Tools Used in Operations (BSA 4A)

BSA 4A Bicol University College of Business, Economics, and Management Bachelor of Science in Accountancy - 1st Semester Handout #6 Tools Used in Operations TOOLS USED IN OPERATIONS OBJECTIVES After this modu...

BSA 4A Bicol University College of Business, Economics, and Management Bachelor of Science in Accountancy - 1st Semester Handout #6 Tools Used in Operations TOOLS USED IN OPERATIONS OBJECTIVES After this module, readers are expected to gain familiarization and demonstrate mastery of the following: 1. The different tools used in operations 2. How the tools are used by auditors during internal audits 3. How it can be used by the management to improve operations 4. The benefit it provides to the organization INTRODUCTION In this chapter, we examine 16 tools ranging from highly quantitative to qualitative ones. They 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. These tools were developed by experts in the fields such as statistics, economics, mathematics, quality control, and management, and include Vilfredo Pareto, Joseph M. Juran, W. Edwards Deming, Walter Shewhart, Genichi Taguchi, Karl Pearson, Kaoru Ishikawa, and many others. RACI DIAGRAM Also referred to as responsibility assignment matrix, and linear responsibility chart A Raci Diagram is a very useful tool to help figure out who the responsible party is for any given task. It helps in minimizing poor coordination, confusion, redundancies, and lack of accountability in processes involving multiple parties. It describes the participation by various roles in completing tasks or deliverables and it is especially useful in clarifying roles and responsibilities in cross-functional or departmental projects and processes because it identifies who does what. RACI is an acronym derived from the four roles and responsibilities that various parties play in a program or process. The roles identified are responsible, accountable (or approver), consulted, and informed It answers the question: Who does this? RESPONSIBLE This describes those responsible for performing the task and refers to those who do the work to achieve the task It answers the question: Who approves the activity after it is completed? 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 accountable for the completion of the activity according to established standards An accountable must approve the work that the person(s) responsible provides. There must be only one accountable specified for each task or deliverable. It answers the question: Who will assist the people responsible? Those whose knowledge is important for the successful completion of the task are identified as consulted. CONSULTED 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 Acctg Elec 4 | Operations Auditing, Internal Auditing, Attestation Services & Related Services Page 1 of 27  BSA 4A Bicol University College of Business, Economics, and Management Bachelor of Science in Accountancy - 1st Semester Handout #6 Tools Used in Operations It answers the question: Who should be kept up to date about the activities? Refers to anyone that should be kept up to date about the activities being INFORMED 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. It consists of one-way communications to them. How to Construct a RACI Chart The matrix is typically created with a vertical axis (left-hand column) listing of tasks. The items on the list can consist of the key activates from a Gantt chart or other list of activities or deliverables for the project. The horizontal axis on the top row shows the parties involved. It can be individuals, teams, or relevant units from an organizational chart. At the intersecting point, the corresponding letter is entered based on the role each party plays in the accomplishment of the activities noted. It may happen that the role that is accountable for a task is also the one responsible for completing it. This is indicated on the matrix in one of two ways 1. The task or deliverable has a role accountable for it, but no role responsible for its completion. In this case, it is implied. 2. The task or deliverable has a role of R/A: responsible/approver. Beyond this exception, it is generally recommended that each task have one of the RACI participation types assigned to it. It is also helpful to make sure that everyone involved agrees to the roles being assigned to them, and that they have the necessary skills and resources to get the work done. Upon implementation, a communications matrix may be useful as well. COMMUNICATIONS PLAN Use to make sure communications within and outside the team are effective A communications plan identifies the key elements to make sure the intended message is received, understood, and acted upon by the main stakeholders during the engagement, providing a schedule of key communications and defining what will be shared. It helps to make sure the messages get to the audience To decide what should be on a communications plan, it helps to think about these six simple questions: what, when, where, who, how, and why Acctg Elec 4 | Operations Auditing, Internal Auditing, Attestation Services & Related Services Page 2 of 27  BSA 4A Bicol University College of Business, Economics, and Management Bachelor of Science in Accountancy - 1st Semester Handout #6 Tools Used in Operations Refers to what will be included in the communications. Include performance, progress, and status of the unit’s activities. Also, issues that have WHAT surfaced, whether they were anticipated or not, and what was done or is being done to resolve them. Refers to the timing of the communication activities, so here we are focusing on the WHEN timing. Focus is on the location of the communications. Meetings can be held in the office, conference room, or open-space near the WHERE department’s location. For teams or departments that are geographically dispersed, or where members travel often, the meetings and updates can be done via conference call, video conference, or online instant messaging Relates to the decision of who should attend the meetings. In most cases, it is best to have everyone present, because this helps to avoid miscommunication and eliminates the need to repeat what has already been discussed. However, sometimes everyone can’t or doesn’t need to be present. In this WHO case, those who attended can give a brief update or the meeting minutes to team members who are interested but cant be there. When answering the “who,” it is as important to decide who does the communicating as well as who receives the communication BENCHMARKING Benchmarking is the process of comparing statistical information. It consists of comparing at least one performance metric to a standard, or multiple performance metrics to each other. Robert Camp, in his book The Search for Industry Best Practices that Lead to Superior Performance, states that benchmarking is “the search for those best practices that will lead to the superior performance” of a unit or organization. It is not only about gathering results and trying to match or outdo them. It is about studying the practices in others’ processes recognized as leading organizations and finding out how to do what they do. The goal should always be to provide the level of customer satisfaction, quality, and efficiency that your organization wants. Conversely, it can also show areas of excellence within the organization Typical metrics used in benchmarking are time, quality, and cost. Two common issues associated with benchmarking are 1. The information is often proprietary and organizations are reluctant to share it with other organizations, especially competitors and 2. The information is sometimes not comparable, because the organizations are of different sizes, maturity, or operate in different markets. Acctg Elec 4 | Operations Auditing, Internal Auditing, Attestation Services & Related Services Page 3 of 27  BSA 4A Bicol University College of Business, Economics, and Management Bachelor of Science in Accountancy - 1st Semester Handout #6 Tools Used in Operations PARETO CHART Pareto chart is a special form of bar chart that is used to show ordered frequency counts of data. Its purpose is to emphasize which are the most frequently occurring defects (by category). 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 the best results. It is very useful for internal auditors in detecting defects that mostly affect the company’s operation. It is designed to organize data and can be used to prioritize improvement efforts by focusing on the major root causes of the problems under review. When drawing the Pareto diagram, draw the diagram with the cause(s) on the horizontal axis. Then put points assigned on the vertical axis. For each cause, construct a bar with two components: 1. Number of votes (or points) received for that component. 2. Number of people voting for that cause. When done, rank the items in order of importance. The example above shows the number of errors by location as bar charts, and the cumulative percentage as a line against the second y-axis FLOWCHART/PROCESS FLOW MAP/VALUE STREAM MAP A flowchart (also called process flow diagram, process map, process model, and workflow diagram) is a diagram that represents a workflow or process. It shows the steps in the form of boxes of different shapes and the order or sequence of events by connecting the items with arrows. Key Purposes of Flowchart Flowcharts are a very helpful and versatile tool to help auditors understand and answer the following questions: The objectives of the program or process. How performance is measured? How the activities are performed? Who performs these activities? Where the risks and controls are? Where anomalies take place? Acctg Elec 4 | Operations Auditing, Internal Auditing, Attestation Services & Related Services Page 4 of 27  BSA 4A Bicol University College of Business, Economics, and Management Bachelor of Science in Accountancy - 1st Semester Handout #6 Tools Used in Operations Flowcharts are used to design, document, manage, and analyze a program or process in virtually any field by presenting the process flow in visual form. The visual nature of flowcharts makes it easier to spot these deficiencies and note them prominently for others to see. Flowcharts indicate operations performed in detail, which can be very helpful to search for efficiencies. Common Features of Process Flow Diagrams Rectangular boxes: They show a processing step or activity. Diamonds: Represent a decision. Arrows: Show direction of the flow of each activity. Ellipses: Indicate the start and stop of the diagram. Flowcharts are normally prepared horizontally indicating primarily the movement of documents from left to right, but they can also be drawn top–down. Every symbol should be connected to something else and collectively flow towards the end of the process. There should be no loose ends or endless loops. Benefits and Challenges of Flowcharts Benefits Challenges A teaching tool May be too detailed if the Managerial tool area is complex Errors may pop out Can take a long time to Flexible prepare Worth a thousand words User must learn symbols Easy to review Useful in discussions Cross-Functional Flowchart A cross-functional flowchart, often called a flowchart with swimming lanes, shows the steps in the process, but also the units or individuals performing the activities (i.e., actors). Each actor then has its own lane and the symbols appearing in that lane are performed, and controlled, by that actor. This approach allows the auditor to identify, locate, and analyze the responsibility for performing each activity and making the necessary decision. It also shows the responsibility of each actor and the absence of needed segregation of duties, where applicable. Areas of Interest for Internal Auditors a. Handoff A handoff is when transactions are passed from one actor to another to continue the process. While this is a natural aspect of most processes, internal auditors must be cautious as well at every handoff point. The following are some examples of potential process breakdowns due to handoffs: Not all transactions are handed over. There are excessive delays during the handoff due to the preparation for the handoff, or the acceptance of the received items. The handoff results in some degree of miscommunication, resulting in inaccuracy. When custody of the item(s) passes to another, others who may need information about the transaction may not know the exact whereabouts of the item, resulting in poor customer service. Acctg Elec 4 | Operations Auditing, Internal Auditing, Attestation Services & Related Services Page 5 of 27  BSA 4A Bicol University College of Business, Economics, and Management Bachelor of Science in Accountancy - 1st Semester Handout #6 Tools Used in Operations b. Identification of Control Points Control points are often hidden in the midst of multipage narratives, and efforts to make them more visible for readers have often led auditors to highlight them, use bold letters, color-code them and otherwise attempt to make them easier to identify in their lengthy documents. Most widely used Software Packages to Draw Flowcharts Microsoft Visio SmartDraw Flowcharter Edraw RF Flow Flowcharting software is an essential tool for creating professional-looking diagrams quickly and efficiently because they are specifically designed to create these diagrams easily and with fewer steps. Useful Features of Flowchart Software Applications 1. Software application makes it easy to create flowchart on multiple pages, and collapse or expand sections of a diagram. 2. Add hyperlinks to jump to another section within the flowchart. 3. Change text font and size, insert graphics, use multiple colors, and text fields. 4. Inserting pictures (e.g., employee or building pictures), setting backgrounds, and inserting titles and symbols can help the author personalize the flowchart. As Is Diagram The As Is diagram depicts the present or current state of the process and the auditor should document everything in the current state. In addition to the activities (i.e., boxes), decisions (i.e., diamonds) and arrows showing the flows, it is useful to show whenever possible: Time: How long it takes activities to be performed. Bottlenecks: These represent a problem in processes because the limited capacity and performance of a process causes delays that impact cycle time. Production volume: Internal auditors examine the background of the program or process during the planning phase to understand the context of the review, how long the facility has been in operation, what systems are in use, how much revenue is generated by that unit, how many employees work there, and so on. Delays: How long are the wait times? Quite often transactions are held up while additional information arrives, while a review and approval is underway, or while an employee batches transactions for processing later. The As Is map serves as a great source of information to understand the process being reviewed, but also to establish a baseline for performance. Some suggestions to effectively draw the As Is map: Determine the boundaries of the process. Identify the steps through consensus. Walk the process and arrange chronologically. Draw using appropriate symbols. Test for completeness. Look for problem areas as a team. Show details. Acctg Elec 4 | Operations Auditing, Internal Auditing, Attestation Services & Related Services Page 6 of 27  BSA 4A Bicol University College of Business, Economics, and Management Bachelor of Science in Accountancy - 1st Semester Handout #6 Tools Used in Operations To-Be Diagram The To-Be diagram should show the future state or desired condition. To accomplish this, auditors should think outside the box as well as brainstorm different scenarios and possibilities. Some considerations are: Automation: It can provide meaningful time and labor savings. So, what can be automated? Is there a way to program aspects of the process? Simplify: What can be eliminated, combined, or simplified? Who is involved? What is expected? COMMON PROCESS IMPROVEMENT AREAS When reviewing processes, it is often helpful to search for the following items to determine if the following areas present opportunities for improvement: Backlogs. These represent an accumulation of work, often in the form of uncompleted work that needs to be done. This could consist of transactions to process and orders to execute. Cycle time. Cycle time is the total time from the start to the end of a process. There may or may not be clear standards regarding transaction completion times, but in general, quick execution is a general expectation. There are several components to total cycle time. This includes: Process time specific to each activity, which is the time when the item is acted upon. This refers to the activities mentioned inside the flowchart boxes. The time when the item is waiting to take the next step, which is the time between the boxes. This time could be normal time, or it could be extensive resulting in delays and even causing bottlenecks. Several Ways to Capture Process Cycle Times: 1. Stopwatch. The traditional approach is to use a stopwatch. In this case, the auditor can document how long it takes to process the various steps in a flowchart and build a piece-by- piece schedule, with the sum being the total time for the corresponding transaction. 2. Systems data. Some information system can provide detailed cycle-time information through their reporting functionality. When that is not available, document flow management applications often capture user ID, date, and time every time a user accesses a transaction record. 3. Sample. After selecting the sample of transactions to test, the auditor can expand the data capture during the review. Auditors often review individual files and test financial and compliance controls, checking for: a. Accuracy. What the customer asked for is what the customer received. b. Completeness. All the transactions that constitute a customer request were executed. c. Authorization: i. Every transaction was business related ii. Every transaction was reviewed and approved as required. Acctg Elec 4 | Operations Auditing, Internal Auditing, Attestation Services & Related Services Page 7 of 27  BSA 4A Bicol University College of Business, Economics, and Management Bachelor of Science in Accountancy - 1st Semester Handout #6 Tools Used in Operations CHECK SHEET A check sheet is a structured form or document used to collect and analyze data. It is often done real time where the data are generated or collected. The information collected can be either qualitative or quantitative. The form is sometimes called a tally sheet because the data are often used to track and count the number of instances of various phenomena associated with the review being performed. Check sheets can be used when the data are observed and collected repeatedly and the intent is to document the frequency or pattern of problems, defects, defect causes, or events. A check sheet could be constructed following these steps: 1. Identify and document the operational definitions and criteria that will be used when evaluating the selected transactions. 2. Decide what event or problem will be observed and documented. 3. Decide when the data will be collected, and for how long. 4. Design the form so that data can be recorded simply and clearly by making check marks (e.g., tick marks or symbols) or entering numbers. 5. Label all rows and columns. 6. Select the transactions, items, or events that will be reviewed. 7. Record on the check sheet every time the event or problem occurs. Example of a Check Sheet Example of an Enhanced Check Sheet Flowcharting Value-Adding Checklist Three Rules Are the tasks necessary? What can be reduced or eliminated? Are activities in conflict with others? 1. Don’t accept a defect. Can anything be simplified?Are all 2. Don’t make a defect. handoffs necessary? 3. Don’t pass on a defect. Can the sequence be changed? Are all checks, approvals, and decisions necessary? Are there loops or incompatible duties in the process? Are there dead ends anywhere? FIVE (5) WHYS The 5 Whys is a very powerful tool, useful to identify the root cause of issues. It is a one of the simplest tools for Root Cause Analysis as it is easy to use and does not require statistical analysis. “Root cause analysis is defined as the identification of why an issue occurred (versus only identifying or reporting on the issue itself). In this context, an issue is defined as a problem, error, instance of noncompliance, or missed opportunity” (Practice Adv 2320-2). The approach consists of asking “why” multiple items, each of which probes further as to the source of the problem. It is an iterative technique used to explore the cause-and-effect relationships underlying a problem. Acctg Elec 4 | Operations Auditing, Internal Auditing, Attestation Services & Related Services Page 8 of 27  BSA 4A Bicol University College of Business, Economics, and Management Bachelor of Science in Accountancy - 1st Semester Handout #6 Tools Used in Operations Primary Goal of Five Whys The primary goal of the technique is to determine the root cause of a defect or problem by repeating the question “why?” The process is sequential, and each question forms the basis of the next question. The “5” in the name is the typical number of iterations typically needed to resolve the problem, but identifying the root cause may take fewer or more times than 5 whys. Illustration 1: Problem statement: The floor is wet. WHY 1: Water leaked from the ceiling. Initial answer/solution: Mop up the floor and dry the water. However, if water continues to fall on the floor, mopping the water is an inadequate solution to the problem. We should ask “why?” WHY 2: Why is there water on the floor? Answer: Because the pipe overhead is leaking. We can stop there and repair the pipe, but we should probably ask “why?” again. WHY 3: Why is the pipe leaking? Answer: Because it has poor fittings. WHY 4: Why did the pipe have poor fittings? Answer: Because the plumbing work was done by an unqualified plumber. We should ask “why?” again. WHY 5: Why did we use an unqualified plumber? Answer: Because of poor procurement practices. The plumbing work was granted to this plumber through favoritism rather than skill and a proven history of good workmanship. At this point, now we know what caused the water on the floor. Illustration 2: Problem statement: Suppose the auditor notes that the processing unit is making mistakes when shipping goods to customers. WHY 1. Why are there so many mistakes? Answer: Because instructions are given verbally. WHY 2. Why are instructions given verbally? Answer: Because it takes longer to write orders and they want to make shipments as quickly as possible, so they call the orders in. WHY 3. Why does it take so long to write orders? Answer: There is no tool (e.g., form, template, and system) to record the information. At this point, with three whys we can see that the absence of a consistent method of capturing orders and communicating them to the shipping department is causing the problem. The 5 Whys can be used individually or in conjunction with the fishbone diagram or other related tools. The fishbone diagram, also called cause and effect diagram and Ishikawa diagram, helps to explore all potential and real causes resulting in a single defect or failure. After identifying all the inputs on the fishbone diagram, the 5 Whys technique can help to drill down to the root causes. Acctg Elec 4 | Operations Auditing, Internal Auditing, Attestation Services & Related Services Page 9 of 27  BSA 4A Bicol University College of Business, Economics, and Management Bachelor of Science in Accountancy - 1st Semester Handout #6 Tools Used in Operations TAKT TIME Takt Time is the rate at which the production operation produces output. The term is derived from the German word “takzeit” which translates to “rhythm”. It relates to the average amount of time or pace to perform each activity. Uses 1. The metric may be used to determine the pace to keep a process flowing in order to prevent bottleneck in a process 2. It can be used to set the performance expectation for the process allowing the operators to know how they can meet or surpass their goals Formula Illustration 1: Consider a mortgage loan processing operation with a staff of 10 operators that receives an average of 180 loan applications per day. The unit spends 6 hours actively processing these applications per day after deducting lunch, breaks, and required meetings. The calculation for Takt time is as follows: Explanation: This means that operators should spend an average 20 min processing each loan application. Some applications may take less time, others may take more, but on average, they must keep a pace of 20 min per application. If it takes them longer, there will be delays. Lead Time The lead time refers to the time from the initiation to the completion of a process. For example, if an item is needed in the production process, the lead time encompasses the time from the order being placed until the item arrives. Mismanagement of lead times may result to halted production due to stock out situations caused by the late delivery of materials. To address such issues: organizations must expedite merchandise delivery, resulting in excess costs; or in more complex situations, the organization keeps extra inventory to compensate for the risk of stock out, resulting in extra costs built into inventory management To gauge process performance, management should have metrics in place. Some of the most commonly used ones includes productivity measures such as units of production per employee, shift, week, or month; on time delivery record, uptime, or turnaround time. Acctg Elec 4 | Operations Auditing, Internal Auditing, Attestation Services & Related Services Page 10 of 27  BSA 4A Bicol University College of Business, Economics, and Management Bachelor of Science in Accountancy - 1st Semester Handout #6 Tools Used in Operations Suggested questions to explore opportunities to improve process Operations Documents 1. How can the process be streamlined? 1. Are all documents necessary? 2. Are any activities conflicting with each other? 2. What are the documents used for? 3. What can be reduced or simplified? 3. Is there a duplication? 4. Are there instances of excessive rework and 4. Who owns, needs, and uses these documents? where do they occur? For what? Filing Delays 1. Is there a document retention and destruction 1. What can be done to reduce or eliminate policy? Is it followed? delays? 2. Is the storage and retrieval process efficient? 2. Are the delays necessary? 3. Are there duplicate files? 3. Are the delays related to waiting for providers 4. Are there multiple copies maintained? or approvals? Transportation Inspection 1. How can the process be streamlined? 1. Where are inspections happening? 2. Are all transfers of work necessary? 2. How much rework do the inspections detect 3. Is the sequence of the transportation and 3. Where to errors get detected? transfers optimal? 4. Are multiple people inspecting and checking 4. Are vehicles loaded optimally? the same things? Decisions 1. Is the process so complicated that excessive decisions must be made? 2. Are alternatives sought and carefully examined first? 3. Are repercussions examined before decisions are made? 4. Do decisions slow the process unnecessarily or create other issues? COMMUNICATIONS MATRIX Communications Matrix is used to summarize and facilitate the communication plan by defining the details regarding the communications activities that are used during the team or department’s activities during the course of the project. Benefits of Communications Matrix helps keep everyone informed about their roles and responsibilities within the organization or team structure provides clarity around who needs to communicate with whom throughout the different phases of development KEY COMPONENTS: 1. Communication type 2. Description and purpose 3. Delivery method 4. Frequency 5. Documents 6. Participant; and 7. Those responsible for making sure each communication event takes place according to plan Acctg Elec 4 | Operations Auditing, Internal Auditing, Attestation Services & Related Services Page 11 of 27  BSA 4A Bicol University College of Business, Economics, and Management Bachelor of Science in Accountancy - 1st Semester Handout #6 Tools Used in Operations Figure. Communications Matrix SUPPLIERS, INPUTS, PROCESS, OUTPUTS & CUSTOMERS MAP A suppliers, inputs, process, outputs, and customer (SIPOC) diagram summarizes the participant, inputs and outputs of a process. It is a tool used by a team to identify all relevant elements of a process before work begins. It visualizes how everyone in the process receives materials or data from each other, and is often used to improve or understand processes that impact customer experience. SIPOC diagrams aren’t meant to provide too much detail—they give stakeholders a high-level process map to help them make decisions and brainstorm improvement ideas. In that way, SIPOC diagrams are just one tool for business process management (BPM) Auditors are expected to gain familiarity with the program or process they are going to review. Two areas of weaknesses that sometimes complicate the completion of the review are the: limited knowledge of parties involved; and inadequate understanding of the process itself What forms the columns of a SIPOC diagram? 1. Suppliers of the process 2. Inputs of the process 3. Process the team is reviewing 4. Outputs of the process 5. Customers that receive the process outputs Figure. SIPOC diagram S I P O C Suppliers Inputs Process Outputs Customers a structured set of activities that materials, transform inputs into the products or the provider of inputs to resources or data the recipient of the process process required to specified outputs, services that result output providing value to from the process execute process customers & stakeholders Acctg Elec 4 | Operations Auditing, Internal Auditing, Attestation Services & Related Services Page 12 of 27  BSA 4A Bicol University College of Business, Economics, and Management Bachelor of Science in Accountancy - 1st Semester Handout #6 Tools Used in Operations When is it useful? When defining the scope of review - it can give auditors a high-level overview of the program or process. In the performance of a stakeholder analysis, so the key participant in the program or process is identified The interactions among the parties involved can help to define risk exposure, the size of the operation and related audit coverage needed, and customer requirements AFFINITY DIAGRAM/KJ ANALYSIS An Affinity Diagram, also called affinity chart or the Jiro Kawakita (KJ) method, helps auditors organize ideas and gather large amounts of data, organizing the data into groupings or themes (i.e., creating clusters based on the affinity that some items have to others), when group consensus is needed, and when issues seem too large and complex to organize. Materials required in the preparation of affinity diagram 1. Sticky notes or cards (i.e., Post it notes) 2. Marking pens; and 3. A large work surface to work on (i.e., wall, table, or floor) Affinity Diagram Process STEP 1. Record each idea with a marking pen on a separate sticky note or card During a brainstorming session, the ideas can be written directly onto sticky notes or cards if the facilitator believes it will be followed by an affinity diagram. STEP 2. Place all notes randomly on the large work surface items should be visible to everyone involved in the exercise. STEP 3. Look for ideas that seem to be related in some way and place them side by side Attempt to look for relationships between individual ideas and have team members simultaneously sort the ideas (without talking). Repeat until all notes are grouped. It’s okay to have “loners” that don’t seem to fit a group. It is also okay to move a note someone else has already moved. If a note seems to belong in two groups, make a second note. STEP 4. Begin a discussion within the team From these relationships, attempt to define categories and create summary or header cards for each grouping or category. The team members can begin to talk and discuss the rationale for clustering several items together, for moving notes, and creating a duplicate note if that was done. When ideas are grouped to the team’s satisfaction, select a heading for each group-a note that captures the meaning of the group. STEP 5. Combine groups into “super-groups”, if appropriate Assign all ideas to the identified categories by placing ideas under header cards. [Tip: base assignment on “gut feel,” not through contemplation.] Affinity diagrams work best when the team is small and you want to highlight similarities in ideas to build consensus and organize ideas or items into categories or themes. Acctg Elec 4 | Operations Auditing, Internal Auditing, Attestation Services & Related Services Page 13 of 27  BSA 4A Bicol University College of Business, Economics, and Management Bachelor of Science in Accountancy - 1st Semester Handout #6 Tools Used in Operations Two common challenges faced by auditors 1. ensuring that they are not reporting on symptoms, but rather on the root cause of problems; and 2. reducing the length of the audit report Benefits of Affinity Diagram it gives groups an opportunity to exercise their creativity, break out of their habitual thinking, avoid jumping to conclusions, and avoid allowing preconceived notions drive their thinking it helps build consensus, as the clusters are created by the entire team it improves report writing, as it helps arrange items so the findings flow logically FORCE FIELD ANALYSIS The Force Field Analysis 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 information by understanding the bigger picture and the pros and cons of the recommendation it forces the auditor to understand the auditee’s perspective which allows the former to be more aware of the challenges that the client faces Advantages of FFA (as a decision-making tool) 1. provides a visual representation of the factors surrounding the proposed change 2. takes into consideration the impact of factors on the decision 3. promotes a collaborative set-up by involving more than one person in determining the benefits and challenges of a proposed change 4. allows for a high-level overview of the situation by analyzing all the factors and what they entail in relation to a proposed change 5. eases the evaluation process by mainly utilizing a scoring method that makes it easily quantifiable How to Conduct a Force Field Analysis? STEP 1. State and describe proposal for change State the proposed change, describe the elements, and enumerate objectives. This would give a clear perspective on how to best address the situation. STEP 2. Identify driving forces List down all the factors that are in favor of implementing the proposed change. For business initiates, examples may include: lower costs faster speed increased customer satisfaction fewer errors increased sales STEP 3. Identify restraining forces List down all the factors opposing the implementation of the proposed change. When considering business initiatives, examples may include: implementation costs complexity time to roll out lack of knowledge/skill conflicting priorities past failure with similar initiative Acctg Elec 4 | Operations Auditing, Internal Auditing, Attestation Services & Related Services Page 14 of 27  BSA 4A Bicol University College of Business, Economics, and Management Bachelor of Science in Accountancy - 1st Semester Handout #6 Tools Used in Operations STEP 4. Incorporate scores Score each factor based on the influence it exerts on the recommended course of action and add up the scores for and against the change. The scoring can be done using a five-point Likert scale, where 1 exerts the lowest influence and 5 represents the highest impact. STEP 5. Tally, analyze and apply Determine what strategy to employ. Decide whether or not to move forward with the change. If the decision is to proceed, the strategy could consist of strengthening the forces that support the change initiative or managing/diffusing the forces against the change. Figure. Example of a Completed FFA CONTROL CHARTS In the role of a process owner overseeing a project, the initial step involves setting up a well-defined structure, outlining specific goals, and anticipating potential risks that could hinder success. With these elements in place, designing effective controls to manage and mitigate these risks becomes essential. Monitoring these controls, much like tracking risks, provides invaluable insights into their effectiveness and identifies areas for improvement. This ongoing assessment enables management to refine controls and ensure alignment with the project's objectives. Here’s where things get even more structured. Management’s role is to establish performance standards - the benchmarks by which the success of the project is measured. But these aren’t arbitrary. The best standards are based on quantitative data - numbers that can be counted, sorted, analyzed, and reviewed regularly. At the same time, you can also use qualitative data to offer deeper insight into the nuances behind the numbers. In either case, this data can help auditors perform their work effectively. Errors, anomalies, or variations are often detected by management during day-to-day monitoring. One of the most valuable tools for documenting this ongoing observation is the control chart. Acctg Elec 4 | Operations Auditing, Internal Auditing, Attestation Services & Related Services Page 15 of 27  BSA 4A Bicol University College of Business, Economics, and Management Bachelor of Science in Accountancy - 1st Semester Handout #6 Tools Used in Operations Central Line/Average Output Represents the average value of the process, indicating what’s expected if everything is running smoothly. Upper and Lower Control Limits (UCL and LCL) These boundaries are set based on historical data and represent the extreme ends of acceptable performance. Anything outside these limits signals potential issues. Historical Data The control limits are drawn based on past performance, reflecting the process’s natural variability. Deviations beyond these limits prompt further investigation. Control charts are not only for detecting current issues but also for predicting future performance. They help identify potential problems before they escalate into costly errors. Despite being commonly used in quality control, control charts are often less familiar to internal auditors. COMPONENTS OF CONTROL CHARTS Data Points - Represent the average (mean) measurements of a process characteristic over time. Mean Calculation - The mean of all samples is used to draw the center line, indicating the expected value. Standard Deviation - Calculated to understand the variation around the mean. Control Limits - Typically set at three standard deviations from the center line, showing where the output is statistically “unlikely” and needs attention. Additional Lines - May be drawn at one and two standard deviations from the center line, helping to assess observation frequency and identify early warning signs. In Control -If the process consistently stays within the control limits, it’s considered stable and under control. Out of Control -A data point falling outside the limits or a pattern of points showing a consistent trend (upward or downward) suggests the process might be out of control. 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). Observations outside these thresholds suggest sources of variation, increasing costs due to errors, omissions, or other anomalies. COMMON RULES FOR DETECTING OUT-OF CONTROL VARIABLES Acctg Elec 4 | Operations Auditing, Internal Auditing, Attestation Services & Related Services Page 16 of 27  BSA 4A Bicol University College of Business, Economics, and Management Bachelor of Science in Accountancy - 1st Semester Handout #6 Tools Used in Operations When the source of variability suggests a better practice, that practice should become the new way of performing the work. When the source of variability is unacceptable, it should be identified and removed. EIGHT AREAS OF WASTE Waste reduction is all about making your organization more efficient and profitable by cutting down on unnecessary resource use. Waste occurs when you use more resources - time, materials, or labor - than necessary to produce goods or services that customers actually want. Reducing this waste helps ensure that every resource is used effectively and contributes to the bottom line. The concept of waste was originally developed by Taiichi Ohno, a key figure at Toyota, as part of the Toyota Production System. Ohno identified seven types of waste, which are transportation, inventory, motion, waiting, overprocessing, overproduction, and defects. In the Lean concept, the focus expands to include an eighth type of waste underutilized employees. The Eight Areas of Waste provide a comprehensive framework for identifying inefficiencies in any organization. By addressing the traditional seven wastes and adding the focus on underutilized employees, organizations can more effectively streamline operations, reduce resource use, and enhance overall performance. This holistic approach helps in creating a more efficient and responsive organization. Acctg Elec 4 | Operations Auditing, Internal Auditing, Attestation Services & Related Services Page 17 of 27  BSA 4A Bicol University College of Business, Economics, and Management Bachelor of Science in Accountancy - 1st Semester Handout #6 Tools Used in Operations Transporting This refers to the movement of people, products, and information within a process. While some level of transportation is necessary to get items to where they need to be, it's important to understand the downsides and costs associated with it: Risk of Damage Moving items can lead to damage, delays, or loss. No Value Added Transportation doesn’t enhance the product; it only repositions it. Extra Costs Unnecessary transportation incurs costs (fuel, packing, handling) that customers don’t want to pay. Efficiency Minimizing transportation reduces costs and speeds up delivery. Unnecessary Inventory Holding onto more inventory than needed not only ties up funds but also brings risks and extra costs. The goal should be to keep inventory levels as low as possible to improve efficiency and reduce unnecessary expenses. Capital Tied Up Keeping excess inventory means that a lot of money is sitting idle instead of being used elsewhere. Risk of Loss More inventory increases the chances of items getting stolen/damaged Storage Costs Storing extra inventory means spending more on space and maintaining it. Production Costs High inventory levels can make production more expensive w/out adding value Excess Motion This focuses on the physical and unnecessary movements of people or machinery within a location or process (e.g., workers bending and reaching excessively), whereas Transporting focuses on the logistics of item movement – moving items between locations (e.g., parts from storage to assembly) Waiting This is a common form of waste that occurs when goods, services, or people are idle. In any process, goods are typically in one of these three states: being processed transported or waiting A significant portion of an item’s time is often spent in the waiting phase, whether it’s waiting to be worked on, sold, or moved to the next step. This also extends to services, where operators or suppliers may wait for necessary parts, information, instructions, or equipment. This idle time slows down processes and adds inefficiencies without adding any value to the product or service. Unnecessary processing or paperwork Happens when tasks go beyond what's actually required. Think of adding extra steps or features that don’t make a difference to the final product, but still take time and effort. This also occurs when higher-end or more expensive materials are used, even though simpler, cheaper options would get the job done just as well. In both cases, these actions don’t benefit the customer and only raise costs, making the process less efficient. Defects This refers to issues where parts or services do not meet the required standards or fxn as intended. Defects lead to higher costs and can negatively impact competitiveness. It’s important to address defects by following the three rules and understanding their causes to improve quality and efficiency Three Rules for Managing Defects 1. Don’t Accept a Defect Never accept a product or service that does not meet quality standards. 2. Don’t Make a Defect Ensure processes are set up to prevent defects from being produced. 3. Don’t Pass on a Defect Avoid passing defective products or services to the next stage or to customers. Acctg Elec 4 | Operations Auditing, Internal Auditing, Attestation Services & Related Services Page 18 of 27  BSA 4A Bicol University College of Business, Economics, and Management Bachelor of Science in Accountancy - 1st Semester Handout #6 Tools Used in Operations Types of Defects In Manufacturing Environments Appearance-Based Defects issues with the visual quality of products, such as paint quality, size, and shape. Performance-Based Defects affect how well the product works, including fit, speed, smoothness, and consistent operation. In Service Environments Service Delivery Issues Defects can involve services being delivered late or not meeting customer expectations. Information Errors This includes providing incorrect information verbally or in writing, as well as mistakes in reports and statements. Impact of Defects Additional Costs Defects lead to extra costs for reworking parts, rescheduling production, and handling additional transportation and motion. This also means more time spent in the Work in Progress (WIP) stage and the need for replacement shipments. Increased Production Costs Defects can double the cost of a single product. If these costs are passed on to consumers, it inflates production costs and can make the organization less competitive. Causes of Defects Failures in material items, such as faulty brakes or drive belts. Errors or omissions by individuals, such as not checking the condition of parts, which can lead to mechanical problems. Weaknesses in processes, systems, or policies. For example, if no one is responsible for maintenance, it can result in overlooked issues. Overproduction This involves creating more goods than immediately required. This waste can lead to excess inventory, increased costs, and inefficiencies. It’s crucial to align production closely with current demand to avoid these issues. Just-in-Time (JIT) vs. Just-in-Case (JIC): JIT Produces and delivers only what is needed at that moment. JIC Produces goods in anticipation of future demand. Overproduction can mask or create other types of waste. Some experts argue it’s the most critical waste because it encompasses all others and was a primary reason for developing Toyota's JIT system. Poor forecasting can contribute to overproduction. Examples of Overproduction Manufacturing Environment: Excess goods are stockpiled and stored in warehouses, silos, or tanks. For example, surplus liquids may be kept in tanks, tanker cars, or ships. Service Environment: A financial services organization might print more mutual fund brochures than needed. Since these brochures are date-sensitive and perishable, large quantities can become obsolete and must be discarded. The cost of printing large batches, even with discounts, might exceed the cost of printing smaller amounts at full price if many brochures go to waste. Underutilized employees Not fully utilizing employees’ skills is a waste. Organizations benefit from making the most of their staff’s abilities, which helps in reducing other types of waste, boosting overall performance, and improving customer satisfaction. Examples When employees have talents beyond their current roles but are not given opportunities to use them. Delegating tasks without providing proper training can waste potential because employees may not perform optimally. Promoting individuals for reasons unrelated to merit (such as favoritism) can lead to underutilization if they are not the best fit for the role. Acctg Elec 4 | Operations Auditing, Internal Auditing, Attestation Services & Related Services Page 19 of 27  BSA 4A Bicol University College of Business, Economics, and Management Bachelor of Science in Accountancy - 1st Semester Handout #6 Tools Used in Operations CAUSE & EFFECT (FISHBONE, ISHIKAWA) DIAGRAM One of the best tools that help identify contributing causes of an issue, and hone into the root cause most accurately. This approach is useful for compliance reviews where operators should do what the contract, law, regulation, or procedures documentation requires. This approach is also useful for financial reviews, where accountants and others involved in record keeping and preparing financial statements must adhere to applicable accounting standards. CAUSE AND EFFECT DIAGRAM (ANALYSIS) Cause and Effect Analysis Is a valuable tool for: Focusing on causes not symptoms capturing the collective knowledge and experience of a group. Providing a picture of why an effect is happening. Establishing a sound basis for further data gathering and action. Cause and Effect Analysis can also be used to identify all of the areas that need to be tackled to generate a positive effect. Cause-and-effect diagrams are designed to: Stimulating thinking during a brainstorm of potential causes. Providing a structure to understand the relationships between many possible causes of a problem. Giving people a framework for planning what data to collect. Serving as a visual display of causes that have been studied. Helping team members communicate within the team and with the rest of the organization. CATEGORIES OF ROOT CAUSE SOURCES (6M) People (Manpower) Methods Machines Materials Measurements Environment (Mother Nature) FISHBONE DIAGRAM Acctg Elec 4 | Operations Auditing, Internal Auditing, Attestation Services & Related Services Page 20 of 27  BSA 4A Bicol University College of Business, Economics, and Management Bachelor of Science in Accountancy - 1st Semester Handout #6 Tools Used in Operations Most Impactful Variables (80/20 Rule) After preparing the fishbone diagram, identify the top two or three items with the biggest influence on the effect. This approach mirrors the 80/20 (Pareto) rule: correcting 20% of the causes can remedy 80% of the effects. Maximizing Cost Benefit Correcting the main causes provides the highest cost benefit and maximizes the impact of corrective efforts. Corrective Actions Identify two or three corrective actions for each issue. The fishbone diagram not only identifies root causes but also explores solutions. It trains the mind to move into solution mode instead of just listing problems. Using the CCCER Model The fishbone diagram works well with the CCCER model to document internal audit findings. The condition is placed on the fish head, and the bones represent the causes. This makes recommendations more precise and useful. WORK BREAKDOWN STRUCTURE A Work Breakdown Structure (WBS), according to the Project Management Institute (PMI), is a “deliverable-oriented grouping of project elements that organizes and defines the work scope of the project. Each descending level represents an increasingly detailed definition of the project work.” In other words, it is a tool that helps break down a project into smaller, manageable parts. Think of it as organizing a big task into a series of smaller tasks. This hierarchy starts with broad, major tasks and then breaks them down into more detailed steps. This detailed breakdown process is known as "decomposition," and it keeps going until each task is clear enough to estimate how many people are needed, what resources are required, how much it will cost, and what risks might come up. Each part of the WBS is given a number to make it easier for the project manager and team to keep track of everything. This numbering helps them follow the tasks as they get more or less detailed. One of the big advantages of using a WBS is that it prevents the focus from staying only on the major tasks. It forces planners to think about all the smaller, support tasks as well - like preparing documents or training staff - which are crucial for completing the project on time and within budget. If these support tasks aren’t planned for, it can lead to extra costs, like unpaid overtime. To create an effective WBS, it’s best to get input from team members or others who have worked on similar projects before. This way, you’re more likely to cover all the necessary details and avoid missing anything important. 5S It is a workplace method that helps improve efficiency and effectiveness by organizing and maintaining the workspace. It uses five Japanese words - seiri, seiton, seiso, seiketsu, and shitsuke each starting with the letter “S.” Acctg Elec 4 | Operations Auditing, Internal Auditing, Attestation Services & Related Services Page 21 of 27  BSA 4A Bicol University College of Business, Economics, and Management Bachelor of Science in Accountancy - 1st Semester Handout #6 Tools Used in Operations Seiri, which translates to “sort,” is all about streamlining the workplace by removing unnecessary items. This step makes work easier by eliminating obstacles and reducing distractions caused by excess stuff. The idea is to evaluate what’s needed in terms of cost and utility, and then get rid of or relocate tools, parts, and equipment that aren't currently in use. Regular checks by area supervisors and workers help ensure that only essential items remain and that any outdated or unnecessary items are removed. Overall, Seiri emphasizes organization, aiming to keep the workplace efficient by optimizing the arrangement of parts and materials. Seiton translates to “systematic arrangement,” “set in order,” “straighten,” or “streamline.” It focuses on arranging all necessary items so they are easy to find and use. By following Seiton, the workplace can avoid losing important items and save time that might otherwise be spent searching for what’s needed. This concept emphasizes neatness and suggests that a tidy, well- organized work environment makes it clear where items should be placed and reduces the chance of accidents. Embracing Seiton helps workers efficiently locate and retrieve items without wasting time. Seiso translates to “shine,” “sweep,” “sanitize,” or “scrub,” and it generally means “cleaning.” This principle focuses on thoroughly cleaning the workplace and maintaining that cleanliness. Implementing Seiso helps prevent machinery and equipment from deteriorating, ensures the work environment remains clean and safe, and makes the overall space more pleasant and efficient to work in. In practice, Seiso involves regular tasks such as dusting, scrubbing, vacuuming, and washing both the workplace and its surrounding areas. Seiketsu means “standardizing” best practices and design to ensure consistent organization and cleanliness. By setting and maintaining clear standards for workplace design and operations, organizations can operate more efficiently and reduce variability. This prevents confusion, eases training, and minimizes errors, emphasizing that "a place for everything, and everything in its place" leads to smoother operations. Shitsuke translates to “sustain” and means to maintain standards consistently and independently. It involves fostering a culture where following procedures becomes second nature, so employees perform tasks without needing constant reminders. Achieving this requires active management support, effective training, and regular refresher courses. This includes performing audits to ensure adherence to standards. Implementing Shitsuke helps eliminate hidden inventory, free up space, improve material flow, reduce transportation time, and repurpose unnecessary items efficiently HISTOGRAMS Histograms are charts that show the frequency distribution of numerical data using rectangles, each of which represents intervals. The probability distribution of a continuous variable is displayed in this tool, in which the range of values is divided into a series of intervals on the x-axis. X-AXIS represents a dimension arranged over equal intervals It can represent hours of operation for a service center, prices, odometer readings, or similar variables Y-AXIS It represents the quantity, frequency, or other metric being plotted against the interval Examples are the number of properties, visitors, vehicles, calls, etc. Acctg Elec 4 | Operations Auditing, Internal Auditing, Attestation Services & Related Services Page 22 of 27  BSA 4A Bicol University College of Business, Economics, and Management Bachelor of Science in Accountancy - 1st Semester Handout #6 Tools Used in Operations HISTOGRAMS VS BAR CHARTS Both histograms and bar charts provide a visual display using columns, and people often use the terms interchangeably. However, a histogram represents the frequency distribution of variables in a data set A bar graph typically represents a graphical comparison of discrete or categorical variables. HISTOGRAM SHAPES STEPS FOR PREPARING A HISTOGRAM 1. Calculate the range of values (i.e.,maximum and minimum) 2. Divide the range into evenly spaced intervals 3. Count the number of observations in each interval 4. Create the bars where the height represents the count in each interval 5. The Y-axis represents the number of items fitting into each category HOW CAN INTERNAL AUDITORS USE HISTOGRAMS DURING INTERNAL AUDITS? Internal auditors may present vast quantities of data that are difficult to interpret in tabular form, then demonstrate the frequency of occurrence of these data values and easily explain the data distribution. Internal auditors can compare if current process information or data is similar to the previous ones which helps the auditor pinpoint anomalies and it can visually show how the process is performing and progressing Internal auditors can identify two processes which have the same distribution of data which will provide a better understanding of their review. By observing the pattern of a histogram, internal auditors can get an enhanced understanding of the data plotted. Acctg Elec 4 | Operations Auditing, Internal Auditing, Attestation Services & Related Services Page 23 of 27  BSA 4A Bicol University College of Business, Economics, and Management Bachelor of Science in Accountancy - 1st Semester Handout #6 Tools Used in Operations SCATTER DIAGRAM Scatter Diagram is a visual tool for analyzing pairs of numerical data and showing the relationship between two variables. It is sometimes called a scatter plot or an X–Y graph, with one variable on each axis. Variables like error rates, accident rates, delays, or merchandise returns are examined as individual metrics to determine if the item is increasing or decreasing This analysis is done to determine if the item is fluctuating in erratic ways indicating that the underlying activities are unpredictable and if a directional change or sudden spike occurred and when that happened. Such procedures are useful and part of what auditors may want to check for. OBJECTIVE WHEN ANALYZING THE PLOTTED DATA To determine if a correlation exists between two values. The correlation exists if a change in one value causes a change in another value. Relationship has two general key elements: direction and intensity 1.DIRECT (direct or inverse relationship) If the two variables increase in tandem, there is a positive correlation between the two. This means that as one variable increases, the other variable increases as well. On the other hand, if one variable increases, while the other decreases, there is a negative, or inverse relationship between them 2. INTENSITY This has to do with how strong the relationship is or the correlation coefficient. The stronger the relationship, the higher the correlation between the two. The correlation coefficient ranges from +1: highly positive correlation to −1: highly negative correlation. When the data are plotted, the more the data points resemble a straight line, the stronger the relationship. If a line is not clear, statistics determine whether there is reasonable certainty that a relationship exists. If the statistics say that no relationship exists, the pattern could have occurred by random chance. Acctg Elec 4 | Operations Auditing, Internal Auditing, Attestation Services & Related Services Page 24 of 27  BSA 4A Bicol University College of Business, Economics, and Management Bachelor of Science in Accountancy - 1st Semester Handout #6 Tools Used in Operations CORRELATION ANALYSIS Interpretation of Correlation Coefficient This analysis is effective in determining whether the two variables are related, such as when trying to identify potential root causes of problems. For instance, after brainstorming causes and effects using a fishbone diagram, a scatter plot can be used to determine objectively whether a particular cause and effect are related. If a correlation exists, it can help both the auditor and the corresponding manager estimate what NOTE OF CAUTION: Even if the scatter future values will be given to the relationship that diagram shows a relationship, we should exists between them. not assume that one variable caused the other as both may be influenced by a third variable. Example: Two organization’s processing units In both graphs, there is a positive correlation between the two, but A shows that there is only a slight increase in the error rate when the volume increases, while B shows that the number of errors increases substantially when the volume increases. If each organization in its strategic plan has a goal to grow the business by 25% and expect transaction volume to increase proportionately, then A is better prepared. While B will likely face monumental problems as the processing volume increases. As auditors provide advice to management and helps them identify risks that threaten the achievement of their objectives, some discussions are encouraged to show that unless the operating practices are examined and some changes are made that contain or drive the error rate down, their growth objective is not only difficult to achieve, but also it could be catastrophic to the organization Scatter diagrams should be used to discover root causes and support the auditor's findings with information about the relationship between multiple variables to enable the auditors provide management with useful forward-looking assistance when making decisions. Acctg Elec 4 | Operations Auditing, Internal Auditing, Attestation Services & Related Services Page 25 of 27  BSA 4A Bicol University College of Business, Economics, and Management Bachelor of Science in Accountancy - 1st Semester Handout #6 Tools Used in Operations POKA YOKE/MISTAKE PROOFING It is a Japanese term that means “mistake-proofing” (Avoid: yokeru, mistakes: poka) It is used to describe a mechanism in a process that helps operators avoid mistales It 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. To eliminate defects in products by preventing or drawing PURPOSE attention to human errors POKA YOKE ATTRIBUTES POKA YOKE SOLUTIONS 1. Simple 1. Use the lowest cost solutions 2. Inexpensive 2. Make the solution mandatory and intuitive 3. Fail-safe 3. Avoid requiring the operator to make a decision 4. Mandatory to apply the solution or not 5. Intuitive Some Common Ways of Mistake-proofing Process Orientation. Part won’t fit incorrectly. Sequence. Process must be performed in a predetermined sequence. Weights. Inaccurate weights force the machine to stop. Location/size/count. Requires the presence, absence, or different size of components. System check. Machine stops operating when out of specification Examples from daily life bound Power plugs. Often they can only be plugged in one way because they don’t fit into the power outlet upside down. Ethernet and UBS cable plugs. Can only be plugged in one way and they have a minute latch to keep the cable from being pulled out of the device accidentally Microwave motors. The microwave oven stops operating when the door is opened If we apply Poka Yoke in a service environment, it becomes evident that the principles are equally applicable Note the following examples: Spreadsheets. Color-code and password-protect the spreadsheet so data can only be entered on predetermined fields. Reconciliation templates. Use formulas with check totals that indicate through color changes when the totals agree. Data entry. Operator is required to reenter certain figures to make sure data entry is accurate Expense reports. System automatically displays a child window when the amount of the expense is above a given threshold Acctg Elec 4 | Operations Auditing, Internal Auditing, Attestation Services & Related Services Page 26 of 27  BSA 4A Bicol University College of Business, Economics, and Management Bachelor of Science in Accountancy - 1st Semester Handout #6 Tools Used in Operations POKA YOKE PRINCIPLES SUMMARY Tools in operational audit discussed in this chapter serve as tools to help internal auditors identify the root cause of problems. Root Cause Analysis (RCA) is a key concept for internal auditors, and achieving it is highly valuable because not identifying the root cause carries consequences to the auditor and the process under review. If auditors only address symptoms rather than the root cause, the same issue will keep happening. Internal auditors are encouraged to consider using the tools presented in this section to help them identify the problem’s root cause. Prepared by Altamarino, Grace Joy Binasa, Marjorie Dela Cruz, Joyce Anne Lorayes, Alexa Yzabelle Oliva, Davina Bless Hernan Murdock. Operational Auditing. Principles and Techniques for a Changing World References 2017 Edition Acctg Elec 4 | Operations Auditing, Internal Auditing, Attestation Services & Related Services Page 27 of 27