A significant struggle for every internal audit department is how to measure success. Now, this should be easy. As we have all heard way too many times, you get what you measure. So, the quick solution for any internal audit department is to figure out what it wants, and then start measuring it.
But, there's a problem. As much as we would like to have objective measures, the success of internal audit is very subjective. When you really start to explore how internal audit succeeds, it is much more about attitudes and buy-in than it is about dollars, hours, and Facebook likes. Nonetheless, most internal audit departments base their success on objective but questionable measures such as utilization, audits completed, corrective actions implemented, timely completion of audit work, etc., etc., etc.
These are all well and good. Yes, I understand how they relate to the subjective successes we are looking for. But they are far too internally focused.
The real road to measuring success starts by asking your stakeholders this simple question: "How do you know I have succeeded?" The development of measures of success starts right there.
However, even if you talk to your customers and come up with customer-centric measures, and you continue to use the internal measures you've developed, you are still only seeing a part of the big picture. Because that picture of success is painted from a broad spectrum of colors.
One of the most effective approaches I have seen is rooted in something that came up in the '90s, was wildly successful, and, as far as I can tell, has fallen by the wayside in favor of other flavors of the month.
That is the balanced scorecard.
And if it has, indeed, fallen by the wayside, then more's the pity. Because, when used as intended, it is as solid an approach to success measurement as anything out there.
I'm just going to give you a quick overview because there's quite a bit to the concept. But if you want to know more (and, trust me, you want to know more), I'd say start with the book that was one of the first to describe the process and helped get the movement going, The Balanced Scorecard by Robert S. Kaplan and David P. Norton. Written in 1996, it is as relevant today as it was back then. Every one of the principals still makes sense and can be used, effectively, in today's world.
The concept of the balanced scorecard is to find the various aspects that make up success (as defined by vision and strategy) and provide a balance in the way they are measured so that all aspects of success are considered together without overemphasizing any one area. There are a few approaches, but one of the most common (as described by Kaplan and Norton) is to split the measures of success into four categories — Financial, Internal Business Process, Customer, and Learning and Growth.
Now, think about the way we measure success in internal audit. The preponderance of measures (see the examples I used above) are in the financial and process categories. Maybe we throw in one measure for customers if we actually use customer surveys. And maybe we throw in a measure for learning and growth — something about the number of hours of training. But look at the preponderance of measurements. They skew in one or two directions.
What brought this all back to me was a recent article from Inc. titled "11 Essential HR Metrics That Every Organization Should Know." My first thought was that this might be a good basis for internal audit's review of the HR department. And then I went to the dark side and started thinking, "Auditor, audit thyself."
And that is the topic I really wanted to talk about — the one for which I have run out of time. So, for those thoughts, you'll have to join me next Friday.
Until then, think about the way you measure your success. And ponder just how balanced those measures are. And maybe you dust off the old books about balanced scorecards and begin wondering what measure you are missing that tell a true tale of the department's success.