Guide To Operational Auditing: Definition, Process, Advantages and Disadvantages

To assess its current processes and procedures, a company may conduct an operational audit. This type
of audit identifies areas where a company can improve its operations, allowing it to make changes that
make its processes more efficient or productive. Understanding how to conduct this audit properly can
help your company run better and meet organizational goals. In this article, we provide an overview and
definition of operational audits.

What is operational auditing?

An operational audit refers to a method of examining how an organization conducts business. It requires
analyzing the processes, procedures and systems used within the company. This type of audit looks
beyond the organization's financial circumstances and examines its management practices. An
operational audit aims to find areas in need of improvement to make the organization's operations
more efficient, productive and effective.

What is the operational auditing process?

The typical operational audit process involves the following steps:

Determine the auditor

Typically, a company conducts an operational audit internally. They may have an internal auditor or
audit team whose job is to manage internal or operational audits. However, some companies may not
have an internal audit team or an internal auditor with the necessary knowledge or experience needed,
so they may hire an external specialist to conduct the audit.

Plan the audit process

The auditor meets with relevant managers to discuss and plan their audit method. During this
discussion, the auditor gains an understanding of the business and any potential concerns. They can
then identify areas that may require process improvements, providing challenges for them to focus on
during the audit. Through this conversation, the auditor also establishes the scope and timeline of the
audit.

Next, they can begin establishing the audit's goals and strategies. These objectives vary but should aim
to support the organization's needs and overall objectives. They may focus on a specific area of the
company and its related processes. For example, a company may perform an operational audit on its
hiring practices. The auditor and managers must establish objectives for those processes to meet, such
as increasing the number of employees hired over a set period. Then the auditor uses those objectives
to assess the company's current procedures and find improvements.
Conduct the audit

Now the auditor examines the business areas within the scope of their audit program. The auditor needs
to assess the existing processes and procedures to determine whether they meet the goals set earlier in
the audit process. They have conversations with managers and employees to discuss whether the
processes meet expectations. The auditor also may observe employees as they conduct those
procedures and examine every step.

Once the auditor understands and reviews the processes or procedures, they can develop tests to
evaluate them. Through those tests, the auditor may find specific factors that need improvement and
generate and experiment with solutions that help fulfill their objectives. An ideal process works without
issues and enables the company to conduct the task in a cost- and time-efficient manner.

Report audit findings

The auditor develops a report on their findings and includes any recommendations for improvements.
Depending on those recommendations, the auditor may also draft an implementation plan to help the
company make the necessary changes. They discuss these recommendations with relevant managers,
ensuring that the management team understands the findings and solutions. The management may
agree to follow all the suggestions or discuss why some changes may not be feasible.

Perform a follow-up

After completing an audit, the auditor sets up a follow-up meeting with the relevant management team
and staff. Commonly, they hold the follow-up about six months after the audit. During the follow-up,
they discuss the changes made to the processes and assess their results. They measure these results to
the objectives set forth by the audit and determine whether they meet those goals or are making some
progress towards them.

Types of operational audits

An operational audit examines the business processes and procedures within a company. This type of
audit may overlap with other types of audits, such as:

Department audits: Different departments within a company use different processes and procedures
related to their goals or responsibilities. An audit can assess those processes and find ways to improve
them. It can also examine the department's available resources and how efficiently they use them when
conducting processes. For example, an operational audit could look into specific departments such as
human resources, marketing or IT.

Investigative audits: If a company discovers or suspects an error or security breach has occurred, they
may conduct an investigative audit to determine its cause. As part of this audit, they may assess the
processes performed by an employee or department. The auditor may make suggestions to improve
those processes or related procedures to ensure the issue does not occur in the future.

Compliance audits: This type of audit evaluates whether a company follows relevant external laws,
along with internal policies. The auditor will assess current processes and procedures to ensure they
meet any necessary standards or regulations related to the organization's industry. A company may also
have rules for conduct that all employees much follow, so the audit may inspect compliance with
processes for hiring and firing employees, for example.

Follow-up audits: After an operational audit, the company will implement any necessary changes. They
may then set a determined time to conduct a follow-up audit to evaluate the changes' effectiveness.

Advantages of an operational audit

Conducing an operational audit within an organization can bring numerous benefits, such as:

The audit identifies opportunities and risks

The operations of a business may run smoothly, but an audit can identify areas for improvement. These
changes can make processes faster, less costly or improved in other ways that support profitability and
business goals. Through an audit, managers may also discover risks or issues within their processes that
they were not aware of previously. The auditor helps identify these risks and provides methods of
resolving them. Now that staff understands the risks associated with their business, they can better
identify and evaluate future risks.

The audit can improve business effectiveness

An operational audit requires taking an in-depth look a the processes and procedures involved with
business operations. The purpose of the audit is to ensure the business completes processes effectively
and efficiently. Therefore, any changes made serve that goal and result in improvements to company
operations and profitability. Sometimes, an auditor may identify an area of the business that works
efficiently and use it as an example to help boost another team's efficiency.

The audit can offer objective or new views

An auditor can help managers gain a fresh perspective on their business operations. If the auditor has no
regular involvement with the identified processes or procedures, they can provide insights that
someone who regularly performs them may not see. Because they base their assessment of the
processes on business goals, it serves as an objective evaluation method. It is not about whether the
auditor likes the process, but whether it meets the required goals.
The audit can provide motivation

During an audit, the auditor and management develop objectives they to achieve. These goals aim to
help the business perform better by making improvements to specific processes and procedures.
Management staff can use these goals to motivate their employees by giving them a standard to work
toward. The goals also provide clear guidelines for employees, ensuring that they understand their
employer's expectations and know what constitutes good work.

Disadvantages of an operational audit

An operational audit aims to improve the processes and procedures within a company, but it may come
with some disadvantages. However, these disadvantages may not matter in the long run due to the
advantages of the improvements made. Some of those disadvantages may include:

The audit may require making changes

Improving the processes and procedures within a company often requires changing elements of them.
Employees may need time to adjust to these changes and become more comfortable with them. Some
changes may even require training staff on how to conduct the new and improved processes. As a result,
companies implementing changes due to an operational audit need to consider developing a change
management plan to help employees ease into the transition.

The audit comes with monetary costs

Like any other audit, an operational audit brings costs to the organization. While typically handled by an
internal auditor, a company may sometimes hire an external auditor who charges a fee for their
services. The audit may also deem certain changes necessary to improve specific processes and
procedures in the business. The implementation of those improvements or training employees on them
could add costs to the company.

The audit can affect productivity

An operational audit could impact the productivity of the participating employees participating. If the
internal auditor typically performs other duties at the company, conducting the audit takes them away
from those responsibilities during its duration. Similarly, the employees whose department or business
area is being audited need to spend time working with the auditor and going over their processes and
procedures. This task could slow down progress on their projects or take time from day-to-day
responsibilities. The processes highlighted for improvements may be put on hold as the company
implements any necessary changes.
The audit can be time-consuming

It can take significant time for an auditor to review the business operations of a company. They must
examine every step of the processes they audit, and the more complex the processes, the more time-
consuming they can be. The task of implementing solutions or improvements can also take time to
complete. The company may need to perform tests to ensure the solutions or improvements make the
processes more effective. If employees require training to learn how to conduct changed processes, that
can also take time away from their usual responsibilities.

How does an operational audit differ from an internal audit?

An operational audit acts similarly to an internal audit because an internal auditor conducts the process.
Though they both look at internal processes, there are still some differences between the two. Typically,
a business may conduct an internal audit when something goes wrong within its processes and
procedures. The internal audit will examine the mistake and what allowed it to occur. Then the company
can focus on improving its processes to ensure the error does not happen again. An internal audit
assesses success by seeing whether the process gets completed with no mistakes.

An operational audit differs because it looks for the potential for improvement within the company's
business operations. It also tends to focus on factors related to processes, such as their effectiveness
and efficiency. Rather than performing an audit due to an issue occurring, the operational audit
examines business areas that may benefit from process improvements. The operational audit will
evaluate a process by assessing whether it completed a task without mistakes and met company
standards for efficiency related to cost, time and resources used.

BUSINESS PROCESSES

What is Business Process? – Types, Benefits, and Examples

From your neighborhood bakery to Google headquarters, there is one thing that remains common in
every business. Processes. Each task of every department of every company in the world has a process
attached to it. That is why it becomes important for you to know what is the business process.

Business Processes are the set of related tasks necessary to be completed in a chronology to get work
done. This topic is far more interesting than a bunch of flow charts and technical visual charts. There are
so many things that you can learn about your own business just by looking at your daily processes.
What is Business Process?

Business Process is a set of tasks that directly or indirectly help your business provide the
products/services to the customer. Processes are the core of any business. Everyday productivity of
employees and long term growth of the business is determined by how well you have managed your
business processes.

Why are business processes important?

When you know your business processes and are able to put them into practice, you will see a
considerable difference in the amount of work you do. Here are a few reasons why knowing and
implementing your business process is essential.

1. It saves time

The aphorism ‘Time is money’ is being used since ages and is still relevant. When your business
processes are aligned and crystal clear, you can save a lot of time for your employees and customers.
Time is precious for the customers, and when you are able to deliver your promises in time, you increase
customer satisfaction. Acquiring customers is 5-25X more expensive than retaining current customers.
So it would save you money if you keep customer satisfaction as your top priority. It also boosts the
productivity of the people in your business. Let’s say you create a process of onboarding new
employees. Now the HR won’t have to manually find missing pieces every time a new employee joins
the company. This will save the time of both HR and the new employee.

2. Reduces Opportunity cost

Opportunity cost is the benefit you lose when you choose to do one thing instead of its alternative. We
all can’t be like Schrodinger’s cat, living in multiple realities at the same time. That’s why if you save your
time in doing one thing, you can utilize it by doing the other stuff. This is how business processes are
essential to reduce the opportunity cost. If your HR is not busy with the onboarding of the new
employee, they can work on something more productive.

3. Increases the efficiency

Processes will increase the clarity of work in your business. An increase in efficiency is another
advantage attached to it. When everyone in the organization knows what they are supposed to do
chronologically, it decreases a lot of redundancies and increases the efficiency of the whole
organization.
Steps of creating an effective Business Process

There are a few steps in business processes. There is no one standard rule that you need to follow these
steps, but we have developed these after analyzing some theories and our business processes.

1. Define your objective

Just like any other process, business processes also need you to be clear about what outcomes you want
to achieve. This would help you create the base of your process and give it a suitable direction. Attach
some quantitative metrics to your objective, so that you can find out the results after implementation.

E.g., Let’s assume you have a courier business, and you want to prepare a business process for your
delivery guys. Your objective might be to decrease the traveling time by 30 mins of each of your delivery
guys. You must define this objective and take all the further steps to achieve this objective.

2. Creating and analyzing alternatives

Once you have defined what exactly you want as an outcome, half of the problem is solved. Now you
need to create all the alternatives that you can come up with. There will be an opportunity loss attached
to each of these alternatives. The task is to find the most suitable option with the least opportunity cost.

E.g., There are multiple solutions to decrease the traveling time of your delivery boys like dividing them
into shifts, giving them skateboards, setting their routes in a way they don’t need to detour, but only a
few of them will be suitable and feasible. Choose the best out of all of them.

3. Involve and assign stakeholders

This is one of the most critical steps in creating a business process. Once you have designed the process
out of all the alternatives, you must involve everyone and make them understand the process. They are
directly involved in the running of the process. That is why it is necessary that they understand all the
aspects of the process. This would help you save time in the longer run.

4. Test the process

After the process is entirely designed, you must run it on a smaller scale. The practical experience would
help you find the gaps that you missed while creating the process. You can fill these small gaps with
solutions and make your process official.

5. Run the process

After filling out all the gaps and solving all the minute inconveniences, you should implement the
process to your business. Since the stakeholders of the processes know about it, the chances of
discrepancies will be reduced to a minimal.

6. Analyze the results

When you designed the process, you had an objective in your mind. Now that you have implemented it,
have you been able to achieve the results that you were planning to get? You need to draw a
comparison between the earlier process and the current one. The quantitative metric would help you
with that.

E.g., You can compare the time taken by your delivery man before and after the implementation of the
process. This would give you an idea of whether you were able to achieve the desired results or not.

If the results are achieved, you are good to go. The process that you have created is working effectively.
If they are not, you need to change something, either make your objectives more achievable or make
your process more efficient. In short, go for the optimizing the business process. With enough trials and
errors, you will be able to achieve optimum results.

Examples of Business Process

Here is a simplified example of how Business Process looks like.

1. Industry: Marketing

Company type: Ad agency

Process: Ad creation
Marketing agency processes can be a bit tricky as there is more qualitative output to be delivered. Here
are the steps of an ad creation process:

 Understanding client requirements

 Brainstorming idea for the ad
 Preparing a campaign
 Pitching the idea to the client
 Getting the approval
 Making necessary changes
 Providing the deliverables

2. Industry: Information Technology

Company type: SaaS tool

Process: Developing the product

SaaS industry is booming and the solutions provided by these companies are value and utility-driven.
Here’s how the process of developing the product looks like:

 Understanding market demand

 Finalizing a product outline
 Programming the backend
 Coordinate with the designer to program
 The front end and the UX
 Preparing an Onboarding experience
 Testing the product internally
 Solving bugs and errors
 Running a beta test
 Taking feedbacks from the users
 Improve further

Types of Business Process

1. Operating Process

These are the main functions of the business. These processes are directly related to the fundamental
values, vision, and mission of the business. They are also known as primary processes. You need to give
extra attention to these processes as they are the primary revenue streams of the company. Filling the
gaps and adding necessary improvements in these processes is essential. Once you complete the
evaluation of these processes, it will have a direct impact on the growth of your business.

E.g., McDonald’s restaurant’s operating process would be taking orders, making food, and serving it to
the customers.

2. Managing Process

The processes that plan, organize, coordinate and control all the functions of the business fall under
managing processes. These processes are goal-oriented. It includes helping and motivating your team to
achieve their targets. These processes also help in forming a direction for the further growth of your
business. Regulating day to day tasks, teaching employees how to complete a task effectively, launching
a new product, etc. are some of the processes under this category.

E.g., CEOs, managers, and top-level management are generally involved in management processes.

3. Supporting Process

These are the processes that are not directly related to the delivery of the service or product to the
customer. But they help the business create an environment where the primary processes can work
better. That is where the name “supporting process” comes from. These are the processes under the
accounting department, human resource management department, and any other department that
supports the main functions of the business.

E.g., Hiring a new employee is a supporting function that helps the business expand.

Let’s take a look at this example of a call center to understand all the types of these processes.

Solving queries of clients on the call is the operating function. Managing the whole staff falls under
managing processes. While the IT department assisting the employees at the time of any technical or
hardware problems will be a supporting process.

Problems while implementing business processes

Cross-functional Issues
When two or more functions of a business are involved in the same process, it might lead to some
discrepancies. If the discrepancies are not resolved on time, it can become a conflict that could hinder
the workflow of your business. Make sure you design your process in such a way that authority and
responsibility across the business are balanced, and workflow remains smooth.

Distribution of work

This is another most common problem that businesses face every day. Lack of effectiveness in the
distribution of work slows down the processes. These bottlenecks are introduced when one person is
piled up with a lot of tasks, and the other’s queue is empty. This also introduces stress and
discouragement. This is why it is extremely important to design a process after keeping all the
stakeholders in mind.

Unavailability

Manual activities in the process have a strong dependency on the availability of a person. Often the
process does not move forward because the person is busy, ignorant, on-vacation, or they have not
prioritized tasks. These problems can get serious after a certain point and have the ability to slow down
your business. You can tackle all these problems if you get the right tools on your hand. Process
automation tools will help you create and implement processes effectively.

Keeping in mind such business process problems, we introduce you to Fasproc. It is a fast process
automation tool that will help you create and implement processes within minutes. We are planning to
launch it soon. Be the first out of many more customers to come by joining our beta list. We ensure that
you will get great little free gifts from our side, along with the ability to create processes in minutes.

Conclusion

When you start a business, it is important to create, understand, and implement the processes
regardless of the scale of your business. Now that you have an idea of how to create and map out
these processes, start working on it. If you have any questions or suggestions on how to improve the
business processes, let us know in the comments

What is a business process?

A business process is a series of steps performed by a group of stakeholders to achieve a concrete goal.
Each step in a business process denotes a task that is assigned to a participant. It is the fundamental
building block for several related ideas such as business process management, process automation, etc.

While there’s a deluge of things written and said about business process management, it’s essential to
understand why they are so important to your business.

The importance of business processes

The need for and advantages of a business process are quite apparent in large organizations. A process
forms the lifeline for any business and helps it streamline individual activities, making sure that
resources are put to optimal use.

Key reasons to have well-defined business processes

 Identify what tasks are important to your larger business goals

 Improve efficiency
 Streamline communication between people/functions/departments
 Set approvals to ensure accountability and an optimum use of resources
 Prevent chaos from creeping into your day-to-day operations
 Standardize a set of procedures to complete tasks that really matter to your business

An example of a business process

As an example, let’s consider the hiring process of an HR department. Right from posting the job
opening to onboarding the employee, there are multiple steps involved in the process. Although this can
vary from organization to organization, a simple workflow might look like this:

The HR executive posts the job update

Multiple candidates apply in a portal
The HR executive screens the candidates and filters the best-fits
The selected candidates are called for the next stages of the recruitment
The right candidate is chosen at the last stage of the recruitment
Salary and policy negotiations take place
The offer letter is sent and the candidate accepts

This is then followed by a long employee onboarding process.

The 7 steps of the business process lifecycle

Step 1: Define your goals

  What is the purpose of the process? Why was it created? How will you know if it is
successful?

Step 2: Plan and map your process

 What are the strategies needed to achieve the goals? This is the broad roadmap for the
process.

Step 3: Set actions and assign stakeholders

 Identify the individual tasks your teams and machines need to do in order to execute
the plan.

Step 4: Test the process

 Run the process on a small scale to see how it performs. Observe any gaps and make
adjustments.

Step 5: Implement the process

 Start running the process in a live environment. Properly communicate and train all
stakeholders.

Step 6: Monitor the results

 Review the process and analyze its patterns. Document the process history.

Step 7: Repeat

 If the process is able to achieve the goals set for it, replicate it for future processes.

What are the essential attributes of an ideal business process?

There are 4 essential attributes that constitute an ideal business process:

1. Finite – A good business process has a well-defined starting point and ending point. It also has a finite
number of steps.

2. Repeatable – A good business process can be run an indefinite number of times.

3. Creates value – It ultimately aims at translating creation of value into executable tasks and does not
have any step in the process just for the sake of it. In other words, if any step in the process isn’t adding
value, it should not exist.
4. Flexibility – It has an in-built nature to be flexible to change and is not rigid. When there is any scope
for improvement that is identified, the process allows that change to be absorbed within itself without
operationally affecting its stakeholders as much.