Referred article from Clayton Hickey
In a recent blog post our Sydney Assurance Partner, Scott Tobutt, wrote about the importance of risk management in the governance apparatus of your business, its impact on strategy, and practical steps towards implementing a risk management system.
The operating systems of a business are a key part of the framework which underwrites the ability to effectively manage risk. Integration, robust control, and oversight capability are key to the ability of the operating system to play its part in risk management.
The problem in action
I recently visited a business and had a discussion about their operating system – rather, “systems”. This business had separate systems for:
- Point of sale
- Fixed assets
At the end of each month the information from these systems was transferred to another separate system, being the accounting system. At least 30 separate spreadsheets were used to affect this transfer of data from these five systems to the accounting system.
Importantly, all the data from all of these systems is required to come together in perfect synch and harmony so owners can analyse and act on it.
Six separate systems all working independently to produce a single set of information – sound familiar?
Ironically, this situation is typically a result of growth and success. That is, businesses who experience rapid growth often do not attend to their “house-keeping”, including updating systems and related technologies to keep pace with growth.
Another example is when an acquisition is undertaken, and the operating systems and processes of the acquiree are not integrated with the platforms of the purchaser. The problem grows as further acquisitions are undertaken.
The pursuit of growth is a strategic imperative for most businesses, however a failure to maintain investment in your systems will bite hard down the track, and create considerable cost, inefficiency and frustration.
The costs and risks are high
The number of issues created by a lack of system integration are many, and their impact severe:
- Resource waste and unnecessary labour costs;
- Manual and duplicated process;
- Heightened risk of fraud through a lack of automated integration and double handling. Many fraud studies identify this as being a major cause of fraud in Australia;
- Inability to implement efficient and effective monitoring and oversight controls; Risk of mis-statement and/or omission in financial information;
- Impact on business saleability – purchasers typically seek acquisitions which can be easily streamlined and integrated into their own businesses; and
- Sustainability impacts – continued pressure placed on outdated systems through growth will result in poor customer service, reputation damage, and a loss of income.
Generally, it is only after an issue or catastrophic event of some kind is encountered that system work is “back-filled” to get it working at the level it should be, if it’s not already too late.
There are some simple steps which can be taken to avoid the high cost of under-investment in systems:
- When establishing your growth plans, complete a resourcing plan and process map beside it. The resourcing plan is not just about people, and should focus on ensuring your business has the systems in place required to support planned growth.
- Be risk aware and map the capability of your systems to mitigate identified risk.
- Consider the benefits of an integrated solution, or ERP (Enterprise-wide Resource Planning). This doesn’t mean a “big-end of town” solution and prohibitive spend. There are many ERP solutions on the market tailored to growing businesses in the SME sector.
- Invest in training your people. This will mitigate key person dependency and assist in breeding a culture of innovation and improvement.
- Incorporate a level of external assurance and oversight. This doesn’t mean a full program of internal audit, but rather having a systems expert “pop the bonnet” of your systems annually, with a focus improvement and efficiency.