compliance audit
DESCRIPTION
Compliance auditTRANSCRIPT
UNDERSTANDING AUDIT, UNDERSTANDING AUDIT, REVIEW AND CONTINOUS REVIEW AND CONTINOUS
IMPROVEMENTIMPROVEMENT
WORDS ON MARBLESWORDS ON MARBLES
““It is not the strongest of It is not the strongest of the species that survive, the species that survive, nor the most intelligent, nor the most intelligent, but the one most but the one most responsive to change”responsive to change”
Charles DarwinCharles Darwin
ARE YOU READY ?
WHAT DOES “AUDIT” MEAN?
Independent review and examination Independent review and examination of records and activities to assess the of records and activities to assess the adequacy of internal controls, to adequacy of internal controls, to ensure compliance with established ensure compliance with established policies and operational procedures, policies and operational procedures, and to recommend necessary and to recommend necessary changes in controls, policies, or changes in controls, policies, or procedures.procedures.
CONT….. Examination of financial operations and Examination of financial operations and
workwork Review of compliance with applicable laws Review of compliance with applicable laws
and regulationsand regulations Evaluation of economy and efficiency of Evaluation of economy and efficiency of
operationsoperations Evaluation of effectiveness in achieving Evaluation of effectiveness in achieving
program resultsprogram results
PURPOSE OF “AUDIT”
In the assistance context, it In the assistance context, it means means • A look at the past performance of A look at the past performance of
an entity, program or function to an entity, program or function to determine whether funds and determine whether funds and property were properly property were properly administered and whether the administered and whether the projects have met or fallen short projects have met or fallen short of program intent and of program intent and expectations.expectations.
PREPARING TO BE AUDITED
This Is NOT a ConfrontationThis Is NOT a Confrontation Make Your Self AvailableMake Your Self Available Know What The Scope/Objectives AreKnow What The Scope/Objectives Are Know What Type of Data Will be CollectedKnow What Type of Data Will be Collected Know What Data Shouldn’t be CollectedKnow What Data Shouldn’t be Collected
OBJECTIVES OF AUDIT
AuditSafeguarding
of Assets
Improved Data Integrity
Improved System Effectiveness
Improved System
Efficiency
AUDIT PLANNING PROCESS
Develops annual planDevelops annual plan Plan based on:Plan based on:
• Legal requirementsLegal requirements• knowledge and experienceknowledge and experience• Requests (Bureaus and Congress)Requests (Bureaus and Congress)• Government wide interest Government wide interest
Unanticipated auditsUnanticipated audits
EFFECTIVE AUDIT
Early Early involvementinvolvement
Informal auditsInformal audits Knowledge Knowledge
sharingsharing Self-Self-
assessmentsassessments
ELEMENTS OF AUDIT
Physical and EnvironmentalPhysical and Environmental System AdministrationSystem Administration Application Software Application Software Application DevelopmentApplication Development Network SecurityNetwork Security Business ContinuityBusiness Continuity Data IntegrityData Integrity
INTERNAL VS EXTERNAL
Audit function can Audit function can be performed by;be performed by;
INTERNALLYINTERNALLY EXTERNALLYEXTERNALLY
THE INTERNAL
INTERNALLYINTERNALLY EXTERNALLYEXTERNALLY
Internal audit is Internal audit is an an independent appraisal of independent appraisal of operations, conducted operations, conducted under the direction of under the direction of management, to assess management, to assess the effectiveness of the effectiveness of internal administrative internal administrative and accounting controls and accounting controls and help ensure and help ensure conformance with conformance with managerial policies managerial policies
INTERNAL CONTROL Internal control is broadly defined as a Internal control is broadly defined as a
process, effected by management and process, effected by management and other personnel, other personnel, designed to provide designed to provide reasonable assurance that the objectives reasonable assurance that the objectives of the area of the area are being achieved in the are being achieved in the following categories:following categories:• Effectiveness and efficiencyEffectiveness and efficiency of operations of operations
including the use of the entity’s resources.including the use of the entity’s resources.• Reliability of financial reportingReliability of financial reporting, including , including
reports on budget execution, financial reports on budget execution, financial statements, and other reports for internal and statements, and other reports for internal and external use.external use.
• ComplianceCompliance with applicable laws and with applicable laws and regulations.regulations.
• Control Control (safeguarding) of assets.(safeguarding) of assets.
BENEFFITS OF INTERNAL CONTROLS
The plan of organization, methodsThe plan of organization, methods
and procedures adopted by and procedures adopted by management to ensure that resource management to ensure that resource use is consistent with laws, regulations, use is consistent with laws, regulations, and policies; and policies;
That resources are safeguarded against That resources are safeguarded against waste, loss and misuse;waste, loss and misuse;
And that reliable data is obtained, And that reliable data is obtained, maintained, and fairly disclosed in maintained, and fairly disclosed in reports. (General Accounting Office)reports. (General Accounting Office)
ELEMENTS OF INTERNAL CONTROL
Accounting Accounting • Cash Ledgers Cash Ledgers • Support Documents Support Documents
• Audit trailAudit trail
Business records Business records • Banking Banking • Employment Employment • Time Sheets Time Sheets • ContractsContracts
Policies and Policies and procedures procedures • Position Position
DescriptionsDescriptions• Roles and Roles and
ResponsibilitiesResponsibilities• Personnel manualPersonnel manual• Travel ProceduresTravel Procedures• Training PolicyTraining Policy• Procurement PolicyProcurement Policy
INTERNAL AUDIT REPORTING STRUCTURE
Non-IT Audit Team Members
CEO
Board Audit Committee
Head of Audit Dept
Head of Non-IT Audit Head of IT Audit
IT Audit Team Members
DESIGN OF INTERNAL CONTROLS
A prerequisite to designing good internal controls A prerequisite to designing good internal controls used by an organization is to have used by an organization is to have clear, precise, clear, precise, and quantifiable objectives in place. and quantifiable objectives in place.
An excellent place to start when identifying An excellent place to start when identifying objectives is the objectives is the Strategic Plan and Mission Strategic Plan and Mission Statement of your areaStatement of your area..
Objectives are needed in order to determine what Objectives are needed in order to determine what are the necessary controls to put in place and are the necessary controls to put in place and when the controls have been successful. when the controls have been successful.
When objectives have been established, the When objectives have been established, the risks risks associated with accomplishing each objectiveassociated with accomplishing each objective can can be determined.be determined.
Only when risks associated with the activities Only when risks associated with the activities involved in completing objectives are identified involved in completing objectives are identified can the can the required controls be determined to ensure required controls be determined to ensure successful completion of the objectives.successful completion of the objectives.
AUDIT MONITORING
The effectiveness of any internal The effectiveness of any internal control system must be control system must be monitored to be successful. monitored to be successful.
Departmental reviews, quality Departmental reviews, quality control auditing, internal control auditing, internal auditing and external auditing auditing and external auditing are the primary means of are the primary means of monitoring an internal control monitoring an internal control system.system.
THE EXTERNAL
INTERNALLYINTERNALLY
EXTERNALLYEXTERNALLY
External Audit External Audit is is an audit an audit conducted by conducted by an individual of an individual of a firm that is a firm that is independent of independent of the company the company being auditedbeing audited
RISK ASSESSMENT
Internal control should provide for an Internal control should provide for an assessment of the risks the area faces from assessment of the risks the area faces from both external and internal sources. both external and internal sources.
A precondition to risk assessment is A precondition to risk assessment is establishment of clear, consistent area establishment of clear, consistent area objectives. objectives.
Risk assessment is the identification and Risk assessment is the identification and analysis of relevant risks associated with analysis of relevant risks associated with achieving the objectives, and forming a achieving the objectives, and forming a basis for determining how risks should be basis for determining how risks should be managed.managed.
AUDIT PROCESS ObjectivesObjectives
• What are we doing and why?What are we doing and why? ScopeScope
• Program, time periodProgram, time period MethodologyMethodology
• HowHow FindingsFindings
• ResultsResultsUNDERSTANDING CONTROLS UNDERSTANDING CONTROLS A top-down approach -used when considering controls. A top-down approach -used when considering controls.
GENERAL AUDIT CONTROLS
AUDIT CONTROLSAUDIT CONTROLSAUDIT CONTROLSAUDIT CONTROLS
GeneralGeneralControlsControlsGeneralGeneralControlsControls
IT Concerns and Issues
Disaster Recovery • Business Resumption Plans• BRP Testing• Alternate Processing
Physical Security • Physical Access• Fire Protection• UPS
Backup/Contingency Planning • Data Backups• Restore Procedures• Offsite Storage
Change Management Program Change Controls• Tracking• Change Approvals
AUDIT ROLE
Advising the Audit Committee and Advising the Audit Committee and senior management on internal senior management on internal control issuescontrol issues
Performing Risk AssessmentsPerforming Risk Assessments Performing:Performing:
• Institutional Risk Area AuditsInstitutional Risk Area Audits• General Controls AuditsGeneral Controls Audits• Application Controls AuditsApplication Controls Audits• Technical Controls AuditsTechnical Controls Audits• Internal Controls advisors during Internal Controls advisors during
systems development and analysis systems development and analysis activities.activities.
ROLES OF AUDIT TEAM
Entity-Level Controls
Physical Facility
Network Intra
Operating System
Middleware
DatabaseApplication
Auditor
Information Systems Auditor
Support for Financial Auditors
Financial Auditor
AUDIT GOVERNANCE
……the process for controlling an the process for controlling an organization’s resources, including organization’s resources, including information and communication information and communication systems, and technology. systems, and technology.
……using to promote an organization’s using to promote an organization’s objectives and enable business objectives and enable business processes and to manage and processes and to manage and control related riskscontrol related risks..
UNDERSTANDING CONTROLS
control control is a process is a process that provides that provides assurance for assurance for information and information and information services, information services, and help to mitigate and help to mitigate risks associated with risks associated with use of …...use of …...
IMPORTANCE OF CONTROLS
Implementing Implementing effective controls will effective controls will improve efficiency, improve efficiency, reliability, and reliability, and flexibility.flexibility.
BASED ON RISK
Analyzing RiskAnalyzing Risk• Identify and Identify and
prioritize risks prioritize risks • Consider risk in Consider risk in
determining the determining the adequacy of controlsadequacy of controls
• Define risk Define risk mitigation strategy – mitigation strategy – accept/mitigate/ accept/mitigate/ shareshare
MONITORING
Monitoring Monitoring ControlsControls• Ongoing Ongoing
monitoring/special monitoring/special review/automated review/automated continuous continuous auditingauditing
STEPS OF AN AUDIT
Planning PhasePlanning Phase Testing PhaseTesting Phase Reporting Reporting
PhasePhase
PLANNING PHASE
Entry MeetingEntry Meeting Define ScopeDefine Scope Learn ControlsLearn Controls Historical Historical
IncidentsIncidents Past AuditsPast Audits
Site SurveySite Survey Review Current Review Current
PoliciesPolicies QuestionnairesQuestionnaires Define Define
ObjectivesObjectives Develop Audit Develop Audit
Plan / ChecklistPlan / Checklist
TESTING PHASE
Meet With Site Meet With Site ManagersManagers• What data will be What data will be
collectedcollected• How/when will it How/when will it
be collectedbe collected• Site employee Site employee
involvementinvolvement• Answer questionsAnswer questions
Data CollectionData Collection• Based on Based on
scope/objectivesscope/objectives Types of DataTypes of Data
• Physical securityPhysical security• Interview staffInterview staff• Vulnerability Vulnerability
assessmentsassessments• Access Control Access Control
assessments assessments
REPORTING PHASE
Exit Meeting - Short Exit Meeting - Short ReportReport• Immediate problemsImmediate problems• Questions & answer Questions & answer
for site managersfor site managers• Preliminary findingsPreliminary findings• NOT able to give in NOT able to give in
depth informationdepth information
Long Report After Long Report After Going Through DataGoing Through Data• Intro defining Intro defining
objectives/scopeobjectives/scope• How data was How data was
collectedcollected• Summary of Summary of
problemsproblems Table formatTable format Historical data (if Historical data (if
available)available) RatingsRatings FixesFixes Page # where in Page # where in
depth description isdepth description is
PHASES OF THE INFORMATION AUDIT
Systems AuditSystems Audit Structure of the Financial Structure of the Financial
Statement AuditStatement Audit Auditing Around the ComputerAuditing Around the Computer Auditing With The ComputerAuditing With The Computer
SYSTEMS AUDIT
Initial review and Initial review and evaluation of the evaluation of the area to be audited, area to be audited, and the audit plan and the audit plan preparationpreparation
Detailed review and Detailed review and evaluation of evaluation of controlscontrols
Compliance testingCompliance testing Analysis and Analysis and
reporting of results reporting of results
STRUCTURE OF THE FINANCIAL STATEMENT AUDIT
TransactionsTransactions AccountingSystem
AccountingSystem
FinancialReportsFinancialReports
Interim Audit
Compliance Testing
Financial Statement Audit Substantive
Testing
AUDITING AROUND THE SYSTEM• The auditor ignores computer The auditor ignores computer
processing. Instead, the auditor processing. Instead, the auditor selects source documents that have selects source documents that have been input into the system and been input into the system and summarizes them manually to see if summarizes them manually to see if they match the output of computer they match the output of computer processingprocessing..
Processing
AUDITING WITH THE COMPUTER
• The utilization of the computer The utilization of the computer by an auditor to perform some by an auditor to perform some audit work that would audit work that would otherwise have to be done otherwise have to be done manually.manually.
ATTITUDES
VALUES
BELIEFS
BEHAVIOURS
20%
80%
REVIEW
Know what is sensitive information required for audit operation Understand that there are different levels of sensitivity in audit operation Be able to identify the minimum audit requirements for each level
REPORT REVIEW
Do the reports –Do the reports –• Provide sufficient information?Provide sufficient information?• Show that adequate progress is Show that adequate progress is
being made?being made?• Raise red flags?Raise red flags?• Contain information that is useful Contain information that is useful
for performance measures?for performance measures?
THE DEMMING CYCLE THE DEMMING CYCLE W.Edwards DemmingW.Edwards Demming
PlanPlan
ControlControl ActAct && DoDo
ImprovementImprovement
CheckCheck
CASE - It can’t be done!CASE - It can’t be done!
““Management wants us to add on Management wants us to add on these quality activities to our these quality activities to our regular duties without giving us regular duties without giving us the additional time [to accomplish the additional time [to accomplish them] -- it can’t be done!”them] -- it can’t be done!”
Discussion - How can it be done?Discussion - How can it be done? Has your employer implemented Has your employer implemented
any quality improvement any quality improvement programs?programs?
How was it done?How was it done?
QUALITY? - CONVINCING MANAGEMENT
Loss of productionLoss of production Loss of customersLoss of customers Loss of businessLoss of business Loss of jobsLoss of jobs Class - Can you list some more Class - Can you list some more
reasons?reasons?
Quality? - Convincing Management Quality is no longer just a Quality is no longer just a
technical issue, it is a business technical issue, it is a business issue.issue.
In order for a quality program to In order for a quality program to succeed, top management must succeed, top management must be involved and committed to be involved and committed to its success.its success.
A company’s success is directly A company’s success is directly related to management’s related to management’s commitment to quality.commitment to quality.
QUALITY PROGRESS
Market
research
Custome
r
service
Marketing,
administra
tive
support
Inspecti
on
Test
Producti
on
Proce
ss
Control
Operatio
ns
planning
Specifica
tion
Product
development
and design
Market
rese
arch
Purchasin
g
Suppliers
Wholesaling
Retailing
Use
Feedback
CONTINUOUS IMPROVEMENT
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Represents continual improvement of process & customer satisfaction which
Involves all operations & work units
Continuous ImprovementContinuous ImprovementI
Am
Responsible
for Quality
As a
Good Process Owner or User
I will:
As a
Good Supplier
I will:
As a
Good Customer
I will:
1. Agree on and document my requirements with my supplier.
2. Return defective inputs to my supplier promptly and tactfully.
3. Feedback input quality data to my supplier.
1. Understand my customer requirements, and agree on and document my deliverables.
2. Reduce defects and variations in my output.
3. Measure my output quality from my customer’s perspective.
1. Learn to apply the tools of quality - teach others.
2. Continuously improve my process - reduce defects, cycle time, and know benchmarks.
3. Document and display my process, defect levels, and CI projects.
Requirements and feedback
My input
My supplier
My customer
Requirements and feedback
My output
COMPETITIVE STANDING
ATTRIBUTE COMPARISON - RADAR GRAPH
0
20
40
60
80
100
120
140
160
180
Safety
Performance
Quality
Field serviceEase of use
Company image
Plant service
Company X Competitor A Competitor B
Maintain Status quo Leverage competitive
strength
Assign little or no priority on action.
Add resources to achieve
improvement
PERFORMANCE - SATISFACTION MAP
200
60
40
80
100
17.5 35 52.5 70
Importance
Per
form
ance
(%
sat
isfi
ed)
Product
Sales
Repairs
Billing
CONVINCING UPPER MANAGEMENT
Estimate the size of quality related Estimate the size of quality related losses.losses.
Identify ways of improving quality.Identify ways of improving quality. Estimate the savings and other Estimate the savings and other
benefits.benefits. Calculate return on investment (ROI)Calculate return on investment (ROI) Use a successful case history to Use a successful case history to
justify a broader program.justify a broader program. If all else fails, take pictures of If all else fails, take pictures of
waste and/or hazards waste and/or hazards
ARE QUALITY APPROACHES INFLUENCED BY CULTURE?
Quality Approaches are Influence by Culture
The US approach has historically been
command-and-control oriented.
The Japanese approach is based on
an ethic of consistency and emphasis on
reduction of waste.
The Europeans have adopted broad
standards that can be adapted to the
diverse nation states of the EC.
NATIONAL AND INTERNATIONAL QUALITY AWARDS
Malcolm Baldrige National Malcolm Baldrige National Quality AwardQuality Award
Deming PrizeDeming Prize European Quality AwardEuropean Quality Award Shingo PrizeShingo Prize
The US approach has
historically been command-and-
control oriented.
THE MALCOLM BALDRIGE NATIONAL QUALITY AWARD
The President of the United States traditionally The President of the United States traditionally presents the Awards at a special ceremony in presents the Awards at a special ceremony in Washington, DC. Awards are made annually to Washington, DC. Awards are made annually to recognize U.S. organizations for performance recognize U.S. organizations for performance excellence. The Award eligibility categories are:excellence. The Award eligibility categories are:• manufacturing businessesmanufacturing businesses• service businessesservice businesses• small businessessmall businesses• education organizationseducation organizations• health care organizationshealth care organizations
Recipients are expected to share information about Recipients are expected to share information about their successful performance strategies with other their successful performance strategies with other U.S. organizations.U.S. organizations.
THE MALCOLM BALDRIGE NATIONAL QUALITY AWARD
The Award is named for Malcolm The Award is named for Malcolm Baldrige, who served as Secretary Baldrige, who served as Secretary of Commerce from 1981 until his of Commerce from 1981 until his tragic death in a rodeo accident in tragic death in a rodeo accident in 1987. His managerial excellence 1987. His managerial excellence contributed to long-term contributed to long-term improvement in efficiency and improvement in efficiency and effectiveness of government.effectiveness of government.
THE MALCOLM BALDRIGE NATIONAL QUALITY AWARD
Baldrige Award Framework
4Information and analysis
3Customer andmarket focus
6Process
management
1Leadership
7Businessresults
2Strategic planning
5HR develop. &management
Customer and Market Focused Strategy and Action Plans
QUALITY IMPROVEMENT: THE JAPANESE WAY
Deming PrizeDeming Prize• The Deming Prize for quality was The Deming Prize for quality was
established in 1951 by the Japanese established in 1951 by the Japanese Union of Scientists and Engineers Union of Scientists and Engineers (JUSE).(JUSE).
• The Deming Prize is much more The Deming Prize is much more focused on processes than is the focused on processes than is the Baldrige.Baldrige.
The Japanese approach is based on an ethic of consistency and
emphasis on reduction of waste.
WHAT IS THE DEMING PRIZE?
The Deming Application PrizeThe Deming Application Prize Given to companies or divisions of companies that have achieved Given to companies or divisions of companies that have achieved distinctive performance improvement through the application of distinctive performance improvement through the application of TQM in a designated year. TQM in a designated year.
The Deming Prize for IndividualsThe Deming Prize for IndividualsGiven to individuals who have made outstanding contributions to Given to individuals who have made outstanding contributions to the study of TQM or statistical methods used for TQM, or the study of TQM or statistical methods used for TQM, or individuals who have made outstanding contributions in the individuals who have made outstanding contributions in the dissemination of TQM.dissemination of TQM.
The Quality Control Award for Operations The Quality Control Award for Operations Business UnitsBusiness UnitsGiven to operations business units of a company that have Given to operations business units of a company that have achieved distinctive performance improvement through the achieved distinctive performance improvement through the application of quality control/management in the pursuit of TQM application of quality control/management in the pursuit of TQM in a designated year.in a designated year.
OTHER JAPANESE CONTRIBUTIONS TO QUALITY THOUGHT
Lean Manufacturing (Toyota Lean Manufacturing (Toyota Production System)Production System)• Lean is a method of systematically Lean is a method of systematically
eliminating waste in a production system.eliminating waste in a production system.• Lean dramatically reduces cycle time.Lean dramatically reduces cycle time.• Lean focuses on the company’s “value Lean focuses on the company’s “value
stream” to identify wasted movement, stream” to identify wasted movement, wasted time, wasted inventory, and wasted wasted time, wasted inventory, and wasted space.space.
• Lean has been adopted by many US Lean has been adopted by many US manufacturers and other firms and has aided manufacturers and other firms and has aided them in achieving dramatic improvements in them in achieving dramatic improvements in operationsoperations
OTHER JAPANESE CONTRIBUTIONS TO QUALITY THOUGHT - 5 S’S
Other Japanese Contributions to Quality Other Japanese Contributions to Quality (cont.)(cont.)• The Five S’s. The five Ss are a sequential The Five S’s. The five Ss are a sequential
process that companies follow to literally “clean process that companies follow to literally “clean up their acts.” The Ss are:up their acts.” The Ss are:
Seri (Seri (SortSort): organizing by getting rid of the ): organizing by getting rid of the unnecessary.unnecessary.
Seiton (Seiton (set in orderset in order): neatness that is ): neatness that is achieved by straightening offices and work achieved by straightening offices and work areas.areas.
Siso (Siso (ShineShine): cleaning plant and equipment to ): cleaning plant and equipment to eliminate dirtiness that can hide or obscure eliminate dirtiness that can hide or obscure problems.problems.
Seiketsu (Seiketsu (StandardizeStandardize): standardizing ): standardizing locations for tools and other materials.locations for tools and other materials.
Shetsuke (Shetsuke (SustainSustain): discipline in maintaining ): discipline in maintaining the prior four the prior four Ss.Ss.
OTHER JAPANESE CONTRIBUTIONS TO QUALITY THOUGHT
Other Japanese Contributions to Other Japanese Contributions to Quality (cont.)Quality (cont.)• Quality CirclesQuality Circles
Are natural work teams made up of Are natural work teams made up of workers that are empowered to improve workers that are empowered to improve processes they use.processes they use.
• Total Productive Maintenance (TPM)Total Productive Maintenance (TPM) The idea behind this concept is that the The idea behind this concept is that the
worst condition a machine should ever worst condition a machine should ever by is on the day you purchase it.by is on the day you purchase it.
SHINGO PRIZE FOR EXCELLENCE IN MANUFACTURING
Named for Japanese industrial engineerNamed for Japanese industrial engineer Shigeo ShingoShigeo Shingo who distinguished himself as who distinguished himself as one of the world’s leading experts in one of the world’s leading experts in improving manufacturing processes.improving manufacturing processes.
The Prize was established in 1988 to The Prize was established in 1988 to promote awareness of Lean manufacturing promote awareness of Lean manufacturing conceptsconcepts
Recognizes companies in the United States, Recognizes companies in the United States, Canada, and Mexico that achieve world-Canada, and Mexico that achieve world-class manufacturing status. class manufacturing status.
SHINGO PRIZE FOR EXCELLENCE IN MANUFACTURING
The Shingo Prize recognizes organizations and The Shingo Prize recognizes organizations and research that is consistent with itsresearch that is consistent with its mission mission and modeland model with two types of prizes: with two types of prizes:
Business PrizeBusiness Prize—promotes use of world-—promotes use of world-class manufacturing strategies and class manufacturing strategies and practices to achieve world-class results. practices to achieve world-class results.
Research PrizeResearch Prize—promotes research and —promotes research and writing regarding new knowledge and writing regarding new knowledge and understanding of manufacturing understanding of manufacturing processes.processes.
Business Week referred to the Shingo Prize as Business Week referred to the Shingo Prize as the the “Nobel prize of manufacturing,” “Nobel prize of manufacturing,” because because it establishes the standard for world-class it establishes the standard for world-class excellence.excellence.
QUALITY IMPROVEMENT: THE EUROPEAN WAY
The The ISO 14000ISO 14000 family is primarily family is primarily concerned with concerned with "environmental "environmental management"management".. This means what the This means what the organization does to:organization does to:
• minimize harmful effects on the minimize harmful effects on the environment caused by its activities, environment caused by its activities, and toand to
• achieve continual improvement of achieve continual improvement of its environmental performanceits environmental performance..
ISO 9000 and 14000ISO 9000 and 14000 ISO 9000 and ISO 14000 are known asISO 9000 and ISO 14000 are known as
generic management system standardsgeneric management system standards..
GenericGeneric means that the same standards can be applied to means that the same standards can be applied to any organization, large or small, whatever its product - any organization, large or small, whatever its product - including whether its "product" is actually a service - in any including whether its "product" is actually a service - in any sector of activity, and whether it is a business enterprise, a sector of activity, and whether it is a business enterprise, a public administration, or a government department.public administration, or a government department.
Management systemManagement system refers to what the organization does refers to what the organization does to manage its processes, or activities in order that the to manage its processes, or activities in order that the products or services that it produces meet the objectives it products or services that it produces meet the objectives it has set itself, such as the following:has set itself, such as the following:
satisfying the satisfying the customer's quality customer's quality requirementsrequirements, ,
complying to complying to regulationsregulations, or , or
meeting meeting environmental objectivesenvironmental objectives. .
EUROPEAN QUALITY AWARD
European Foundation for Quality European Foundation for Quality Management (EFQM) was founded in 1988 Management (EFQM) was founded in 1988 by the Presidents of 14 major European by the Presidents of 14 major European companiescompanies
First European Quality Award issued in 1992 First European Quality Award issued in 1992 Endorsed by the EU CommissionEndorsed by the EU Commission Network has more than 700 membersNetwork has more than 700 members Formed the European framework for quality Formed the European framework for quality
improvement along the lines of the Malcolm improvement along the lines of the Malcolm Baldrige Model in the USA and the Deming Baldrige Model in the USA and the Deming Prize in Japan. Prize in Japan.
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The Europeans have adopted broad standards that can be adapted to the diverse nation
states of the EC.
EUROPEAN QUALITY AWARD Prize Winner categories consist Prize Winner categories consist
of :of : Leadership and constancy of purpose Leadership and constancy of purpose
Customer focus Customer focus
Corporate social responsibility Corporate social responsibility
People development and involvement People development and involvement
Results orientation Results orientation
Management by processes and facts Management by processes and facts
Continuous learning, innovation and Continuous learning, innovation and improvement improvement
Partnership development Partnership development
CONTRIBUTIONS OF VARIOUS DISCIPLINES
FinanceFinance: Measuring the cost of poor quality: Measuring the cost of poor quality Industrial EngineeringIndustrial Engineering: Design of : Design of
integrated systems, measurement, problem integrated systems, measurement, problem solving, work analysissolving, work analysis
Information TechnologyInformation Technology: Measurement, : Measurement, analysis, and reporting on qualityanalysis, and reporting on quality
Marketing ResearchMarketing Research: Competitive : Competitive standing on quality, understanding standing on quality, understanding customer desirescustomer desires
Operations ManagementOperations Management: Management : Management of integrated systemsof integrated systems
CONTRIBUTIONS OF VARIOUS DISCIPLINES (CONT’D)
Operations researchOperations research: : Analyzing product design Analyzing product design alternatives for optimizationalternatives for optimization
Organizational BehaviorOrganizational Behavior: : Understanding quality culture, Understanding quality culture, making teams effective.making teams effective.
Organizational EffectivenessOrganizational Effectiveness: : Satisfying the needs of both Satisfying the needs of both internal and external customers.internal and external customers.
CONTRIBUTIONS OF VARIOUS DISCIPLINES (CONT’D)
Strategic PlanningStrategic Planning: Quality as a means of : Quality as a means of achieving a unique competitive advantage.achieving a unique competitive advantage.
Systems EngineeringSystems Engineering: Translating : Translating customer needs into product features and customer needs into product features and process featuresprocess features
Value EngineeringValue Engineering: Analysis of essential : Analysis of essential functions needed by customer to find the functions needed by customer to find the lowest cost way of providing these functions lowest cost way of providing these functions that meet quality, reliability, and that meet quality, reliability, and performance requirements.performance requirements.
SYSTEMS DYNAMICS
Most process improvement efforts rely on Most process improvement efforts rely on breaking problems down into smaller, more breaking problems down into smaller, more manageable, components. manageable, components.
This “reductionist” approach sometimes This “reductionist” approach sometimes fails to recognize that the problem is fails to recognize that the problem is greater than the sum of its parts. greater than the sum of its parts.
A “systems thinking” approach to identify A “systems thinking” approach to identify interactions between activities and the interactions between activities and the unintended consequences that can arise unintended consequences that can arise from well-intended corrective actions. from well-intended corrective actions.
HOW SD CAN FACILITATE THE IMPROVEMENT EFFORTS
SD provides a visual model of SD provides a visual model of the system under study.the system under study.
Changes to the system can be Changes to the system can be made easily and quickly made easily and quickly analyzedanalyzed
Repeated iteration of a SD model Repeated iteration of a SD model can optimize the system under can optimize the system under studystudy
APPROACH FOR QUALITY IMPROVEMENT PROJECTS
Get a championGet a champion Prove the needProve the need Identify ProjectsIdentify Projects Organize teamsOrganize teams Perform the studyPerform the study Document recommendationsDocument recommendations Perform a pilot projectPerform a pilot project Document resultsDocument results Expand to entire organizationExpand to entire organization
CARRYING OUT THE PROJECT
Verify project need and missionVerify project need and mission Diagnose the causesDiagnose the causes Provide a remedy and prove its Provide a remedy and prove its
effectivenesseffectiveness Deal with resistance to changeDeal with resistance to change Institute controls to hold the Institute controls to hold the
gainsgains
INTRO TO SIX SIGMA
Six Sigma Capability: Extremely Six Sigma Capability: Extremely small variation in the process small variation in the process mean compared to the range of mean compared to the range of the specification limits.the specification limits.
Even if process mean shifts by Even if process mean shifts by 1.5 sigma => no more than 3.4 1.5 sigma => no more than 3.4 parts per million fall out of the parts per million fall out of the specification limit.specification limit.
Key focus: Y=f(XKey focus: Y=f(X11…X…Xnn))
BREAKTHROUGH IMPROVEMENT Verify the project need (Six Verify the project need (Six
DefineDefine)) Diagnose the Causes (Six Diagnose the Causes (Six MeasureMeasure
and and AnalyzeAnalyze)) Provide a remedy and prove its Provide a remedy and prove its
effectiveness (Six effectiveness (Six ImproveImprove)) Deal with resistance to Change (Six Deal with resistance to Change (Six
ImproveImprove)) Institute controls to hold the gains Institute controls to hold the gains
(Six (Six ControlControl))
Define the
Problem
Define the
Problem
MeasureMeasure
AnalyzeAnalyze
ImproveImprove
ControlControl
End
A) Identify what the customer wants. B) Organize an improvement team. C) Create a process flow chart - (SIPOC)
A) Identify what the customer wants. B) Organize an improvement team. C) Create a process flow chart - (SIPOC)
A) Select “Critical to Quality Characteristic” metrics. B) Define Performance Standards. C) Validate the measurement System. D) Establish baseline performance in terms of Sigma
Capability - Defects per Million Opportunities.
A) Select “Critical to Quality Characteristic” metrics. B) Define Performance Standards. C) Validate the measurement System. D) Establish baseline performance in terms of Sigma
Capability - Defects per Million Opportunities.
A) Identify significant characteristics and establish process capability.
B) Define performance targets for significant characteristics.
C) Identify root cause of process variation.
A) Identify significant characteristics and establish process capability.
B) Define performance targets for significant characteristics.
C) Identify root cause of process variation. A) Identify and evaluate potential solutions. B) Implement short-term countermeasures. C) Implement long term corrective actions. D) Identify systemic indirect effects and unintended
consequences of improvement ideas. E) Establish operating tolerances for new process.
A) Identify and evaluate potential solutions. B) Implement short-term countermeasures. C) Implement long term corrective actions. D) Identify systemic indirect effects and unintended
consequences of improvement ideas. E) Establish operating tolerances for new process.
A) Verify corrective actions and validate new measurement systems.
B) Determine process capability. C) Establish and implement control plan.
A) Verify corrective actions and validate new measurement systems.
B) Determine process capability. C) Establish and implement control plan. Move on to next highest priority process. Move on to next highest priority process.
SIX SIGMA PROCESS
VALUE ENGINEERING
Value Engineering (VE) is an intensive, Value Engineering (VE) is an intensive, interdisciplinaryinterdisciplinary problem solving activity that problem solving activity that focuses on focuses on improving the valueimproving the value of the of the functions that are required to accomplish the functions that are required to accomplish the goal, or objective of any product, process, goal, or objective of any product, process, service, or organization.service, or organization.
VALUE METHODOLOGYVALUE METHODOLOGY“The systematic application of “The systematic application of recognized recognized techniquestechniques which which identify the functionsidentify the functions of of the product or service, establish the the product or service, establish the worthworth of of those functions, and provide the necessary those functions, and provide the necessary functions to functions to meetmeet the required performance the required performance at the lowest overall cost.” at the lowest overall cost.”
**John M. Bryant, John M. Bryant, VM StandardVM Standard, Society of American Value Engineers, Oct. 1998, Society of American Value Engineers, Oct. 1998
VALUE ENGINEERING/VALUE ANALYSIS - WHY IS IT IMPORTANT?
Last 3 years, 2.7 million manufacturing Last 3 years, 2.7 million manufacturing jobs left the U.S.jobs left the U.S.
The U.S. is loosing the battle to foreign The U.S. is loosing the battle to foreign competition.competition.
Labor costs $12 to $30 per hour in U.S., Labor costs $12 to $30 per hour in U.S., less than $1 elsewhere.less than $1 elsewhere.
Fewer and fewer people will be required Fewer and fewer people will be required to produce the world’s goods.to produce the world’s goods.
Lean and Six Sigma alone are not Lean and Six Sigma alone are not enough!enough!
COMPETITIVE ADVANTAGE
Quality is defined as “conformance to specification.”
Value is defined as:Function
Cost You can’t have one without the
other! Competitive Advantage = Quality
+ Value
SIX STEP VALUE ENGINEERING JOB PLAN
8383
Information Phase
Information Phase
Creativity Phase
Creativity Phase
Evaluation Phase
Evaluation Phase
Planning Phase
Planning Phase
Reporting Phase
Reporting Phase
Implementation PhaseImplementation Phase
Clearly identify the problem(s) to be solved, and gather information on the background, functions and requirements of the product, process, or system.
Clearly identify the problem(s) to be solved, and gather information on the background, functions and requirements of the product, process, or system.
Brainstorm ideas on how to improve the high cost, broken, or inadequately performed key functions.
Brainstorm ideas on how to improve the high cost, broken, or inadequately performed key functions.
Screen ideas for acceptance, score remaining ideas on a scale and group ideas into categories. Develop design scenarios, and selection criteria. Rate and rank ideas.
Screen ideas for acceptance, score remaining ideas on a scale and group ideas into categories. Develop design scenarios, and selection criteria. Rate and rank ideas.
Plan how to sell ideas to management, identify key recommendations, plan management presentation.
Plan how to sell ideas to management, identify key recommendations, plan management presentation.
Give oral presentation to management, or develop written report.
Give oral presentation to management, or develop written report.
Get management approval for go-ahead, make management plan, make assignments, implement, follow-up.
Get management approval for go-ahead, make management plan, make assignments, implement, follow-up.
Mapping VE to 6Mapping VE to 6
Information Phase
Information Phase
Creativity Phase
Creativity Phase
Evaluation Phase
Evaluation Phase
Planning PhasePlanning Phase
Reporting Phase
Reporting Phase
Implementation Phase
Implementation Phase
Define the ProblemDefine the Problem
MeasureMeasure
AnalyzeAnalyze
ImproveImprove
ControlControl
VA/VE 6
SPORADIC V.S. CHRONIC PROBLEMS
Sporadic problems are dramatic Sporadic problems are dramatic and require immediate attention.and require immediate attention.
Chronic problems are not Chronic problems are not dramatic, they occur over a long dramatic, they occur over a long period of time.period of time.
Chronic problems are difficult to Chronic problems are difficult to solve.solve.
Chronic problems are “accepted Chronic problems are “accepted as inevitable.”as inevitable.”
SPORADIC V.S. CHRONIC PROBLEMS
Sporadic problems are solved by Sporadic problems are solved by fixing the control process.fixing the control process.
Chronic problems are solved using Chronic problems are solved using process improvement techniques process improvement techniques such as Value Engineering and/or Six such as Value Engineering and/or Six Sigma.Sigma.
Value Engineering may be applied to Value Engineering may be applied to sporadic problems as well, e.g., sporadic problems as well, e.g., Boeing 737/757 elevator feel Boeing 737/757 elevator feel computer problem.computer problem.
SPORADIC AND CHRONIC QUALITY PROBLEMS
Loss d
ue t
o d
efe
cts
Time
Sporadic departure from historic level
Historic level
Improved level
The difference between historic and improved levels is caused by a chronic disease that can be eliminated economically through process improvement techniques.
FOR MORE INFORMATION
On the Malcolm Baldridge National Quality Award, visit:http://www.quality.nist.gov/
For more information on the Deming Prize visit:http://www.deming.org/d
For more information on the Shigo Prize visit:http://www.shingoprize.org/AboutUs/default.htm
http://www.partnersusu.org/
For more information on the ISO 9000 and ISO 14000 visit: http://www.iso.ch/iso/en/iso9000-14000/index.html
For more information on the European Quality Award visit:http://www.efqm.org/model_awards/eqa/intro.asp