Highlights from the June 22 HBK Risk Advisory Series webinar hosted by William J. Heaven, CPA/CITP, CISA, CSCP, Senior Director, HBK Risk Advisory, and featuring guest speaker Tyler M. Gargano, CFE, Director of Risk Compliance and Controls, HBK Risk Advisory Services
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Operational and financial excellence is a perfect world: all operations running smoothly, without hiccups, from moving inventory to corporate strategy to payroll processing. Financial excellence is having a grasp on what is allowing for financial success and what is causing problems.
All companies have issues in their operations and financials. What they must do well is collaborate. Most important is how the people work together to close operational gaps and understand what’s going on in operations and financials. The key aspect is having the right people in the right positions.
Operational Excellence
Defined: the philosophy that integrates problem solving and leadership to ensure continuous improvement. The goal is to be “clean and clear.” Have to have a clear understanding of what’s going on in terms of transactions and what that is going to look like in the next three to five years.
Brickwork of foundational success:
Strategy: knowing your vision and goals: what you want to see
Organization/Structure: having the right people in the right jobs to get where you want to be
Processes and systems: having the right systems and understanding that the business, operations, and reporting are going to continuously change; ensuring you have the best strategies in place for IT
Products and services: understanding what your products and services are and how you provide them successfully
Enablers of operational and financial growth:
Performance management: can achieve much success through KPI management
Leadership, people and culture
Continuous Improvement: what you are doing to get better, to stay ahead, to work collaboratively
Risk and quality management
Financial Excellence
Consider both mindsets, focus on internal goals, and tactical, the things you do
Tactical items:
Financial reporting: should provide an understanding of what the company is doing
Financial modeling: how your business performs under specific scenarios, like a spike in inventory, or a decline in orders
Financial analysis: understanding your financial problems and solutions
Mindset items:
Financial Acumen: understand your numbers and what’s behind them, the true story of what is taking place in your company
Financial goals and objectives: aligning your goals with your objectives and having the company values speak to those goals; finances need to be in line with operations, and operations with goals and objectives
Financial planning – understand whether a process is doable, whether objectives can be achieved
Have to understand where you are today and where you want to be and how are we going to get there.
Operational jealousy is real: what you are doing to be the best, understanding why you are making changes.
Enhancing Internal methodology
Three key questions related to methodology maintenance:
What is your process methodology?
How can methodology be updated? Starts with process flow charts: a visual representation of what the organization looks like. Points out what internal controls the company has or what they don’t have and where they need controls. Charts can show you where your controls take place, where you have gaps, and where you have alignment.
What is the benefit of updating internal methodology? Not only helps for an external audit, but keeps internal group procedures fresh. Can use an external source with expertise in specific areas to help you understand where the company is and what changes to make to achieve operational and financial excellence.
Risk assessment evaluation and creation
There are many different risk assessment strategies, but four primary factors:
Materiality of amounts: how you are valuing large or high volume transactions: how much risk you are willing to take
Complexity of the process: areas in your process that are difficult
History of adjustments: errors or other issues with financial statements
Propensity to change: Are your business, financial, IT processes ready to change and what is the process to go through to make a change? What the change will look like is an extremely important conversation.
Rate the risks according to high, medium, or low.
Risk assessments should be completed every year for every company.
Takeaways
How can I best communicate and implement strategies into my company’s best practices? Use strategies that work for you, which is different for each company. Understand how we benefit by identifying the strategies we employ in operational and financial management.
Industry trends: Understand what’s going on in your industry from a financial and operational standpoint.
Controls have changed significantly over the past years. Your business might have changed from what it was with you noticing it as you responded to your changing market.
Company culture makes a vital contribution: being able to work collaboratively and have discussions around changes is key to successful change implementation of changes.
Strategy Execution
Key questions:
What training does the organization provide to managers and employees related to organizational changes, and how are they held accountable for completing the training?
How do you monitor, identify, and address employee change fatigue, and what preventive measures do you use?
How do you assess the potential impact of strategic change initiatives on your employee environment?
How do you assess your employee’s motivations and engagement levels, especially for employees responsible for managing risk or controls?
What role, if any, do employees play in change management and implementation?
How are operating model considerations factored into strategy formulation and execution?
What percentage of strategic projects are progressing according to plan, moving faster than planned, and moving slower than planned?
How do you determine if and when a change initiative should be terminated or adjusted?
How is staff working on digital initiatives trained on the risk implications of their projects?
