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Operational Audits

What are operational Audits and what role do they play in your organisation?

There are generally 2 types of audits the compliance audits which are often reactive and after the event.  The operational audit are pro-active and consider both compliance and criticality of the situation.

The compliance audits that should be applied and in some organisations this comes under the “financial” audit – these are general “pass” or “fail”.  These are a requirement for generally the financial related control of the organisation/business.  However the critical audits from a management of the operations perspective are the audits that  include both manager and employees in conducting and analysing the results and referred to as operational audits – some accounting firms object to this name so you may find them referred to as Operational Inspections.

The operational audits are the proactive audits that provides the assurance that the organisation is doing what it says it should be doing.  If there is no documentation on what “should be” then it is difficult to audit.  A good organisation will have a Monitoring and Controlling framework and is like a tripod – “stable and can carry a good load”: a) Policy and Procedure framework, b) Service Level standards (Internal and External) and c) Operational audits.  These audits consider both the compliance and the criticality.  They probably exist in some form for say H&S and maintenance.

This should not only be for HR but across the organisation – a good Monitoring and Controlling framework will support a performance management system that empowers the employees and ensures an efficient organisation. If we find that there is no real P&P framework or what we have is a mix of P&P then the Service Level Standards (SLS’s) or Service [...]

Chief Executive Officer Assessments

If we are not empowering our CEO’s to manage their own performance then why are we employing them?

The organisations Strategic Plan (rollover) should establish both the short term and long term quantitative performance criteria both financial and non-financial. If these measures are established as envelopes then the Board can empower the CEO to manage their own performance and report performance against these measures at each Board meeting. If the measures are within the envelope then great work, if trending out then what is being done to fix the trend and if outside the envelope “where is the board paper to escalate the issue”.

If the CEO has to wait to be informed of their performance then the performance framework is not adequate and the companies “good governance” may be in question as this framework will incorporate the corporate risk. The CEO must have both short term (annual) and long term measures as this is why we employee a CEO to shape the organisation long term as well as manage and lead it for today.

Maxumise is highly experiences in developing CEO competency profiles, recruiting CEO’s and assessing both the performance and the competence of the CEO’s and executive teams.

We recently assessed a CEO that the Board had appointed just over 12 months before and was not meeting the Boards expectations. When we reviewed the position description that was used to recruit the CEO the competence levels were well below what we expected for that organisation and Board expectations. The HR Sub committee chairperson who developed the position competency profile and facilitated the recruitment was themselves well below the competence of the CEO and clearly demonstrated that they did not understand the requirement’s – we refer to this [...]

Performance Management & role of BSC

The Balanced Score Cards has been around a long time and seems to go through resurgences and corresponding declines over time. There is nothing wrong with the balanced score card approach as a tool but in the modern world of human capital management it is no longer the end program. Today organizations need modern quantitative and integrated programs that recognizes the value of the human resources at all levels i.e. traditional employee relations through to business market capitalization.

A kit-bag of separate non-integrated tools is not going to deliver the human capital management solutions we are seeking. When balanced score card was developed we had a host of personnel programs that were anything but integrated and supportive; these included the performance appraisal (which was enhanced when BSC was introduced), old “job” evaluation that reinforced the incremental system, numerous instant recruitment and selection tools, incentive programs and the list goes on. Other than the fact that this were separate and sometimes conflicting tools, the key drawbacks were that firstly they focused more on what was being done rather than adequately defining what is needed as an ideal contribution or need. Secondly they were not strategically driven, outcome based i.e. they were focused on achieving the activities rather than producing an outcome that contributed to the organization in a defined way. The integrated HCM is often missing and therefore we do not get the alignment between the organizational needs and the people, whether new recruits or existing employees developing along with the changing needs of the organization.

Performance management is about defining the outcomes and then identifying the controllable measures against those outcomes which applies whether we are looking at the strategic direction over the next 5 years [...]

Competent Managers Key to Business Success

Case Study – Business will only succeed if we have competent managers and employees.
The performance management system will fall down if we do not have competent managers and employees. It is essential that the organisation develops the position specification, based on the organisation strategic objectives, before we consider the employees or applicants. If not the organisation could just be reinforcing the past behaviours and practices.
Understanding both the Position first then the Employee
A quantitative performance management system, when integrated into an outcome-based competency approach, is certainly a means of identifying competency shortfalls of employees at all levels including managers, CEO and Board. It is the organisations that are prepared to address these shortfalls that will develop and grow. We have recently been commissioned to undertake the assessment of senior managers in a medium sized organisation one of its subsidiaries.
The commission was to design 17 ideal positions based on the organisations strategic direction for the next 3 years.
Assessing the Competence of the Incumbents against the Ideal Position
The next step was to assess the 19 incumbents against the ideal competency profiles using an outcome based competency approach. The findings were frightening (see the graph below):
1. 17 of the 19 assessments failed to reach the required level i.e. only 2 incumbents were fully competent against the positions they held and were being paid to do.
2. Five (5) incumbents were more than 10% under the required competency level and the most incompetent was 18% under capacity.
3. The average gap was 8.6% i.e. the organisation had managers that were on average 8.6% “under power” but some managers nearly 20% under power/under competent.
4. Performance of the functional areas broadly reflected the competence of [...]

Human Resources are True Assets

The value of the HR asset can be calculated and an increasing number of organisations are putting the HR assets onto the balance sheet, although currently only as a balance sheet note, but it is still used and reported on. In the valuation of our company the HR assets explains the gap between book value and market capitalisation, and that gap is made up of human capital and other intellectual capital.

This places the focus on increasing the value of our people and to do this we need to define the structures and positions correctly incorporating a performance management system that empowers the employees; letting them produce the outcomes using initiative and innovation. This will progressively increase the competence and therefore increase productivity i.e. an increase in HR asset value.

To be in a position to allow the organisation to place the HR on the balance sheet (Note) the organisation must have a clear strategic direction/focus, be outcome focussed and the key HR programs must be integrated:

  1. Strategic Planning – current and future capability and performance frameworks;
  2. Structure Management;
  3. Role design (size) and position evaluation – a precise form of the old outdated “job” evaluation e.g. point-factor
  4. Employee Management; management of an incumbent’s performance achieved against the performance set in the role description
  5. Performance Management system;
    • The performance measurement envelope – target, high stretch and danger
    • Performance achievement management – predictive modelling and performance reward calculations
  6. Recruitment and Assessment – acquiring and matching people against role design;
  7. Learning and development based on competency gap
  8. Strategic Reporting including HR asset value as a “balance sheet” note.

Maxumise is a consulting company with over 20 year history of Assisting Organisations Improve their Performance through the better management of resources, particularly human resources.

Maxumise provides a Human Capital Management methodology as well [...]

Performance Reward should not impact on Base Salary

The performance pay should not influence the base salary at all; the old “job” evaluations used to confuse perceived performance with base salary increases through the old 85% to 115% model. This approach was fundamentally flawed for many reasons including; good performance in one year does not guarantee on going above and beyond normal performance in subsequent years and therefore bonus plus pay increase is double dipping. Also the concept of incremental increases certainly would not constitute equal pay for equal work.

Base Salary is calculated for the position say Position A = $95,754 and when there is an appointment made the individuals are assessed and valued (assessed if promoted internally and/or recruited externally). At the time of the appointments the organisation will know the individual value against the ideal designed position (contributing element of the structure). Say 2 appointments are made one might match the idea competence (Incumbent 1 to Position A) and get the $95,754 base while the other (Incumbent 2 to Position A) may not have all the competence (but had potential to develop) and they would be appointed at their assessed base salary of say $89,346. Note: the Letter of Offer should have contained the Learning and Development plan. Allowances, negotiated amounts etc are adjustments to the calculated base salary and should be dealt with as an additional line and not alter the base salary. In say 12 months you would re assess Incumbent 2 and they may now be fully competent and be entitled to the ideal base salary which is now $95,754 plus any market increases that has occurred.

Performance reward should be again set up using a quantitative, envelope process where the individual can be empowered to manage their [...]

Harvard Business Review LinkedIn Reduction of productivity in organizations

Improving Organisational Productivity

After a lot of comments in LinkedIN on factors that effect productivity, at what we would call micro level relating to specific leadership/supervision and management practices (which is relevant), Maxumise felt it was time to elevate the issue to what we see as initially strategic, organisational and structure issues including defining the ideal contribution – 13th May 2014 Maxumise Consulting Pty Limited responded: At the macro level this is a strategic and organisational issue not an individual or even departmental issue. We find the biggest constraint on productivity is the lack of a well-defined structure including the definition of the “contributing elements” i.e. position descriptions. The definition of the position must include the Outcomes (not a shopping list of poorly defined activities or tasks); quantitative Performance Measures (which empowers the employee when we appoint them) and then we can define the outcome based competency (and attributes) needed to produce the outcome at the standard specified by the performance measures. Now we have a comprehensive specification to recruit against or assess the existing employees. A case study we undertook for a retail group which started with defining the positions in the outcome based competency approach and when we assessed the top 19 managers only 2 were competent but half had been recruited in last 3 years against a “gut feeling” of what they wanted, not a quantitative and definitive system – they put more effort into buying a photocopier than they did designing what they needed before recruiting a departmental manager reporting to the CEO. Yes the right structure and capabilities needed are dependent on a clear strategic direction and understanding of the corporate risk. The bottom-line is, if you do not have the [...]

Human Resources for Retail Sector

The retail sector must have competent human resources to provide results in a highly competitive environment.  Read more in our detailed PDF provided here:

Retail World Article June 2013 Maxumise HCM