Lean Auditing. Paterson James C.

approaches to lean also exist, but I take an open-minded approach to the various “flavours” of lean. I think each lean approach has something interesting to say, but I do not believe internal audit should be wedded to a specific lean approach. I have spoken to some CAEs who have been through a lean review (often as part of a wider organizational programme), but have found this has offered limited benefit. This can happen when those driving the lean review are mostly focused on looking for cost savings, or outsourcing opportunities, or do not have a deep understanding of the unique role of internal audit.

      My experience suggests success in implementing a lean auditing approach is often about recognizing the context of specific organizations and adapting what should be done to deliver workable results, whilst staying true to the overall spirit of lean.

      Cost Reduction and Lean

      It is worth writing a few words about lean in relation to cost reduction, since this is one of the key reasons lean attracts attention. Indeed, as mentioned earlier, when I was CAE of AstraZeneca cost management was one of the reasons I was interested in lean. However, lean ways of working should not simply be equated with cost cutting. John Earley (Partner, Smart Chain International) explains:

      “Lean is not simply about cost reduction. Managing and reducing cost is a by-product of lean, it’s not a driver for it.

      Cost cutting measures may buy you time, but often they won’t have transformed the business, and as a result the consequences of cost savings will pop up as costs somewhere else. They’ll arise in customer complaints, or in other areas that might hit your reputation, or your bottom line. In other words, one part of the business might cost less, but the business as a whole suffers, and so often it becomes a negative spiral.

      Lean takes a different approach looking at value as well as efficiency. Will lean reduce cost? Yes it will, but the idea behind lean is if you take care of the value the cost will take care of itself.”

      I think one of the reasons I enjoy working on lean auditing is that, whilst it supports productivity it does not do this in some bleak and heartless manner. To my mind, lean is as much about building added value and developing staff to do this, as it is about productivity and cost management.

      References and Other Related Material Of Interest

      Bicheno, J. & Holweg, M. (2008) The Lean toolbox: the essential guide to Lean transformation.

      Lean Enterprise Institute (2009) A Brief History of Lean. http://www.lean.org/WhatsLean/History.cfm

      Lean Enterprise Institute (2009) Principles of Lean. http://www.lean.org/WhatsLean/Principles.cfm

      Lean Systems Society (2014) http://leansystemssociety.org/

      Morgan, J. & Brenig-Jones, M. (2009) Lean Six Sigma for Dummies. John Wiley & Sons, Chichester.

      Womack, J. & Jones, D. (2003) Lean Thinking (Revised & Updated).

      Womak, J., Jones, D. T. & Roos, D. (2007) The Machine That Changed the World. Simon & Schuster Ltd

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      Key Lean Tools & Techniques

      This chapter outlines the lean tools and techniques I have found to be most useful in an internal audit context. This list is small compared to the full range of lean tools and techniques, but – at this stage – I would rather give a flavour of what there is, rather than swamp the reader (since a full description of these tools could comfortably fill several books).

      UNDERSTANDING CUSTOMER NEEDS: THE KANO MODEL

      The Kano model (created by Dr Noiaki Kano) is one of the most powerful lean tools for thinking about what customers do and do not value. It involves listening to the “Voice of the Customer” in relation to what is valued and mapping this out for ongoing reference. Of particular interest is the insight that there are different types of value related attributes. The three key types are summarized below:

      • Basic requirements or dissatisfiers: This is an attribute or requirement a customer expects as part of a service or product and if it is not present the customer will be dissatisfied or unhappy (e.g. clean sheets in a hotel room, or food in a supermarket that is not mouldy). However, if the attribute is present it will not necessarily result in anything more than a neutral feeling. Although these attributes are basic, this does not mean they will be easy to achieve;

      • Performance factors or satisfiers: These are requirements or attributes where the customer value perception will vary depending on the extent to which it is present: for example, “more is better and less is worse” or “easier to use is better and less easy to use is worse.” This could include the ease of checking into a hotel, or the price of a car;

      • Delighter or exciter factors: These are requirements or attributes that customers may not expect, but delight them when present (e.g. a complimentary breakfast at a hotel). These delighters need to be given at a sensible cost, but may make the difference between choosing one product or service over another – consider Apple products and the extent to which the look and the feel of these is valued by customers.

      The Kano model can be set out in diagrammatic form as follows:

      Figure 3.1 The Kano model, using a mobile phone as an example: delighter – added functionality; satisfier – price; dissatisfier – not working

      The Kano model highlights an insight many will recognize: a given amount of time and effort may have a hugely different impact on customer satisfaction. In other words: effort and added value are not always linked in a linear way. Indeed, sometimes providing less can result in a more satisfied customer (e.g. a concise report compared to a longer one).

      Thinking about what the customer wants through a Kano approach is central to lean auditing. The aim is to gain a deeper appreciation of what each of the different stakeholders of internal audit want and – just as importantly – what they do not want.

      GEMBA

      “Gemba” is the Japanese word for the real place (e.g. the place where a news event takes place). In the context of lean it usually means the factory floor or workplace. A key lean technique is to “Go Look See” what is really going on (known as the Gemba Walk). This is the way any waste can be identified, and this is also the place where opportunities for improvement might be identified.

      There are some similarities between the Gemba Walk and the western management notion of “management by walking about”, with lean emphasizing the importance of:

      • Engaging with what is actually going on when analysing issues or difficulties, with an emphasis on facts rather than opinions; and

      • Ensuring that staff and managers pay close attention to what is going on, on a day-to-day basis, as a way of driving improvements in effectiveness and efficiency.

      Shigeo Shingo, one of the leading lean practitioners from Toyota sums up the lean Gemba mindset:

      “Get a grip on the status quo. The most magnificent improvement scheme would be worthless if your perception of the current situation is in error.”

      Gemba has a great affinity with internal audit, since it is all about looking at the reality of what is happening. The challenge for auditors is to apply this approach to their own ways of working. A good example of a Gemba approach would be to pay attention to the difference between how an audit manager or CAE would summarize the audit process (or how it is written in an audit manual), and what it is actually like to carry out an audit assignment in practice.

      Value Stream Mapping

      In order to improve the way that activities and processes are carried out to deliver value, lean offers a range of tools and techniques to help visualize