Basic Audit Objective
Product development is not a review of the overall marketing strategy but a review of the implementation of a strategic product plan. The product development process is typically composed of inputs from other departments beyond the marketing function including: research and development, engineering, sales, customer service, marketing analysis, and in some instances an executive sponsor. Following are potential areas of risk:
Leadership and Organization
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The organization does not consider product development or planning a priority in the organization.
Executive sponsorship and participation is a key success factor to ensure allocation of resources and alignment with overall strategy.
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Nonexistent, unrealistic, irrelevant or unreliable budget and planning information may lead to inappropriate conclusions and decisions. Management does not recognize gaps between goals and required resources/expertise to execute strategy.
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Inability to perform successfully in terms of quality, costs and/or cycle time performance due to inferior internal operating practices and/or external relationships.
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The people within the organization are unable to implement process and product/service improvements quickly enough to keep pace with changes in the marketplace.
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Inefficient operations threaten the organization's capacity to produce goods or services at or below cost levels incurred by competitors.
Market Analysis – Decision Support
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The company does not benchmark against competitors or industry measures. Actions of competitor(s) or new entrants in the market threaten the organization's competitive advantage or even its ability to survive.
 Poor product development impedes the organization’s ability to meet expectations; instances of product launch failure are not adequately investigated to identify and mitigate the root cause.
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Lack of relevant and/or reliable information supporting pricing decisions may result in prices or rates that customers are unwilling to pay; subsequent revenues do not cover development and other costs or do not cover the costs of risks undertaken by the organization.
Customer Requirements
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A lack of focus on customers threatens the organization's capacity to meet or exceed customer expectations.
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Ineffective product development threatens the organization's ability to meet or exceed customers' needs and wants consistently over the long-term.
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The company is slow to solicit customer feedback to learn about preferences and means of improvement.
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Faulty or non- performing products or services expose the organization to customer complaints, warranty claims, field repairs, returns, product liability claims, litigation, and loss of revenues.
Test Steps
Audit Objective: Developing an understanding of the product development process, related measurements, and interfaces.
1. Obtain management reports for product development by:
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Marketing Research SLA for each product
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Product Managers/Segment and Sales (as applicable)
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Web sales/customer service (where applicable)
2. Review product development policies and procedures.
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Product Lines
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Product Channels
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Product Managers
3. Meet with product planning team to identify strategy.
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Review how function fits into overall entity
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Discuss the recent accomplishments and future plans for products or organizational changes
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Review and discuss mission statements, roles and responsibilities, budgets and staffing
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Refine detailed audit objectives based upon session; consider following up on discrepancies from prior discussions with management and understanding to date based upon planning activities or other data like the financial statement MD&A or footnote disclosures.
4. Create product development process maps:
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High-level process maps for products, sales, promotions
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Detailed process maps for product development: programs, systems, protocols
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Create or obtain organization chart that incorporates those responsible for product planning and development
Note: Product Development may be segregated by product line, marketing feedback, product promotion or delivery channels (web, channel/partner sales, etc.) This may create a scope consideration to ensure critical components of product development are incorporated or risks adequately managed.
Fieldwork
Audit Objective: Determine if the product planning group is operating in compliance with entity policies and procedures including contract approvals (contractor and application vendors), travel and expense policies, desktop security, and project budget reporting.
1. Review five vendor contracts (contractors, research information, software) for compliance with applicable
 policy and procedures including:
Contract review and approval (authority limits)
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Adequate SLA such as deliverables, service, etc.
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Billing and payment terms with contract
2. Select 20 expense invoices and/or employee expense reports to determine compliance with related procedures.
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Approvals, expense type, expense limits
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Services/products received for amounts paid
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Consistent with related contracts for price, quantity/duration, and deliverables
3. Review project budgets and compare results to actual budget
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Determine if variance are reasonable
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Budgets approved
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All related costs/cost centers incorporated
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Note: time and expenses for product development efforts for all related personnel should be included as resources from other departments may generate inaccurate results by allocation to other cost centers.
4. Determine if desktop security policies and procedures are being adhered to including:
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Use of passwords: no sharing, posting, etc.
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Access/data security to LAN/desktop related files as sensitive product plans, designs/patents, etc.
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Back up & disaster recover procedures
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Change control documentation to proprietary or customized applications is controlled/secured/stored and appropriate.
Note: The PCs and applications are often segregated from the network due to the sensitive nature of data and proprietary applications. Audit teams should be sure that IT controls are in place.
Audit Objective: To ensure that new products are developed in accordance with market factors and the strategic objectives of the organization.
1. Who is in charge of product development?
2. Review the long-term objectives of the product planning function.
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Discuss with group management the consistency with corporate strategy and executive management objectives
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Review the process for aligning/establishing priorities, allocation of funding (to budget approval), and alternative product planning projects
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3. Has management established, authorized and implemented documented procedures for the development and evolution of all product ranges?
4. How can management be assured that their product plans remain adequate, appropriate, and viable, etc.?
5. Review the number of product planning projects in the past year (& three year periods) considered successful versus those considered failures.
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Review and discuss the product planning decision process including measures for determining success and product initiation.
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Comment as appropriate. Consider in light of organizational goals, related budgets, and decision criteria.
6. Determine if appropriate measures are in place to ensure that product design and specification stages are effectively conducted to avoid problems during later development stages
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Inquire about production issues identified in the design phase or later that prevented or delayed product release
7. What project reporting controls help ensure that development problems, design shortcomings, cost overruns, and production issues would be promptly detected and reported in a timely period?
8. What type of status reporting is utilized to keep related managers informed?
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Does reporting provide management with relevant information
Budget to actual
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Accounting treatment and line item costs to date according to plan; exception reporting
Audit Objective: To ensure that the activities of all the involved functions (i.e. production, advertising, quality control and sales team) are coordinated in order to achieve the defined objectives;
1. Review the roles and responsibilities of product develop team resources including those committed from
 peripheral departments or functions
Are roles and resource allocations clearly defined?
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What are the measurement processes or departmental agreements for participation on deliverables?
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Review related documentation and interview a sample of participants to determine if there are adequate number of check points or milestones to report/evaluate progress
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Do research projects and other product development stages have defined starting and stopping procedures to ensure resources are directed effectively and efficiently?
2. Determine whether product development processes incorporate appropriate participation from functional
 groups
Consider failure/success analysis and applicable root cause analysis for instances of poor coordination
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Examine available information and functional group participants about the time allocation, level of participation, and matrix reporting structure
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Assess the level of communication with product planning and other function in the company to comment on any perceived weakness in the process
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Develop cross-functional work flow process documents
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Evaluate the work flow understanding or established agreements between functional areas involved in the process: a. Understanding of mutual deliverables b. Agreement on quality measures c. Acceptance of roles and responsibility d. Instances of work replication
3. Are processes to plan products designed to ensure that all required resources to undertake development are accurately identified, cost justified, and authorized by appropriate level of management
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Perform review of 10 product development budgets to determine if any instances of cost/time budget over runs were deemed the result of poor resource planning
4. Determine the adequacy or effectiveness of the project management framework for directing resources to meet product development objectives
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Utilization of project management software
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Allocation of duties and responsibilities
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Effective reporting on budget to actual, progress towards milestones, and inclusion of quality testing
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Determine how individuals are assigned to product development projects
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How are resources evaluated and performance reviews/reports utilized?
Audit Objective: To ensure that all product developments are fully assessed in relation to the potential market, estimated production costs and selling price.
1. What forms of market research are undertaken?
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Can management be sure that the target product has a viable market?
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What measures are taken to ensure that the costing criteria are accurate?
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Is appropriate account taken of competitor analysis and are critical market timing considerations identified and planned?
2. Evaluate if product development projects are fully assessed with respect to:
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Technical implications
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Product profit potential
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Equipment and tooling costs
Production costs
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Timescale to launch
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Research costs – tools, vendor, analysis
3. Document narrative of process for evaluating market and environmental conditions.
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Review most recent evaluation report
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Are policies and procedures standardized and followed for this process?
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Does the analysis include the following: a. Environmental concerns b. Regulatory considerations c. Legal – Patent infringements, etc.
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Document the process to ensure regulatory and legal implications of products are evaluated and signed off. d. Is the legal advice internal and/or external
4. Evaluate the prelaunch “Go – No Go” decision process
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Interview and document a narrative and the process for determining review and authorization
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Does it include all stakeholders as appropriate?
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Are both market and financial considerations included and signed off?
Audit Objective: To ensure that all information about the firm's product developments remains confidential
1. Determine if policies and procedures are adequate to ensure that product details and development plans and business development strategies remain confidential
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Is information about new products and strategies shared on a need to know basis?
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Determine if security considerations include: a. Physical security in work area b. Logical access security for workstations and related applications, databases, etc. c. Document shredding and retention procedures and related policies d. Data transmission encryption (where appropriate) e. Adequate confidentiality measures for print outputs and meeting rooms, etc.
2. Are employees trained on code of ethics and code of conduct mandates?Vendor/contractor provisions for strict confidentiality and control of access to information
3. Is key staff involved in product development subject to fidelity bonding or commercial confidentiality clauses in their employment contracts?
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Document process for ensuring adequate protection of intellectual property and that egal analysis involved in the process to ensure appropriate patent protections in place
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