Module 4

Business Management Techniques and Impact on Control

Learning Outcomes:

 Understand the different business approaches

Core Value/Biblical Principles:

Businesses have implemented various business management techniques which are based on their situations.
Management evaluates various factors before implementing such. This may involve suggestions from external
auditors. In line with this, here is a bible verse that you can reflect on regarding this lesson:

Proverbs 18:13 “To answer before listening — that is folly and shame.”
 Introduction:
Since business risk is present in all organizations, auditors should identify risks and provide the
management awareness regarding their likelihood of happening and their impact to the business. This will help the
management to prepare for it and have action plans once the risk caused issues.

BUSINESS PROCESS RE-ENGINEERING (BPR)

Business processes re-engineering is the re-engineering of business systems. It is a radical change program
which is designed to:

 Reduce costs significantly

Management implements business process re-engineering due to unfavorable business circumstances, but even
without these, a proactive management will consider the competitive advantages which may be brought by BPR. BPR is
a high-risk technique as the aim is to achieve high levels of improvement in a short timescale. After the BPR, the
business is more “customer-focused” than before BPR. Staff and management are likely to benefit from increased
empowerment.

Implications for Internal Audit

However, staff are more process or project oriented and less functionally oriented: this reduces the extent to
which internal control is achieved through segregation of functions and duties‒ and so alternative ways of achieving
satisfactory control must be implemented. Internal auditors must understand the BPR process in order to advise on the
control quality of the new systems and advise whether the processes have effective controls built into it. Internal
auditors should be alert to the risk that established controls may not be operated effectively during the BPR project as
management and staff resources are diverted to the BPR project itself.

TOTAL QUALITY MANAGEMENT (TQM)

This is a way of managing to improve the effectiveness, flexibility and competitiveness of a business as a whole.
It is a management philosophy embracing all the activities through which the needs and expectations of the customer,
the community, and the objectives of the organization are satisfied in the most efficient and cost-effective way by
maximizing the potential of all employees in a continuing drive for improvement.

Quality Systems

Quality assurance systems are systems which set out to demonstrate to customers that a business is committed
to quality and able to supply its customers’ quality needs. One criticism of the quality assurance systems movement is
that the business seeking registration determines what its own systems will be and what standards of performance will
be achieved ‒ these are not externally imposed ‒ they may not be impressive in terms of quality.

Cost of Quality

Managers will need to identify quality costs in a number of categories if they are to be in position to quantify the
possible improvement and prioritize their improvement efforts in areas which are likely to achieve significant savings.
The last category should be of special concern as the reputation and image of the organization can be adversely affected
and future trading relationships in jeopardy.
 Quality Audits

Quality audit process seeks to establish and maintain high standards of TWM and/or quality systems. Quality
auditing is not the same as internal auditing. The internal audit approach ideally should:

 to reassure management and the board that quality auditing is being done effectively,
and therefore to conduct internal audits of the quality auditing processes.
If internal audit are conducting the quality audits itself, this will have to be done
by others.
 to assess the extent to which internal audit can rely on work done by quality
audit where it overlaps with the scope of internal audit, thereby avoiding
unnecessary duplication.

DELAYERING

Delayering means removing one or more levels of management from the enterprise, or from a part or
parts of it. The number of levels of management and staff will vary according to the historical evolution of the business
and also according to the type of business it is. Some enterprises, or parts of enterprises, are appropriately very flat. An
implication of being flat is that each manager supervises a larger number of subordinates. This is called “the span of
control” of the manager. Managers resort to various devices handle information overload, which occurs because our
minds are unable to process rationally all the information that needs to be processed in order to make optimal decisions.
The risk is that supervision becomes nominal ‒ that delegation becomes abdication.

Removing a layer of management and staff broadens the span of control of the managers involved. It generally
therefore leads to greater empowerment of those being supervised. Generally, it should be associated with the
development of modern IT-based systems which make it easier for managers to supervise more subordinates, perhaps
through IT-generated reporting by exception.

Delayering has a dramatic impact on lowering staffing costs. It can be one way of achieving productivity gains.
Yet its other advantages may be even greater. Greater empowerment is inherited by the level of management or staff
beneath the level which has been removed. This should lead to greater job satisfaction and to greater work motivation.

EMPOWERMENT

The delegation of responsibility to and trust of staff for making business decisions, without the need for close,
detailed review and approval of those decisions. This approach is based on the premise that employees, at all levels, are
responsible for their own actions and should be given the authority to make decisions about work. Empowerment is also
an objective in its own right as it is perceived to have many positive outcomes. Herzberg’s bipolar analysis of job
satisfaction factors divided into two groups. The hygiene factors are to do with the surroundings of the job whereas the
motivators are more closely to do with the job itself. Herzberg maintained that if management attended well to the
hygiene factors which related to their staff, then this would only remove negative feelings of dissatisfaction: in
themselves the hygiene factors would not positively motivate staff. For positive motivation, the motivators had to be in
place. And if staff were motivated to perform well, then outputs would improve—in effect the business would be buying-
in to the potential of its people.
 Maslow’s 5 view of satisfaction was not bipolar: it was uni-polar. He perceived of a hierarchy of needs. At the
lowest level people have (a) physiological needs (for food, water, warmth, etc.). At progressively higher levels are (b)
security needs, (c) social needs, (d) esteem needs, (e) autonomy needs and (f) self-actualization (or self-fulfillment)
needs. Maslow found that most people display some degree of dissatisfaction with the extent to which their needs are
satisfied. He found that an acute level of dissatisfaction with the extent to which a lower level need was satisfied would
often lead to a major preoccupation by the individual designed to alter things and meanwhile the higher-level needs
would signify little in that person’s consciousness. For instance, a starving person will be preoccupied with the need to
find food and will not indulge in concern about their level of self-actualization. Maslow found that most occupational
groups in the developed world have achieved levels of satisfaction which mean that most or all of Maslow’s needs are a
matter of concern to them. Autonomy is the need that most closely corresponds to the concept of “empowerment”.
Autonomy means taking decisions and being able to see the results which follow from those decisions.

OUTSOURCING

Outsourcing is also called as “contracting out”, and occurs when services previously provided by in-house
personnel are supplied by an outside contractor. This often takes place after due process of market testing, which
requires that a fully specified tender document is prepared and potential outside contractors are invited to tender for the
work against the specification.

Impact on In-house Personnel

The drawback for those whose contract of employment transfers in this way from the business to the outside
contractor is that their terms and conditions of service and their job security are often not so good with the outside
contractor as they were previously, when perhaps they had been insulated from the effect of market forces.

Cost-Benefit Issues

Outsourcing is believed to lead lower costs of public services as well as higher quality. It also has the effect of
reducing the size of the public sector in a national economy, which is perceived as having certain macroeconomic
advantages.

Impact on Human Resource Inventory

Outsourced activities provide outside contractors with learning experience on the job. This may be a potential
competitive threat, as in effect the business is developing outsiders who may set up in competition or take their resultant
know-how to a rival business for which they also provide outsourced services. Outsourcing may also represent security
risk. For example, most businesses take incredible risks with their contract cleaners who may have virtually unrestricted
access to premises out of hours.

JUST-IN-TIME MANAGEMENT (JIT)

The driving objectives of JIT are to eliminate wasteful or non value-added activities, and by doing so achieve
improvements (such as increased quality, reduced work in-progress stock levels, improved productivity and reduced
costs). It is important to understand that JIT manufacturing systems are driven by the principle of being “demand-
pulled” through the production process, i.e. production activities are governed (or “pulled”) by downstream processes
requiring subassemblies from upstream processes. This is the reverse of more traditional production systems where the
flow is “pushed” through the production chain.