Incorporating Lean Six Sigma into the Internal Audit Process Ernest Anunciacion, CIA – Senior Product Marketing Manager, Workiva The contents of this presentation are confidential. Copyright © 2016 Workiva. Agenda • Background • Learning Objectives • Six Sigma vs Lean Overview • Tools of the Trade • Audit Management Process Review • Conclusion and Questions Introduction – Why should I listen? • Not your typical auditor • General Electric – IMLP & Corporate Audit Staff • Ceridian Corporation – Enterprise Risk Management • The Mosaic Company – Risk Advisory & Assurance • Grant Thornton – Business Advisory Services • Workiva – Product Marketing • Professional Certifications • Certified Internal Auditor (CIA) • Six Sigma Black Belt X X Learning Objectives • Gain an understanding of the fundamental differences between Six Sigma and Lean principles • Provide an overview of “Lean Thinking” and the most commonly used Lean Six Sigma tools • Identify opportunities to integrate Lean Six Sigma principles within the Audit Management process Why do companies fail? The contents of this presentation are confidential. Copyright © 2016 Workiva. Why Do Companies Fail? "If your firm does not have the ability to learn and improve, it will soon be out of business." - Professor Arthur Hill, Carlson School of Management Motivation 1. All “work” is a process. 2. All processes can be improved. 3. All processes can be improved by making them better, faster, stronger, and cheaper. 4. Better, faster, stronger, and cheaper processes add more value to the world. Six Sigma vs Lean Overview Six Sigma vs. Lean Six Sigma Six Sigma Lean Origin MotorolaQuality Function ToyotaFactory Floor Six Sigma vs. Lean Six Sigma Six Sigma Lean Origin MotorolaQuality Function ToyotaFactory Floor • Data-driven decision making • Simple, error-proof, standardized Philosophy • Leadership development • Involve “GEMBA” in process Six Sigma vs. Lean Six Sigma Six Sigma Lean Origin MotorolaQuality Function ToyotaFactory Floor • Data-driven decision making • Simple, error-proof, standardized Philosophy • Leadership development • Involve “GEMBA” in process Ownership Program Champion ChiefKaizen Leader Green Belts, Black Belts, Leadership Kaizen leaders Master Black Belts Six Sigma vs. Lean Six Sigma Six Sigma Lean Origin MotorolaQuality Function ToyotaFactory Floor • Data-driven decision making • Simple, error-proof, standardized Philosophy • Leadership development • Involve “GEMBA” in process Ownership Program Champion ChiefKaizen Leader Green Belts, Black Belts, Leadership Kaizen leaders Master Black Belts Project DMAIC = Define, Measure, Analyze, Kaizen Events (Workshops) Management Improve, Control Six Sigma vs. Lean Six Sigma Six Sigma Lean Origin MotorolaQuality Function ToyotaFactory Floor • Data-driven decision making • Simple, error-proof, standardized Philosophy • Leadership development • Involve “GEMBA” in process Ownership Program Champion ChiefKaizen Leader Green Belts, Black Belts, Leadership Kaizen leaders Master Black Belts Project DMAIC = Define, Measure, Analyze, Kaizen Events (Workshops) Management Improve, Control • Cross functional teams • Easy and quick Strengths • Formal project management • “GEMO” Six Sigma vs. Lean Six Sigma Six Sigma Lean Origin MotorolaQuality Function ToyotaFactory Floor • Data-driven decision making • Simple, error-proof, standardized Philosophy • Leadership development • Involve “GEMBA” in process Ownership Program Champion ChiefKaizen Leader Green Belts, Black Belts, Leadership Kaizen leaders Master Black Belts Project DMAIC = Define, Measure, Analyze, Kaizen Events (Workshops) Management Improve, Control • Cross functional teams • Easy and quick Strengths • Formal project management • “GEMO” • Too much “Greek” • Too much “Japanese” Criticisms • Projects take too long • Projects too focused Best of Both Worlds – Principles + = LEAN SIX SIGMA LEAN SIX Reduce waste by Reduce defects by SIGMA reorganizing a process solving problems Reduce waste and solve problems to become faster and more efficient Lean Six Sigma & the IPPF Standards According to the Institute of Internal Auditors (IIA) : “…an independent, objective assurance and consulting activity designed to add value and improve an organization's operations. It helps an organization accomplish its objectives by bringing a systematic, disciplined approach to evaluate and improve the effectiveness of risk management, control, and governance processes.” Lean Six Sigma & the IPPF Standards According to the Institute of Internal Auditors (IIA) : “…an independent, objective assurance and consulting activity designed to add value and improve an organization's operations. It helps an organization accomplish its objectives by bringing a systematic, disciplined approach to evaluate and improve the effectiveness of risk management, control, and governance processes.” GOAL: To become a trusted business advisor that adds value • How do we add value? • Why is it so difficult to achieve? Lean Thinking “Lean Thinking” 1. Identify Waste Values: • Simplicity 5. 2. Simplify • Visibility Standardize • Error-Proof • Waste-less • Standard 4. Increase 3. Error- Flow Proof Find the 8 Types of Waste 1. Identify • Downtime Waste • Overproduction • Waiting 5. 2. Simplify • Non-Utilized Talent Standardize • Transportation • Inventory • Motion 4. Increase 3. Error- • Extra Processing Flow Proof The 5S Program 1. Identify Waste • Sort 5. • Set in Order 2. Simplify Standardize • Shine • Standardize • Sustain 4. Increase 3. Error- Flow Proof Implement Products & Processes 1. Identify Waste • Automatic Controls • Automatic Shutdown 5. 2. Simplify • Automatic Warnings Standardize • Human Factors • Selection, Training, Discipline 4. Increase 3. Error- Flow Proof Focus on Time 1. Identify Waste • Pull, don’t push • Reduce setup cost 5. 2. Simplify • Reduce lot size Standardize • Level the schedule • Lean the supply chain 4. Increase 3. Error- Flow Proof Strive for Perfection 1. Identify Waste 5. 2. Simplify • Work instructions Standardize • Respect for people • Measure metrics 4. Increase 3. Error- Flow Proof Lean Six Sigma Tools RACI – Contract Example R = Responsible A = Accountable C = Consulted I = Informed RACI – Contract Example R = Responsible A = Accountable C = Consulted I = Informed Component / Section Preamble Scope & Pricing Work Statement of Billing Legal Terms Business Terms Terms and Terms Conditions Addendum RACI – Contract Example R = Responsible A = Accountable C = Consulted I = Informed Component / Section Sales Legal Accounting Finance Services Operations Preamble Scope & Pricing Work Statement of Billing Legal Terms Business Terms Terms and Terms Conditions Addendum RACI – Contract Example R = Responsible A = Accountable C = Consulted I = Informed Component / Section Sales Legal Accounting Finance Services Operations Preamble I R Scope & Pricing R IIACI Work Statement of Billing I R IA Legal Terms I R I Business Terms R ICA Terms and Terms Conditions Addendum A R A SIPOC Example – Risk Assessment Suppliers Inputs Process Outputs Customers ° Audit Committee ° Surveys ° See Below ° Risk assessment ° Audit committee ° Management ° Interviews ° Annual audit plan ° Executive management ° Regulators ° Research ° Reports ° ° External auditors ° New regulations Regulators ° Business process ° Prior audits ° Open audit findings owners Identify Determine Assess Prioritize Create Risk Criteria Risks Risks Audit Plan Value Stream Map Example Rep explains START: Search for Call Transfer process for Type in Request contact on Account call to IRA opening account What is the Account Setup web Specialist specialist account on info on web Customer web NVA 15 min VA 5 min NVA 5 min NVA 15 min VA 15 min Willing to Pay Customer Call For? Verify END: service links customer Check back account new account service to to confirm Setup linked by to existing verify opening Complete logging in account opening NVA 10 min NVA 15 min NVA 10 min 3 Xs –10 min each NVA 30 min Process Statistics Total Cycle Time Non-Value Added (NVA) Value Added (VA) Value Stream Map Example Rep explains START: Search for Call Transfer process for Type in Request contact on Account call to IRA opening account What is the Account Setup web Specialist specialist account on info on web Customer web NVA 15 min VA 5 min NVA 5 min NVA 15 min VA 15 min Willing to Pay Customer Call For? Verify END: service links customer Check back account new account service to to confirm Setup linked by to existing verify opening Complete logging in account opening NVA 10 min NVA 15 min NVA 10 min 3 Xs –10 min each NVA 30 min Process Statistics Total Cycle Time ~1 week • Start and end with the Customer in mind Non-Value Added • Evaluate from the customer’s point of view 100 mins (NVA) • Focus on cycle and wait time Value Added (VA) 20 mins Cause & Effect – Fishbone Diagram Process Culture Inadequate recruiting Closed door policy Lack of quality training programs Overly competitive atmosphere Why do we have high employee Increased competition Too much manual work turnover? Inappropriate skill sets filling job roles Better benefits externally Old systems cause frustration Feeling of being underpaid and overworked Externalities Technology People The Audit Management Process Audit Management Lifecycle Cyclical nature of process • Driven by organizational risks • Key challenges & pain points • Continuous improvement Audit Planning and Scoping Building the Audit Plan • Risk assessments • Planning memos • Project plans • Resource assignments • Audit budget • Audit kick-off