
● find a competitive advantage.
Continuous Improvement – An alternative approach, which is less cataclysmic, is to apply a gradual
program of continuous improvement to operations over a longer time-period.
Total quality management (TQM) is a way of managing to improve the effectiveness, flexibility and
competitiveness of a business as a whole.
● More specifically, TQM is a management philosophy embracing all the activities through which the
needs and expectations of the customer, the community, and the objectives of the organization are
satisfied in the most efficient and cost-effective way by maximizing the potential of all employees in
a continuing drive for improvement.
● It is NOT the responsibility of internal audit.
● Seven Principles:
1. Customer focused
2. Total Employee Involvement
3. Process Centered
4. Integrated system
5. Decision based on facts
6. Strategic and systematic approach
7. Communication
● Quality practices must be carried out throughout the life of the project.
● Advantages:
1. Defect Reduction
2. Productivity improvement
3. Cost Reduction
4. Customer Satisfaction
5. Improve Employee Morale
Quality assurance systems are systems which set out to demonstrate to customers that a business is
committed to quality and able to supply its customers’ quality needs.
● They will be documented, and registration is only achieved after they have been appraised by
accredited external independent reviewers.
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Since registration is dependent upon external assessment, internal audit is not in a position to
provide this service within their company.
Many internal auditing units have gone for registration for a variety of reasons:
1. high level of existing standardization of internal audit methods often means that an
internal auditing unit is well placed to prepare for and seek registration
2. Registration by internal audit sets a good example to the business as a whole.
3. Registration by internal audit gives internal audit practical experience of what is
involved—which it can then make use of in the advice it gives to the rest of the company.
4. Being a service department, registration by internal audit may give its clients, as well as the
company’s external auditors and regulators, more confidence in the quality of the internal
audit unit.
5. Registered internal audit unit gains a competitive advantage in several ways, for example, in
bidding for outsourced internal audit work, or in recruitment and retention of audit staff.
The Cost of Quality – Unavoidably there are costs associated with maintaining a quality environment,
just as there are financial implications in instances of poor quality.
● Quality costs may apply in the following example areas:
1. the prevention of defects
2. monitoring of ongoing quality through inspection and appraisal activities
3. the costs of correcting defective products or services prior to delivery to the customer
4. the costs of correcting defective products/services detected after delivery
Quality Audits – established in many businesses that have adopted TQM and/or sought and obtained
ISO/BS registration for quality systems.
● The quality audit process seeks to establish and maintain high standards of TQM and/or quality
systems.
● ISO/BS standards stipulate the incorporation of self-audit procedures into quality systems. This
represents an element of auditing with cost implications.
● Quality auditing is not the same as internal auditing. It is an essential part of TQM management
philosophy and of a dedication to quality systems.
Delayering simply means removing one or more levels of management from the enterprise, or from a
part or parts of it.
● An implication of being flat is that each manager supervises a larger number of subordinates. This is
called “the span of control” of the manager—an expression first coined by Henri Fayol [1916].
● The principal underlying theme behind these features is that of limited cognitive ability.
● Advantages:
1. broadens the span of control of the managers involved, therefore leads to greater
empowerment of those being supervised
2. lowering staffing costs
3. ideally lead to greater job satisfaction and to greater work motivation
● Clearly, the more staff a manager has to supervise, the more information the manager is required to
process. The risk is that supervision becomes nominal—that delegation becomes abdication.
1. Tall (Hierarchical) Structures
Definition: Involve organisational charts where there are many levels of hierarchy. In these
organizations, there are usually many managers, and each manager has a small span of
control.
Advantages of a Tall Organisational Structure:
a) narrow spans of control - can help to limit managers' workloads
b) clear and more regular opportunities for promotion of junior employees
Disadvantages of a Tall Organisational Structure:
a) communication may be more difficult as it passes through many levels of hierarchy
b) decisions can be made slowly as information has to be passed through the organization
2. Flat (Horizontal) Structures
Definition: Involve organisational charts where there are few or no levels of middle
management between staff and executives.
Advantages of a Flat Organisational Structure:
a) fewer managers - can help to reduce costs
b) junior employees may be motivated by being given more authority
c) communication can be quick and effective as fewer levels of hierarchy
Disadvantages of a Flat Organisational Structure:
a) managers may have spans of control that are too wide
b) the business may have to spend heavily on training to give junior employees the
necessary skills
Empowerment is the delegation of responsibility to and trust of staff for making business decisions,
without the need for close, detailed review and approval of those decisions. This approach is based on
the premise that employees, at all levels, are responsible for their own actions and should be given the
authority to make decisions about their work.
Herzberg’s bipolar analysis of job satisfaction factors divided them into two groups. The hygiene factors
are to do with the surroundings of the job (such as good working conditions, pleasant colleagues to work
with, easy travel to work, etc.) whereas the motivators are more closely to do with the job itself (such as
job interest, opportunity for achievement, recognition of achievement, advancement).
Maslow’s view of satisfaction was not bipolar: it was uni polar. He perceived of a hierarchy of needs. At
the lowest level people have (a) physiological needs (for food, water, warmth, etc.). At progressively
higher levels are (b) security needs, (c) social needs, (d) esteem needs, (e) autonomy needs and (f)
self-actualization (or self-fulfillment) needs.
Autonomy is the need that most closely corresponds to the concept of “empowerment”. Autonomy
means taking decisions and being able to see the results which follow from those decisions.
● “Empowerment” is seen as an important way of providing staff with the opportunity to fulfil
themselves more at work.
Outsourcing – sometimes termed “contracting out”, outsourcing occurs when services previously
provided by in-house personnel are supplied by an outside contractor.
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The benefits of outsourcing can be substantial – from cost savings and efficiency gains to greater
competitive advantage. Some of the recognized benefits of outsourcing include:
1. Improved focus on core business activities, focusing on strengths and main tasks.
2. Increased efficiency and greater quality for tasks that are not the expertise of the
organization.
3. Controlled costs and allowing for the release of capital for investment in other areas of the
business.
4. Access to capabilities and facilities that are otherwise not accessible or affordable.
On the other hand, the loss of control over the outsourced function is a potential business risk. For
example, issues may be encountered with:
1. service delivery – which may fall behind time or below expectation
2. confidentiality and security – which may be at risk
3. lack of flexibility – contract could prove too rigid to accommodate change
4. management difficulties – changes at the outsourcing company could lead to friction
5. instability – the outsourcing company could go out of business
6. escalating costs of ensuring that the service continues to be provided
7. becoming less competent with the reduction of trained and experienced in-house staff
8. outsiders taking their know-how to a rival business for which they also provide outsourced
services
How does management decide what and whether to outsource?
1. First, they apply cost–benefit principles to the decision.
2. Secondly, they consider which of their noncore activities might be done better by outsiders who
specialize in those activities
The driving objectives of JIT are to eliminate wasteful or non-value-added activities, and by doing so
achieve 10 improvements (such as increased quality, reduced work-in-progress stock levels,
improved productivity and reduced costs). The radicalism of the technique will invariably mean the
reassessment and/or the casting aside of existing practices, and it is, therefore, important that those
involved approach the exercise with open minds.
The conceptual origins of JIT have a connection with the work of Frederick Taylor early in this
century and were really brought into wider prominence by Japanese industry as an extension of their
struggles to survive after the Second World War.
It is important to understand that JIT manufacturing systems are driven by the principle of being
“demand-pulled” through the production process, i.e. production activities are governed (or
“pulled”) by downstream processes requiring subassemblies from upstream processes.
Under JIT, employees are responsible for ensuring that the required quality criteria are met at the
conclusion of each discrete production stage, rather than relying on the more traditional quality
control inspection after the final production stage.
In tandem with the allocation of responsibility for quality matters, employees can also halt the
production process if a defect or problem is discovered, thus permitting the prompt resolution of the
problem. This approach is referred to as “quality at the source” and is based on the Japanese
concept of Jikoda which translates to “stop everything when something goes wrong”. The aims here
are to minimize defects as an important contribution to quality and to coincidently empower
employees to identify and solve them.
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A simple system of cards called Kanbans is normally used to send signals between production
workers. The Kanban cards are used to instruct workers either to obtain the parts required for their
stage of the process (i.e. using the so-called “move” cards) or to actually produce a number of parts
(i.e. utilizing the so-called “production” cards).
WEEK 9
TRANSACTIONS AND EVENTS – relate to the income statement
1. Occurrence: The business transactions recorded actually took place.
2. Completeness: All business events and their related transactions that should have been recorded
were recorded.
3. Accuracy: The transactions were recorded in the corresponding ledgers at their full amounts
without errors.
4. Cutoff: The transactions were recorded in the appropriate accounting period; neither early nor
late.
5. Classification: The transactions were recorded in the appropriate general ledger accounts.
ACCOUNTS BALANCES – relate to the balance sheet
1. Completeness: All reported asset, liability, and equity balances that should have been recorded
were recorded.
2. Existence: Assets, liabilities, and equity balances exist as shown.
3. Rights and Obligations: The organization has rights to the assets it owns and is obligated as
indicated in the outstanding liabilities reported.
4. Valuation: Asset, liability, and equity balances are valued and recorded at the proper valuation,
and all adjustments were recorded appropriately.
PRESENTATION AND DISCLOSURE – relate to the disclosures that accompany the financial statements
1. Occurrence: The reported transactions and disclosures occurred.
2. Rights and Obligations: The transactions and disclosures are related to the organization.
3. Completeness: All disclosures that should be disclosed were disclosed in the financial
statements.
4. Accuracy and valuation: All relevant information is disclosed at the appropriate amounts and
reflect the proper value.
Classification and Understandability: Financial statements are clear, understandable, and present
all necessary information appropriately.
Summary of Management Assertions
Assertion
1. Validity
Meaning
The transaction exists and the amount is not overstated
2. Completeness
All transactions were recorded without omissions
3. Cutoff
Transactions were recorded in the corresponding period
4. Valuation
Balances are valued accurately and the amount is neither over nor short
5. Recording
Transactions are recorded at the proper amount
6. Presentation
Amounts are presented with the corresponding disclosures
7. Existence
Assets and liabilities exist
In performing operational reviews, the objectives and criteria tested to determine if the program or
process is operating well also require an examination of the 7Es:
1. Economy
● The program or process obtains resources at the optimal value to the organization. This is
accomplished through the display of care in the procurement of financial, human, or material
inputs. Frugality and thrift are important in the acquisition and use of resources
2. Efficiency
● it achieves maximum productivity with the lowest possible wasted effort, expense, or time.
3. Effectiveness
● The program or process achieves or exceeds its objectives. Effectiveness pertains to the
achievement of desired results, so if the program or process under review does not have clearly
defined objectives
4. Ethics
● operation acts in accordance with acceptable moral principles that govern the organization’s
behavior.
5. Equity
● operation acts in ways consistent with expectations of equality, and fairness when dealing with
individuals or other organizations.
6. Ecology
● operation’s activities protect and promote protection of the natural environment. The main
driver for ecological stewardship tends to be compliance due to laws and regulations that limit
the environmental impact of business activities.
7. Excellence
● The program and related activities adhere to the highest possible degree of quality and seeks
near zero error rates as much as reasonably possible.
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Financial statement assertions are made as of the last day of the organization’s fiscal year and are
made retrospectively.
Operational objectives (not referred to as “assertions”, since that term is reserved for financial
statements) are made with a broader, more balanced viewpoint: retrospectively as relates to past
activities to report on past practices, and prospectively, related to the future implications of these
practices.
LEAN SIX SIGMA
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Six Sigma is a process improvement methodology designed to make sure that a process will deliver
its output within a prescribed tolerance range. It is a business and process improvement
methodology used to improve processes by using statistical analysis to identify the sources of error
and determine the best way to eliminate them.
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It is a collection of management tools and methodologies to reduce variation, errors, and increase
the speed of execution, while focusing on eliminating mistakes, rework, and waste.
The Six Sigma Methodology
1) DMAIC
● used for existing processes
D – Define and map the current process, system, high-level project goals and capture details about
customer requirements and expectations (i.e., the voice of the customer).
M – Measure key aspects of the current process, collect relevant data, and determine the capability of
the process in its current state (i.e., the “as-is” process capability).
A – Analyze the data to investigate and verify cause-and-effect relationships. Determine what the
relationships are. Search for the root cause of the defect under investigation.
I – Improve the current process based on the data analysis performed. Use techniques such as design of
experiments, Poka Yoke (i.e., mistake proofing), training, update procedures documentation, and apply
change management procedures to create an improved process. Consider the use of pilot programs
during the rollout and to evaluate the new process capability.
C – Control the future state process to ensure that any deviations from the performance targets are
corrected before they become defects. Implement control systems to monitor performance, such as
statistical process control and continuous monitoring procedures. Note that in Six Sigma, the word
“control” has a slightly different meaning. While internal auditors associate the word with practices that
reduce the likelihood and/or impact of risks, in Six Sigma it relates to the activities that would indicate
that the process is performing as defined, or not.
2) DMADV (DFSS)
● used when building a new or highly modified process or product.
● employed when existing processes do not meet customer conditions, even after optimization, or
when it is required to develop new methods.
D – Define design goals that are consistent with customer needs and wants and verify that these are
aligned with the organization’s strategy.
M – Measure and identify those characteristics that are critical to quality for the customer, measure
product performance capabilities, measure production process capability, and identify and measure
risks.
A – Analyze available information to develop and design alternatives.
D – Design an improved alternative to the existing product or process that is most appropriate given the
analysis performed by optimizing the design. Plan for design verification and run simulations if possible.
V – Verify that the design meets customer and business requirements, set up pilot runs, implement the
production process, and transition the process/product to process owners.
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A key objective of Six Sigma is minimizing variability.
Variability refers to the degree to which results differ from what was expected.
The goal of Six Sigma and the goal of internal auditors to report deviations from the expected
practice are similar.
Lean Six Sigma
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The Lean method is entirely focused on eliminating waste, providing maximum value to customers
with the lowest possible amount of investment.
Lean Six Sigma combines the Lean and Six Sigma approaches, which creates a powerful toolkit for
addressing waste reduction.
The DMAIC method provides an excellent road map for identifying and solving the problems they
face. This synergy between methodologies functions primarily to help eliminate the 8 kinds of waste,
removing anything from a process – whether its material, time, or effort – that doesn’t add value.
The forms of waste are:
o Defects – Products that don’t meet quality standards
o Overproduction – Exceeding demand or producing more than was ordered
o Waiting – Process bottle-necks and downtime
o Non-Utilized Talent – Ineffectively using or misallocating human resources
o Transportation – Inefficient shipping methods
o Inventory – Holding on to a surplus of product or raw material
o Motion – Unnecessary moving of product, material, or people
o Extra Processing – Doing more work than is needed
Lean Six Sigma is quite simply the integration of Lean and Six Sigma methodologies to reduce waste,
defects (variation) and increase effectiveness and results. Lean focuses on efficiency, and Six Sigma
focuses on how effectiveness can lead to faster results.
Lean Six Sigma Techniques
1. Brainstorming. Brainstorming is the key process of any problem-solving method and is often utilized
in the "improve" phase of the DMAIC methodology. Brainstorming involves bouncing ideas and
generating creative ways to approach a problem through intensive freewheeling group discussions.
2. Root Cause Analysis/The 5 Whys. This technique helps to get to the root cause of the problems
under consideration and is used in the "analyze" phase of the DMAIC cycle. In the 5 Whys
technique, the question "why" is asked, again and again, finally leading up to the core issue.
Although "five" is a rule of thumb, the actual number of questions can be greater or fewer, whatever
it takes to gain clarity.
3. Voice of the Customer. This is the process used to capture the "voice of the customer" or customer
feedback by either internal or external means. The technique is aimed at giving the customer the
best products and services. It captures the changing needs of the customer through direct and
indirect methods. The voice of the customer technique is used in the “define” phase of the DMAIC
method, usually to further define the problem to be addressed.
4. The 5S System. This technique has its roots in the Japanese principle of workplace energies. The 5S
System is aimed at removing waste and eliminating bottlenecks from inefficient tools, equipment, or
resources in the workplace. The five steps used are:
1. Seiri (Sort)
2. Seiton (Set In Order)
3. Seiso (Shine)
4. Seiketsu (Standardize)
5. Shitsuke (Sustain).
5. Kaizen (Continuous Improvement). The Kaizen technique is a powerful strategy that powers a
continuous engine for business improvement. It is the practice continuously monitoring, identifying,
and executing improvements. This is a particularly useful practice for the manufacturing sector.
Collective and ongoing improvements ensure a reduction in waste, as well as immediate change
whenever the smallest inefficiency is observed.
6. Benchmarking. Benchmarking is the technique that employs a set standard of measurement. It
involves making comparisons with other businesses to gain an independent appraisal of the given
situation. Benchmarking may involve comparing important processes or departments within a
business (internal benchmarking), comparing similar work areas or functions with industry leaders
(functional benchmarking), or comparing similar products and services with that of competitors
(competitive benchmarking).
7. Poka-yoke (Mistake Proofing). This technique's name comes from the Japanese phrase meaning "to
avoid errors," and entails preventing the chance of mistakes from occurring. In the poka-yoke
technique, employees spot and remove inefficiencies and human errors during the manufacturing
process.
8. Value Stream Mapping. The value stream mapping technique charts the current flow of materials
and information to design a future project. The objective is to remove waste and inefficiencies in the
value stream and create leaner operations. It identifies different types of waste and waste removal
operations.
ISO 9000
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ISO 9000 is defined as a set of international standards on quality management and quality assurance
developed to help companies effectively document the quality system elements needed to maintain
an efficient quality system.
They are not specific to any one industry and can be applied to organizations of any size. It can help a
company satisfy its customers, meet regulatory requirements, and achieve continual improvement.
It should be considered to be a first step or the base level of a quality system.
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ISO 9001:2015 (Quality Management Systems — Requirements) — It sets the requirements of a
quality management system
ISO 9000:2015 (Quality Management Systems — Fundamentals and vocabulary) — Addresses
the fundamental concepts and language / definitions
ISO 9004:2018 (Quality Management — Quality of an Organization — Guidance to Achieve
Sustained Success) — Focuses on how to make a quality management system more efficient and
effective through continual improvement
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ISO 19011:2018 (Guidelines for auditing management systems) — Provides guidance on internal
and external audits of quality management systems
ISO 9001:2015 establishes the criteria for a quality management system and it can be used by
any organization regardless of its size or field of activity.
This standard is based on seven quality management principles namely:
1. Customer focus
● The primary objective of any organizational activity should be to meet or exceed customer
requirements and expectations. Organizations exist because of their customers, so they must
identify, attract, retain, and please their customers. Organizations that understand this achieve
higher levels of customer satisfaction, loyalty, repeat business, increased sales, and bigger
market share. To accomplish this, organizations must link their objectives to their customers’
expectations, communicate customer needs throughout the organization, make sure that their
entire product or service life cycles are aligned with these needs, and monitor customer
satisfaction.
2. Leadership
● Leaders establish unity of purpose, set the direction for the organization, create the conditions,
and promote the practices that result in meeting the organization’s quality objectives. Leaders
align the organization’s strategies with the organizational structure, establish policies, build
processes, and assign resources effectively to achieve its mission. Effective leadership results in
higher efficiency and effectiveness, better coordination of organizational activities, and better
communications, and lead by example. This is achieved by issuing clear, constant, and consistent
messages, promoting the adoption of shared values, establishing a trusting work environment
and making sure that employees have the resources, authority, and training to get their work
done.
3. Engagement of people
● Knowledgeable, engaged, and empowered workers are essential for the creation and delivery of
value to stakeholders. Competence is fundamental to the effective functioning of any
organization. But beyond competence, employees at all levels must be involved and respected. It
is not enough to establish quality objectives; employees must understand them and have the
skills to work toward achieving them. This will release creativity, improve collaboration,
encourage open communication and discussion, knowledge sharing, and facilitate
self-evaluation.
4. Process approach
● When activities are designed, understood, and managed as part of a coherent integrated system,
it is more likely that the organization will achieve consistent, predictable results. The efficient
allocation and use of resources, breaking down silos, and understanding process limitations will
enable process owners and those working within the processes themselves to better anticipate
problem areas, acquire and share critical information, and manage the risks that can hinder
productivity. Well-developed, integrated and managed processes are better equipped to deliver
according to established expectations and meet quality standards. Organizations must manage
more than outputs. They must also focus on the process capacity, scalability, flexibility, and
consistency. Too many organizations find out the hard way that error rates, employee turnover,
and delivery times are severely hampered because processes cannot handle change.
5. Improvement
● Winning organizations embrace the concept of continuous improvement. Inertia can be
dangerous in today’s world, so organizations must constantly examine how they are structured
and operating, identify, and react promptly and effectively to both internal and external changes.
In fact, by focusing on early identification of changes and applying root-cause analysis to
understand the triggers of these changes, organizations can anticipate and react appropriately to
changing conditions. While learning is generally viewed as forward-looking, a keen
understanding of past developments can help the organization avoid repeating past mistakes or
those of others. Lastly, innovation is the key for sustained success, so a concerted effort is
required to learn, train, monitor, and share lessons learned so that every day can be better than
the previous one.
6. Evidence-based decision-making
● Desired results are more likely to be achieved when decisions are data driven and based on the
careful analysis of information. When cause and effect relationships are understood, the
organization will be more likely to make better decisions. Excessive subjectivity and the inability
to justify decision-making often results in opinion-based decisions, politicized practices, and a
general inability to demonstrate the effectiveness of decisions. Organizations are increasingly
moving toward metrics-driven performance evaluations, sharing needed information with a
wider pool of relevant individuals, making sure that data is accurate, reliable, secure, and
ensuring that employees have the knowledge and skill to collect, analyze, and interpret data.
7. Relationship management
● For long-term success, organizations must manage their relationships with their stakeholders,
especially suppliers. Organizations don’t operate in a vacuum, and as such, they must manage
the impact that their stakeholders have on them. Opportunities and threats may arise from the
pool of stakeholders, quality-related risks may be caused by vendors, shipping companies, or
distributors. In general, vendor problems can disrupt the organization’s supply chain.
Organizations should identify their internal/external, economic/noneconomic stakeholders and
make sure that the diverse interests, needs, and expectations of their investors, suppliers,
lenders, employees, customers, governments, and others are addressed. Since sustainable
success cannot be achieved by merely focusing on short-term results, organizations must
balance both sets of priorities while building collaborative relationships to ensure the reliable
supply of goods and services from source to final user.
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The ISO Quality Management Principles provide a useful baseline to examine the structure,
conditions, and practices within the designated scope area to determine if the criteria are sound and
if the practices are conducive to successfully meeting the expectations of the organization’s
stakeholders.
WEEK 9
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(Computer Assisted Audit Tools and Techniques) CAATTS refer to the collection of software tools
that allow auditors to examine transactions using computer tools.
HISTOGRAM
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Histograms are charts that show the frequency distribution of numerical data using rectangles, each
of which represents intervals.
They display the probability distribution or occurrence of a continuous variable/data. The range of
values of the continuous variable is divided into a series of intervals on the x-axis.
The intervals are consecutive, adjacent (i.e., there are no gaps between the bars), and of equal size.
In a histogram, the X-axis represents a dimension arranged over equal intervals. The Y-axis
represents the quantity, frequency, or other metric being plotted against the interval. So, the
histogram, when constructed, could plot the amount of sales revenues per hour, the number of
vehicles serviced per hour during a workday, the variation that exists in a process, and so on.
A bar graph is the graphical representation of categorical data using rectangular bars where the
length of each bar is proportional to the value they represent. A histogram is the graphical
representation of data where data is grouped into continuous number ranges and each range
corresponds to a vertical bar.
Histograms are typically used when:
• Determining the Pattern of Variation in support of Continuous Improvement
• Determining if a Product or Service is reliably hitting a Design Criteria
• Measuring a Process Improvement or Changes in a process
• Comparing the variation of two Similar Processes
Histogram Distributions
1. Bell-shaped/Normal Distribution – The mean value is in the middle of the range of data. The
frequency is high in the middle of the range and falls off fairly evenly to the right and left.
2. Double-Peaked (Bi-Modal) Distribution – Bimodality occurs when the data set has observations on
two different kinds of individuals or combined groups if the centers of the two separate histograms
are far enough to the variability in both the data sets. Bimodality can also reveal a shift in the
process.
3. Plateaued (Multimodal) Distribution – Several processes with normal distributions are combined.
Because there are many peaks close together, the top of the distribution resembles a plateau.
4. Skewed Distribution – The distribution that is skewed is asymmetrical as a limit which is natural
resists end results on one side. The peak of the distribution is the off-center in the direction of the
limit and a tail that extends far from it. Skewed Distributions can be skewed in either the Left or
Right direction.
CONTROL CHART
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A control chart is a graph used to plot and study how a process changes over time. Data are plotted
in time order, in a similar fashion as run charts.
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A control chart has a central line for the average or target value for the process being plotted, an
upper line for the upper control limit (i.e., maximum allowable value given the established
performance specifications) and a lower line for the lower control limit.
These upper and lower control lines are determined from historical data and in general, control
charts help the analyst detect and show the causes of deviation for the transactions shown and help
to answer the question: Is the process in a state of statistical control? The data obtained from the
process can also be applied in making predictions of the future performances of the process. They
are modified run charts and show the placement of data points so that patterns and deviations can
be promptly identified.
If the process is in control, more than 99% of the transactions will fall within the control limits (i.e.,
three standard deviations of the mean). If there are observations outside these thresholds, or if
there are patterns, this suggests there are sources of variation that will increase costs due to errors,
omissions, or other process anomalies.
PARETO CHART
The Pareto principle, also known as the 80/20 rule, posits that for many events approximately 80% of the
effects are caused by 20% of the causes. This principle essentially means that there is a concentration of
sources that internal auditors should identify for best results.
Pareto diagrams are designed to organize data and can be used to prioritize improvement effort by
focusing on major root causes of the problems under review. The focus is to focus on the root causes,
and look for cause and effect relationships. The grouping can derive from data analytics, where the
analyst looks for concentrations of the data. For example: By running a cumulative total, what are the
categories that when added together add up to 80% of the total? Which items, based on the knowledge
of process owners, accounts for the majority of the manifested problems?
Pareto chart is recommended to be used:
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When analyzing data about the frequency of problems or causes in a process
When there are many problems or causes and you want to focus on the most significant
When analyzing broad causes by looking at their specific components
CAUSE AND EFFECT (FISHBONE, ISHIKAWA) DIAGRAM
An Ishikawa diagram is a diagram that shows the causes of an event and is often used in manufacturing
and product development to outline the different steps in a process, demonstrate where quality control
issues might arise, and determine which resources are required at specific times. The Ishikawa diagram
was developed by Kaoru Ishikawa during the 1960s as a way of measuring quality control processes in
the shipbuilding industry. They resemble a fish skeleton, with the "ribs" representing the causes of an
event and the final outcome appearing at the head of the skeleton. The purpose of the Ishikawa
diagram is to allow management to determine which issues have to be addressed in order to gain or
avoid a particular event.
FORCE FIELD ANALYSIS
Force field analysis is a basic tool for root cause analysis that can help you take action once the root
cause has been identified. The technique is based on the assumption that any situation is the result of
forces for and against the current state being in equilibrium. This is a great decision-making tool to
identify the forces for and against a course of action. It is a technique to list, discuss, and evaluate the
forces that support or hinder a decision. It can also help to strategize the best way to present the
information by understanding the big picture and the pros and cons of the recommendation. Lastly, it
forces the proposal advocate to “walk a mile in the auditees’ shoes.” By understanding the auditees’
perspective, the auditor is more aware of the challenges that the client faces, and shows empathy during
the process.
Force Field Analysis is a very effective tool to correct the approach most people use when advocating for
change. The typical approach is to present the arguments supporting the change initiative and when
confronted with objections and counter arguments, restate the position, include additional facts, and
reiterate the perceived benefits.
Takt time is the rate at which the production operation produces output. The term is derived from the
German word “taktzeit” that translates to “cycle time.” It relates to the average amount of time, or
pace, of activities. In this case, it relates to the amount of time to perform each activity. It is the rhythm
or heartbeat of the operation, and it is the pace at which everyone in the process works to keep capacity
aligned. Without takt time, there would be inventory between workstations and possibly shortages of
material between others. This metric can be used to determine the pace to keep a process flowing, so
there are no bottlenecks in a process. In fact, a bottleneck results from the demand in a process, or
number of transactions entering a process, exceeding the ability of the operators to do the work and
make the transactions exit the process. It can also be used to set the performance expectations for the
process, so operators know what their goal is so they can meet or surpass it.
Takt Time vs Cycle Time vs Lead Time
In the beginning, people tend to confuse takt time with lead time and cycle time, which are Lean metrics
of no lesser importance. The substantial difference among the terms are as follows:
Lead time is the time frame between placing an order and delivery.
Cycle time is the time frame to manufacture a unit of product, or complete a service.
Takt time is the maximum amount of time you need to comply to meet customer demand with.
CAATTS refer to the collection of software tools that allow auditors to examine transactions using
computer tools. These include Excel, Access, ACL, IDEA, and many others. In addition to these tools,
internal auditors are also using other visual tools and techniques to collect, analyze, interpret, and
present data and transform it into information that both auditors and management can use. The tools
discussed in this material provide diverse means of gathering information, analyzing it, presenting it, and
serving as tools to persuade our clients that either conditions are satisfactory or that they need
corrective actions.
Affinity diagrams, also called affinity charts or the Jiro Kawakita (KJ) method, are very useful tools that
can help auditors organize ideas and large amounts of data. The affinity diagram organizes a large
number of ideas into their natural relationships. It is the organized output from a brainstorming session.
Affinity diagrams are typically used in the following situations:
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After a brainstorming exercise
When analyzing verbal data, such as survey results
When collecting and organizing large data sets
When developing relationships or themes among ideas
When reducing attributes to categories that can be addressed at a higher level
A scatter diagram is a visual tool for analyzing pairs of numerical data and showing the relationship
between two variables. It is a two-dimensional graphical representation of a set of data. It is sometimes
called a scatter plot or an X–Y graph, with one variable on each axis.
Scatter diagrams are used and applied in several ways, where the most important benefit is showing the
correlation between two variables. The scatter diagram will visualize in an easy to observe way if the
data points are positively correlated, negatively correlated, or there is no correlation between the two
variables. The correlation exists if a change in one value causes a change in another value. The
relationship has two general key elements: direction and intensity.
Positive Correlation. The scatter plot with positive correlation is also known as a “Scatter Diagram with
Positive Slant.” In this case, as the value of X increases, the value of Y will increase too, which means that
the correlation between the two variables is positive.
Negative Correlation. The scatter plot with negative correlation is also known as a “Scatter Diagram with
a Negative Slant.” In this case, as the value of X increases, the value of Y will decrease. If you draw a
straight line along the data points, the slope of the line will go down. For example, if the cycle time of a
workflow goes up, the number of tasks completed will go down.
No Correlation. The scatter plot with no correlation is also known as “Scatter Diagram with Zero Degree
of Correlation.” In this case, the data point spreads so randomly that you can’t draw a line through the
data points. You can conclude that these two variables have no correlation or zero degrees of
correlation. For example, if the weather gets hotter, we can’t conclude that the sales of wooden chairs
will go up or down because there is no correlation between the two variables.
The RACI diagram, also referred to as responsibility assignment matrix, and linear responsibility chart,
is a very useful tool to help correct this deficiency. It is a way to identify your project teams’ roles and
responsibilities for any task, milestone, or project deliverable. By following the RACI acronym, you can
clarify responsibility and reduce confusion. RACI stands for:
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Responsible. This describes those responsible for performing the task and refers to those who do
the work to achieve the task. So for every task identified, there needs to be at least one role
participating as responsible, even though others can be delegated to assist in the required work. This
person is directly in charge of the work. If a task has more than one Responsible person, you can lose
clarity and cause confusion. Instead, aim to add additional collaborators as some of the other RACI
roles, which can have more than one person.
Accountable. This identifies the person that approves the completed activity. Since an approval
should always include a review prior to the sign off, this person is accountable for the completion of
the activity according to established standards. This person may also be the person who delegates
the work to those responsible. The Accountable person is responsible for overseeing overall task
completion, though they may not be the person actually doing the work. There are two ways to
assign an Accountable role. Sometimes, the Accountable is the project manager (or even the
Responsible, though in that case the person is taking on two different roles during the task
workflow). In these cases, the Accountable is responsible for making sure all of the work gets done.
In other cases, the Accountable is a senior leader or executive who is responsible for approving the
work before it’s considered complete. Like the Responsible role, there should only ever be one
Accountable.
Consulted. Those whose knowledge is important for the successful completion of the task are
identified as consulted. This will be the person or people who should review and sign off on the work
before it’s delivered. Their opinions and skills are sought, so they are team members or subject
matter experts. There is a two-way communication between those responsible and those consulted.
There may be multiple Consulted roles for each task, project milestone, or deliverable.
Informed. This role refers to anyone that should be kept up to date about the activities being
performed, the progress made on them or their completion. In many instances, the notice often only
happens upon the completion of the task or deliverable. This is the person or group of people who
are informed about the progress and completion of work. They probably are not involved in any
other aspect of the deliverable. It consists of one-way communications to them.
A RACI diagram is important because it holds people accountable for processes and ensures that all
those that should be involved with a process decision, are properly involved in the process as is properly
appropriate. Most notably, an RACI Matrix is important for process improvement projects, as it enables
process roles to be assigned, ensures those whose need to be involved in process changes, are involved
and the newly adopted, changed process is properly communicated to everyone who needs to know.
A RACI diagram can be used to:
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Find overworked employees who are responsible or accountable for too many processes
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Organizing processes so that nothing is overlooked and every process has ownership - as a
by-product, this means that there is less chance of failure
Assign projects more effectively with process owners, process enforcers and process collaborators all
understanding their roles
Document and visually capture the roles and responsibilities which can later be connected to the
specific process steps that are being carried out
Assign new employees to processes and for training of new employees, so that they properly
understand their role and responsibilities
A SIPOC map is a tool used by a team to identify all relevant elements of a process before work begins.
SIPOC is an acronym that stands for suppliers, inputs, process, outputs, and customers. It prompts the
review team to consider the suppliers of the process, inputs to the process, the process the team is
reviewing, outputs of the process, and customers that receive the process output.
The SIPOC map is particularly useful when defining the scope of the review because it can give auditors a
high-level overview of the program or process. All of the elements captured in the SIPOC map are
important to fully understand what the auditors are going to review. Failing to fully understand any of
the elements of the matrix can limit the effectiveness of the auditor developing the scope during
planning, or limit the team’s ability to effectively understand the program or process during fieldwork.
This diagram can also help to perform a stakeholder analysis, so the key participants in the program or
process are identified. Lastly, the interactions among the parties involved can help to define risk
exposures, the size of the operation and related audit coverage needed, and customer requirements.
POKA YOKE/MISTAKE PROOFING
Poka Yoke is the term used to describe a mechanism in a process that helps operators avoid mistakes.
Poka Yoke is a Japanese term that means “mistake-proofing” (Avoid: yokeru, mistakes: poka). The
purpose of Poka Yoke is to eliminate defects in products by preventing or drawing attention to human
errors that can occur. Poka Yoke can be a phenomenal tool for internal auditors who are often called
upon to examine the design of programs and processes, and make recommendations for improvement.
The best Poka Yoke solutions are as simple as possible, use the lowest cost solutions, make the solution
mandatory and intuitive, and avoid requiring the operator to make a decision to apply the solution or
not.
1. Contact method poka-yoke
The first type of poka-yoke you could implement would be the contact method. This method is best
when there is something physical you need to check on the product to ensure there are no defects, or
when the physical design of a process can prevent errors.
To implement a contact poka-yoke to check for errors, you would add a step in your process wherever
you need to inspect a physical aspect of the product that could cause a critical error. To prevent errors,
you could use a physical tool such as a jig that makes a process easier to repeat without error.
You can see the contact method at work in products that they physically prevented from being used in
the incorrect way. A USB cable is a good example of this, as you can see when you try to plug it in the
wrong way three times in a row. It is very difficult to plug a USB cable into the wrong port.
2. Fixed-value method poka-yoke
The fixed-value poka-yoke method involves warning a worker when a specified number of actions has
not been met. This would be applicable in a situation where the number of actions is clearly defined and
each is critical to the end result of the process.
One example of this would be an assembly step that requires six screws. If the worker does not drill all
six screws, this part would not be secure. Using the fixed-value method, you would have a system in
place where the worker can see when not all of the screws for each unit have been used yet so that they
can finish the product and avoid an error. This could be accomplished with a timed release of only the
needed parts, for example.
3. Motion-step method poka-yoke
The motion-step poka-yoke method requires implementing a process checklist and ensuring that all
steps (and only those steps) are followed. This is best accomplished by guiding the worker using digital
work instructions or a similar system to ensure adherence throughout the process, which will avoid
mistakes and the need for rework.