In a previous article, I wrote about the 3 Ways to Know Your Audits Have Zero ROI. In this article, we’re discussing the 3 Ways to Know Why Your Audits Have No ROI. The process is straightforward. Return on Investment is just a fancy way of saying that the actions result in more significant or meaningful value.
Audits have value. They inspect, test, and summarize important information. Financial audits are clear evidence that the C-Suite and Board Members are not opposed to reviewing audit details.
Operational audits are a bit different. Not because they can’t provide critical operational and performance information, but most often because they fail at three things. And these three things tell you exactly why your audit isn’t perceived as providing a critical return on the investment.
1. Scores don’t predict risks: On a financial audit, if the result is a negative net operating income, then executives immediately understand that they are working at a loss, and to continue to do so means the entire business future is at risk.
Do the scores on your operational audit provide any risk prediction? Do low scores predict increases in loss? If your audit score doesn’t accurately predict risks, if there is very little difference in outcomes between locations with 90s and locations with 70s, that is a core reason why your audit doesn’t have a perceived ROI.
2. Scores don’t correlate to other results: Let’s return to our imaginary financial audit. The net operating loss relates to two numbers; Operating expenses and revenue. When we’re operating at a loss, we know that the costs to run our business are too high for the amount of revenue we earn.
Do our operational scores correlate to any other performance metric? Does a low audit score correlate to sales? Do high-scoring stores enjoy less turnover? Can you see a connection between score ranges and loss, waste, or cash issues?
If the answers are “no,” we’ve discovered a reason for the perception of the audit’s value.
3. Scores don’t have intrinsic meaning: If the CFO tells the Board or Investors that net operating income is a minus twenty-five percent, everyone at the table agrees on what that means—we’re in a cash crisis.
Does your overall audit score carry any meaning? Is there a general understanding as to the importance of any particular score? Like predictors and correlations, the score should have a purpose; it should tell a story all in itself. The organization should also know if that score is “good, bad, or just okay.” The problem with finding meaning is that operational audits can be subjective depending on who executed them. And that subjectivity leads to inconsistent scoring, which renders any single audit score slightly unreliable.
In summary, your audit will lack perceived ROI if the scores don’t predict something, correlate to something, or tell a story. As we saw in the first article of the series, these problems mean the audits won’t get much attention and won’t create positive change.
In the next article, we’ll deliver a bit of good news by sharing the three ways to create an audit that demonstrates a return on the investment.
About the Author
Raymond Esposito is President of Loss Prevention & Compliance for HS Brands Global. He has over 30 years of loss prevention experience and has spent the past two decades building premier LP outsource programs for some of the world’s most well-known brands. He has worked with over 130 retailers within the department store, specialty, restaurant, grocery, and pharmacy industries in the US, Canada, and the United Kingdom.
His articles and interviews have appeared in various magazines and on radio, including Security Source Magazine, LP Magazine, Family Circle, and Small Business Radio.
