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​Value Through Quantification

Showing the net benefits of implementing audit recommendations can be a great service to clients.

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A review of publicly available internal audit reports shows that most include qualitative assessments of value addition, even where quantitative assessments seem possible or advantageous. In fact, some audit reports show that an assessment of the audit recommendations’ net benefits had not been performed at all. Without a quantitative assessment, in many instances auditors cannot be certain their recommendations add rather than destroy value. While qualitative assessments are useful for analyzing simple issues, they could be misleading if used for complex, high-risk, or novel situations. Internal auditors should quantify recommendations applied to these types of areas — especially when aimed at improving processes or aligning with best practices.

Without quantification, auditors run the risk that seemingly beneficial audit recommendations may in fact be ill-advised. By using a qualitative assessment, especially one that is not adequately documented, an auditor could miss interdependencies and ignore relevant costs, thereby overstating net benefits. For example, consider a recommendation intended to improve transaction processing efficiency through a system enhancement. On the surface, such a recommendation would appear to create value. But what if over the lifetime of the system, estimates of benefits associated with processing-time savings totaled less than the cost of implementing and maintaining the enhancement? This drawback would not be apparent without quantification of benefits.

Quantifying also provides an effective way of getting buy-in from audit clients. Often, client inertia or resistance increases if recommendations provide questionable or unconvincing value. Clients may raise legitimate concerns about why they should dedicate scarce resources to recommendations whose value is unclear. By demonstrating quantitatively that the value addition is positive, audit client buy-in would be more forthcoming. 

Additionally, quantification can help auditors provide assurance when recommendations involve unchartered waters for clients. In other words, audit recommendations may be untested in the specific environment in which they are to be implemented. Gaining reliable insight into the real net benefits can be difficult using only qualitative assessments, making quantitative data in such instances a
near imperative.

Lastly, when auditors provide quantified recommendations, they can better demonstrate the value of their work by tracking benefits realized post-implementation. With quantified net benefits of individual or aggregated recommendations, auditors could harvest the quantified data showing their recommendations’ impact on specific processes and functional areas, or at the entity level. 

Under the right circumstances, a strong case exists for demonstrating the value of audit recommendations quantitatively. When used appropriately, quantification can shine a bright light on audit benefits, rather than leaving clients in the dark.  

Solomon Chief Simutowe
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About the Author

 

 

Solomon Chief SimutoweSolomon Chief Simutowe<p>Solomon Chief Simutowe, CIA, CRMA, CISA, FCCA, is a senior internal auditor at an international organization in The Hague, Netherlands.​</p>https://iaonline.theiia.org/authors/Pages/Solomon-Chief-Simutowe.aspx

 

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