Module 4 Internal Audit PDF

Module 4 ○ Management audits aim to improve overall management INTERNAL AUDIT effectiveness; marketing audits PROCESS/ANALYSIS...

Module 4 ○ Management audits aim to improve overall management INTERNAL AUDIT effectiveness; marketing audits PROCESS/ANALYSIS seek to enhance marketing performance. Nature of Internal Audit Data Sources: ○ Management audits rely on internal processes and Basis for objectives & performance metrics; marketing strategies: audits utilize market data, Internal strengths/weaknesses customer feedback, and External opportunities/threats competitive analysis. Clear statement of mission this is when we establish and identify OUR BUSINESS’ Strengths an Key Internal Forces Weaknesses Functional business areas: Vary by organization Divisions have differing strengths and Understanding Key weaknesses Internal Audit Internal Forces Parallels process of external audit When companies want to succeed, they Gather & assimilate information from: need to look at what’s happening inside Management their own walls. Marketing This is called internal analysis. Finance/accounting It’s like checking your own backpack Production/operations before a big test to make sure you have Research & development all the right supplies. Here are the main Management information systems parts to consider: ○ Identify strengths and Involvement in performing an internal weaknesses in strategic-management audit provides Management vehicle for understanding nature and Marketing effect of decisions in other functional Finance and accounting business areas of the firm. Production and Difference Between operations Research and Management and Marketing development Audit Process Management information systems Key Differences Scope: ○ Management audits cover 📊we look into developing the rbv Resource Based View broader organizational practices ○ we look into our internal systems while marketing audits focus such as our assets and our specifically on marketing resources strategies. ○ emphasizes the INTERNAL Objectives: COMPETITIVENESS THE HEART AND SOUL OF THIS MODULE IS Is employee absenteeism low? OUR WEAKNESS Is employee turnover low? we try to eliminate it Are the reward mechanisms effective? INTERNAL IS DEFENSE WISE that the Are the organization’s control competitors do not know our mechanisms effective? weaknesses with the use of our strengths Basis for Objectives & Marketing Audit Strategies Marketing can be described as the Internal strengths/weaknesses process of defining, anticipating, External opportunities/threats creating, and fulfilling customers’ needs Clear statement of mission and wants for products and services. ALWAYS REMEMBER THESE STEPS! Distinctive Competencies: ○ GET TO KNOW THE MARKET : Firm’s strengths that cannot be easily consumers and customers ( non matched or imitated by competitors customers are included) Building competitive advantage involves ○ then, we divide OR SEGMENT ( taking advantage of distinctive market segmentation) competencies ○ Then we do TARGETING! where we can identify the persona of PLOC is important the targeted market PLAN ○ Then we POSITION our identify your VMGO product/brand: how to create a LEAD perception of what the product is IDENTIFY KEY TALENTS in the mind of consumer and ORGANIZING enter the mind of consumers. Create strategies WHAT WOULD BE YOUR CONTROLLING POSITIONING STATEMENT? bc gain some consistency and evaluate we don’t want to be forgotten because this is how we communicate to our consumers. Management Audit 7 Basic Marketing Functions Checklist Customer analysis Selling products/services Does the firm use strategic management Product & service planning concepts? Pricing Are objectives/goals measurable? Well Distribution communicated? Marketing research Do managers at all levels plan Opportunity analysis effectively? Do managers delegate well? finance and marketing NEED TO Is the organization’s structure COMMUNICATE and work appropriate? hand-in-hand to deliver results Are job descriptions clear? Are job specifications clear? Is employee morale high? Finance/Accounting Are quality-control policies & procedures effective? Investment decision (Capital Are facilities, resources, and markets budgeting) strategically located? Financing decision Does the firm have technological Dividend decision competencies? 1. Where is the firm financially strong/weak Research & Development as indicated by financial ratio analysis? Research & Development Functions 2. Can the firm raise needed short-term Development of new products before capital? competitors 3. Can the firm raise needed long-term Improving product quality capital through debt and/or equity? Improving manufacturing processes to 4. Does the firm have sufficient working reduce costs capital? These functions can be done internally 5. Are capital budgeting procedures or externally effective? Research & Development Audit 6. Are dividend payout policies 1. Are the R&D facilities adequate? reasonable? 2. If R&D is outsourced, is it cost-effective? 7. Does the firm have good relations with 3. Are the R&D personnel well qualified? its investors and stockholders? 4. Are R&D resources allocated effectively? 8. Are the firm’s financial managers 5. Are MIS and computer systems experienced and well trained? adequate? 9. Is the firm’s debt situation excellent? 6. Is communication between R&D and other organizational units effective? Production/Operations 7. Are present products technologically Production/Operations Functions competitive? Process ○ identify your productivity Management Information quotient output > input Systems OUTPUT (+) > INPUT (-) Purpose Capacity ○ Improve performance of an ○ ability to produce enterprise by improving the Inventory quality of managerial decisions ○ Management Information Systems Audit Workforce ○ Do all managers use the information Quality system to make decisions? ○ Is there a CIO or Director of Information Systems position in the firm? Are data updated regularly? Production/Operations Audit Do managers from all functional areas Are suppliers of materials, parts, etc. contribute input to the information reliable and reasonable? system? Are facilities, equipment, machinery, and Are there effective passwords for entry offices in good condition? into the firm’s information system? Are inventory-control policies and Are strategists of the firm familiar with procedures effective? the information systems of rival firms?  Is the information system user-friendly? ○ HR takes care of hiring people, Do all users understand the competitive training them, and making sure advantages that information can they’re happy at work. provide? Are computer training workshops provided for users? 2. Strengths and Is the firm’s system being improved? Weaknesses Each part of a company has its own strengths (what they do well) and weaknesses (what they struggle with). For instance, a company might be really good at creating new products (a strength) but not great at customer service (a weakness). 3. Distinctive Competencies Internal Factor These are special skills or advantages that a company has that others can’t easily copy. Evaluation (IFE) Matrix For example, if a company like 3M is known 1. List key internal factors for its amazing research and development, 2. Assign a weight ranging from 0.0 to 1.0 that’s a distinctive competency. It allows 3. Assign a 1 to 4 rating to each factor them to create unique products that stand 4. Multiply the weight times the rating out in the market. 5. Sum the weighted scores other info 4. Turning Weaknesses into 1. Functional Areas Strengths Every organization has different sections that A big part of strategic management is focus on specific tasks. For example: figuring out how to make weaknesses into Marketing: strengths. This could involve training ○ This is all about getting people to employees better or improving customer know about and buy the products. Think of it as the team service practices. The goal is to make the that creates cool ads and figures company stronger overall. out how to make products appealing. Finance: 5. Continuous Improvement ○ This area manages money—how Companies need to keep looking for ways much comes in, how much goes to improve. Just like studying for exams, out, and making sure there’s they should regularly check what’s working enough for everything. and what isn’t so they can keep getting Operations: better. ○ This team ensures that everything runs smoothly day-to-day, like making sure products are made on time and are good quality. Human Resources (HR): from BOOK Functional Areas Analysis Key Components of Internal Assessment 1. Marketing 1. Nature of an Internal Audit ○ Focus on customer analysis, ○ An internal audit assesses the product/service planning, pricing organization's resources, strategies, distribution channels, and capabilities, and overall market research. effectiveness in achieving its 2. Finance/Accounting objectives. ○ Assess financial functions using key 2. Key Internal Forces financial ratios to evaluate ○ These include management, performance. marketing, finance/accounting, ○ Understand the implications of production/operations, research and financial decisions on overall development (R&D), and strategy. management information systems 3. Production/Operations (MIS). ○ Review operational efficiency and 3. Process of Performing an Internal Audit effectiveness. ○ Identify key internal factors. ○ Conduct audits to ensure production ○ Analyze resources and capabilities. aligns with strategic goals. ○ Evaluate current performance 4. Research and Development (R&D) against objectives. ○ Evaluate both internal R&D efforts and external collaborations. ○ Ensure innovation aligns with strategic objectives. Resource-Based View (RBV) 5. Management Information Systems (MIS) The RBV emphasizes leveraging unique ○ Analyze the effectiveness of resources and capabilities to achieve a information systems in supporting competitive advantage. decision-making processes. Organizations should focus on their core ○ Consider the role of competencies and how these can be utilized strategic-planning software in strategically. enhancing organizational effectiveness. Integrating Strategy and Culture Successful internal assessments require Value Chain Analysis (VCA) alignment between organizational strategy and corporate culture. VCA identifies value-adding activities within Management Functions: the organization to enhance competitive ○ Planning: Setting objectives and advantage. determining actions. Each activity is assessed for its contribution ○ Organizing: Structuring resources to to customer value. implement plans. ○ Motivating: Encouraging employee Benchmarking engagement and productivity. ○ Staffing: Ensuring the right people Benchmarking involves comparing are in the right roles. performance metrics with industry standards ○ Controlling: Monitoring performance or best practices to identify areas for to ensure goals are met. improvement. Internal Factor Evaluation (IFE) Matrix The IFE Matrix is a tool used to summarize key internal factors, allowing organizations to  prioritize strengths and weaknesses for strategic planning. Assurance of Learning Exercises Exercises at the end of the chapter encourage practical application of concepts: ○ Financial ratio analysis for a selected company. ○ Constructing an IFE Matrix for a chosen organization or university.