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The Management Audit: A Diagnostic Management Tool to Enhance Corporate Effectiveness

In this era of economic uncertainty and rapid technological change, corporate management must confront perhaps two of its greatest challenges: The first is making competent decisions in a complex business environment, and the second is managing corporate change proactively in order to ensure the long-tem survival of the business. The management audit can serve as a useful tool in successfully meeting these challenges.

The management audit is a comprehensive diagnostic tool used to objectively examine a company’s organization structure, objectives, plans, methods of control, operational procedures, as well as its use of financial, human and physical resources. Simply it is a tool for evaluating all organization elements within the business enterprise – including people, facilities, management process, structure and environment.

Properly designed and implemented the management audit should accomplish certain key objectives:

  • Uncover potential danger areas which could affect the organization

  • Highlight improvement opportunities

  • Identify areas of waste and unnecessary loss

  • Assess performance problems and the effectiveness of organization controls

  • Evaluate compliance and effectiveness of organization policies and procedures

  • Monitor the effectiveness of corporate objectives, strategies, and plans

  • Measure levels of organization morale and innovation

  • Ascertain the extent to which the business is maximizing its financial resources to accomplish its mission

In other words the management audit should assist management in spearheading proactive efforts to achieve greater levels of efficiency and effectiveness within the organization entity.

How Can The Management Audit Support Competent Decision Making?

Effective decision making is probably the most important factor inherent to a successful business, since inaction or incompetent decisions can have disastrous results in our fast-paced business environment, regardless of how good the product is. The decision making process, however, determines to what degree an organization is likely to make the right decision at the right time. The process involves exercising critical judgment, determining proper action strategies, and choosing from alternatives after assessing probabilities for success.

The management audit helps define how the organization functions in its decision making process:

  • How business plans are developed and carried out

  • How results are reviewed and evaluated

  • How issues and problems are identified and resolved

  • What information is available and incorporated

  • Where decisions bottlenecks occur

  • What policies, systems, processes, operations, or internal resources help or hinder the decision making process

With this information in hand, management can identify the corporate changes needed to strengthen its internal decision making process, thereby increasing the likelihood that sound, competent decision making will become inherent to the organization.

How Does The Management Audit Help In Proactively Managing Change?

A well-conducted management audit will uncover the weaknesses in any or all of the organization elements examined and provide the information necessary to help management determine key priority issues for both short and long-term problem solving. Just as an executive has his annual medical check-up, so should an organization place itself under a microscope to identify existing and potential trouble spots.

In order to maximize the benefits from a management audit management should consider the following:

  • An audit can be effective eve if the organization is not experiencing any major problems

  • Before the audit is conducted, management should be committed to devoting the necessary levels of energy, time, and resources to the project so as to solve problems identified or to plan problem-solving strategies.

  • During the audit process management would be actively involved in:

Determining the scope of the audit:

  1. Ascertaining necessary resources

  2. Selecting external consultants or internal management to conduct the audit

  3. Developing the audit plan for “when things should happen”

  4. Ensuring ongoing evaluation of the audit project

Key steps in the management audit should include the following:

  1. Getting organized to conduct the audit

  2. Designing the audit tool

  3. Implementing the audit

  4. Analyzing audit data

  5. Preparing the final report with observations and recommendations

  6. Formulating strategies to address identified issues

  7. Implementing and monitoring short and long-term problem solving strategies

  8. Evaluating on an ongoing basis the problem solving efforts by taking corrective action as necessary

Where management audits often fall short is in management’s lack of commitment to long-term follow-up action….not in the diagnosing of the problems. Over the years I have encountered many client organizations that use the management audit as a one-time event, rather than as an ongoing process for corporate renewal.

The ability to make quality decisions in a timely manner and the capacity to plan proactively are becoming increasingly critical to successful to business operations. Management can face these challenges more effectively if it is equipped with the appropriate management and information tools it needs to gain a broader base of requisite knowledge. The management audit properly used, can be one such tool….a tool instrumental in examining and measuring the quality of an organization’s performance.

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