What is an Operational Audit? Its Objectives, Advantages & Disadvantages

The path that companies have to travel to reach success is not easy. To achieve this, they should not devote all their resources solely to earn more and more money. The company’s work is based on a high-quality process, advocating for managerial excellence and, in short, achieving its objectives in the most effective and efficient way possible.

One of the ways that companies have to control and assess their internal operations is through the operational audit. Of the different types of audits that exist, this provides the way to use resources efficiently and maximize and strengthen business development.

What is an Operational Audit?

The processes that occur daily in a company can be very many. And, obviously, from management, it is almost impossible to control everything and ensure perfection in daily operations. Hence, the need for an operational audit arises.

This is about the total or partial evaluation of the procedures of a business. But, to what end? With the aim of helping the management to eliminate the deficiencies, thanks to certain corrective measures

Also, thanks to the operational audit, a company saves a lot in costs, because the rapid detection of errors allows them to be corrected practically immediately and prevents them from affecting any process for too long. It is about preventing and acting on time, avoiding a situation or major problem.

The operational audit helps the management to detect and correct deficiencies in the business processes.

In short, through the operational audit, what is intended is to evaluate and assess how the activities are being carried out within the internal fabric of a company, if the resources are used properly and, thus, conclude whether the policies and procedures that are developed are acceptable or not.

The operational audit allows us to analyze and evaluate all decisions and strategies taken in the operations plan, with the development of the company’s production process.

Objectives of an Operational Audit

The operational audit is a great alternative to detect shortcomings in time and transform the activity of the company into a profitable process, which is ultimately what matters most to a company: doing more with the least amount of resources possible.

So, what are the objectives of the operational audit?

• Analyze administrative, managerial and operational aspects on which the appropriate modifications will be made in order to improve business operations.
• Identify which areas should reduce costs and support the processes with the greatest needs.

There are many companies that go wrong, but they do not know how to detect the reason. That’s where the operational audit comes into play. This will detect the weak point of the business with total certainty, establish the measures to which the company should be supported and, thus, finally achieve to overcome and successfully achieve their objectives.

Advantages and Disadvantages of Operational Audit

Regarding the advantages of the company being subjected to an operational audit, we find

• The company obtains an objective and realistic opinion. This will have important effects in the control of inventories in the short/medium term: increase in production, speed in sales (sales plan), cost reduction, etc.
• Long-term money savings it is a great investment, but with great positive results visible over time.

Disadvantages of Operational Audit

• It is a process that costs money; so many companies are reluctant or simply cannot afford it.
• It requires a relatively long period of time to complete since it is an analysis and exhaustive examination of the company’s operations with which to detect productive improvements.
• Difficulty in finding important deficiencies

Challenges of an Operational Audit

An operational audit, as envisioned by ARCAD, involves a review of the processes and procedures at the heart of the business, to analyze the performance and consider ways to improve.

An operational audit, according to a specific area of ​​activity, is organized in two phases:

• An analysis of the functions of the company in order to understand the functioning of the organization: At the heart of this phase, processes and procedures are identified and analyzed. Their correct application is evaluated. This phase also makes it possible to establish a matrix of processes and their interdependencies, for example, to avoid redundant processes.
• An analysis of the efficiency of the processes: This phase consists of analyzing the performance of a process by analyzing its revenues (direct and indirect) and its costs (direct and indirect).

Beyond these two phases, an operational audit will allow managers to have a better idea of ​​the overall performance of their company, a particular department, its teams, or the processes that have been put in place. From this vision of the company, recommendations can be formulated in order to reach a better level of performance.