Organizational Function Audit: Assessment of Human Resources, Processes, and Structure

It is possible that you have not yet encountered an organizational function audit and may not have a full understanding of what it really means, what it can offer, and what potential benefits it could bring. In brief, a function audit is a systematic and objective evaluation of a company’s internal processes, structure, and resource utilization. Its goal is to assess how effectively the organization carries out its functions, identify areas for improvement, and eliminate unnecessary or redundant processes.

·    Human Resources Audit (evaluation of employee competencies in relation to job duties, assessment of employee engagement and satisfaction, evaluation of motivation and compensation systems, etc.);

·       The process and structure audit (effectiveness of internal processes, distribution of tasks and responsibilities among departments and employees, prevention of function overlap, etc.);

·       Financial audit and resource management assessment (budget planning and expenditure efficiency, opportunities for resource optimization, etc.);

·       Technology and innovation audit(Evaluation of the effectiveness of IT systems and digital solutions, innovation opportunities, etc.);

·       Risk management and regulatory compliance audit (analysis of risk management mechanisms, assessment of compliance with various requirements such as sustainability, GDPR, ESG, evaluation of the company’s operations in accordance with regulations, etc.);

·       Customer and service quality audit (evaluation of customer satisfaction, service efficiency and quality, customer feedback, etc.).

The possibilities and directions of function audits are diverse, so it is crucial for the organization’s management to clearly understand the organization’s needs, goals, and expected outcomes.

This process can be carried out either by the organization’s internal team or by engaging independent external experts. However, it should be noted that by involving external experts, it is possible to ensure greater objectivity in the results and an “outside perspective,” as well as avoid requiring internal staff to invest their time and resources in such a complex and labor-intensive process. In our practice, we have conducted various human resources, process, and structure audit projects, and I would like to share some key nuances, recommendations, and conclusions specifically in the direction of these function audits.

Human resources audit (often referred to as an “HR audit”) is a systematic and objective evaluation of an organization’s human resources management and processes. Its goal is to identify strengths and weaknesses, improve personnel management strategies, and ensure HR processes align with best practices. Typically, the aim of an HR audit is to analyze how well the personnel systems support and promote the achievement of the company’s strategic objectives, as well as to identify deficiencies in personnel management processes and determine potential improvements for future actions. The main areas for this type of audit are:

·       Organizational culture and employee engagement level

o   Do employees feel engaged? What is the level of motivation within the company?

o   What is the organizational culture like? How does it impact job performance – does it enhance or diminish it?

o   What is communication like within the company? How do managers communicate with employees? What do employees and managers think about it?

·       Employee attraction and recruitment

o   Is the organization’s recruitment process effective and objective?

o   What methods are used to attract the best talent and managers? Are they the right and most effective ones?

o What principles are used for candidate evaluation?

·       Compensation and motivation system

o   Is the organization’s compensation system (structure) competitive and in line with the market situation?

o   What are the motivation and benefits systems? What are the potential improvements?

o   How are bonuses and incentives paid out? Is this process fair and transparent?

·       Performance management and evaluation

o   What are the methods used for employee performance evaluation? Are they clearly defined?

o   How do managers provide feedback to employees? Does it promote development or reduce motivation and productivity?

·       Training and development

o   What actions indicate that the organization invests resources in employee professional development? What are the training programs available?

·       Human resources management documents

o   Are all necessary human resources management documents (employment contracts, policies, agreements, etc.) in place?

o   How are the documents stored? Do they comply with data protection regulations?

By conducting this audit, the organization has the opportunity to understand and evaluate its organizational culture, what employees think about it, the level of motivation, and whether employees feel a sense of belonging to the organization. Additionally, this evaluation can provide an opportunity to improve work efficiency, increase employee engagement and satisfaction, promote a sustainable human resources strategy, and possibly reduce and optimize costs related to personnel management issues.

In our practice, human resources audits are carried out by both public sector organizations and private companies. Often, this is necessary when the company realizes that something isn’t working as it should, but it’s unclear exactly what the issue is. Additionally, there are situations where the company is already aware of potential problems and wants to resolve them, but it is not possible to do so on its own due to a lack of professional expertise, knowledge, and time resources to carry out the task.

In today’s dynamic business environment, it is crucial for organizations to effectively utilize their resources, regularly review and optimize operations, and eliminate inefficient or duplicate tasks. This type of audit makes it possible to achieve these goals by helping to identify shortcomings, improve workflow, and establish clear distribution of responsibilities, roles, and duties among employees and different departments. A process and structure audit can be conducted for a specific department within the company or for the entire organization, depending on the needs and available opportunities.

For example, if a department in your company starts complaining about a lack of resources to complete assigned tasks, or if customers are complaining about missed deadlines, a process audit can be conducted to identify the causes of delays and find solutions. It is crucial to answer questions such as – What is the efficiency like? How is the communication between different departments? How is the communication with clients? What is the workload of employees, etc.?

However, if a situation arises where the IT department expresses dissatisfaction about a lack of workforce, a structural audit can be conducted to understand whether (1) the IT department truly lacks manpower or if resources are being used inefficiently, (2) there is a clear distribution of roles and responsibilities within the department, (3) processes are happening systematically or chaotically, (4) how the manager delegates tasks, and (5) other critical factors.

This type of organizational function audit provides an opportunity to obtain answers to many important questions, such as:

·       Does the organization’s structure align with the company’s strategy and goals?

·       Are employee responsibilities and duties clearly defined?

·       Is there any overlap of functions or insufficient collaboration between departments?

·       Is the company’s hierarchy effective?

·       How are workflows and decision-making managed?

·       Is the decision-making process fast and transparent?

·       Are technologies used to reduce manual work and improve efficiency?

·       Is there effective internal communication within the company?

·       Is it possible to reduce costs without sacrificing quality?

·       Are employees adequately trained to work with new technologies?

As a result, it is possible to achieve better long-term resource utilization, faster and more efficient decision-making, reduced costs, promotion of company development, identification of the company’s strengths and weaknesses, as well as the identification of potential activities or functions that need improvement.

The first option for conducting a function audit is to do it in-house, for example, by a professional from the HR department or another competent employee. To conduct a human resources, process, and structure audit, it is important to follow a systematic approach, even if it is being carried out by someone without prior experience. First, the audit’s objective must be defined – whether it is improving efficiency, optimizing costs, or reorganizing the organizational structure. Then, information should be collected by analyzing company documents (organizational structure, job descriptions, processes, policies) and conducting employee surveys and interviews. The human resources audit involves evaluating employee competencies, workload, and the motivation system, while the process audit focuses on task execution efficiency and potential improvements.

Once the data has been collected, it needs to be compared with best practice examples or industry standards, and other companies if possible. Key issues should be identified, such as overlapping functions, slow or manual processes, insufficient employee qualifications, or unclear responsibilities. In conclusion, an improvement plan should be developed with specific recommendations and action steps.

The second option, which I believe can provide much more valuable information, analysis, and recommendations, is to entrust this task to external partners who will conduct the research and analysis, involve the company and its employees, and provide recommendations based on best practices and well-founded, objective conclusions. By entrusting the audit to a partner, the company’s owners and managers will gain an analysis and overview of the real company situation, as well as practical steps and solutions for what to do next with the obtained information and conclusions.

Based on ASTRAL Executive Search’s experience in conducting various function audits, I have compiled the key conclusions and recommendations:

·  The foundation of everything is a clearly defined audit objective: the more precisely the objective and need are formulated, the more accurate the results and potential improvements will be. This includes, when entrusting the audit to external partners, it is important to know whether there are any “additional” objectives for the audit.

·  Conducting an audit just for the sake of formality will not provide the necessary improvements and process enhancements.

·  When starting an audit, it is especially important to communicate it to employees. Explain its objective, the expected results, and how the process will unfold, to avoid misunderstandings and negative attitudes.

·  It should be expected that the conclusions drawn from the audit may not always be flattering for the company, including for the employees. By conducting a thorough audit, it is possible to assess employee competencies and identify which employees may be less capable or have lower competencies, which may lead to employee rotation, replacement, or skills development.

·  It is crucial not only to conduct the analysis and audit but also to involve management and employees in the implementation of changes to ensure practical and sustainable improvements.

·  Regular auditing ensures that the company maintains its competitiveness and is able to adapt to dynamic market demands.

In summary, I believe that the organizational function audit acts as a company’s navigation system in the vastness of the galaxy, helping management make accurate and strategic decisions. It serves as a star map that guides efficiency directions and prevents chaotic actions, ensuring sustainable growth and adaptability to the changing business landscape. In the long run, it creates a structured and well-organized system where every team and function works in harmony, improving both employee productivity and customer experience. Instead of spending energy on disorganized processes, the company gains a stable course, allowing it to evolve and adapt to any changes.

References:

·       ASTRAL Executive Search, https://www.astralexecutive.com/services/organizacijas-funkciju-audits/

·       SHRM, https://www.shrm.org/topics-tools/news/hr-magazine/how-to-conduct-hr-audit

·       Access UK, https://www.peoplehr.com/en-gb/resources/blog/hr-audit-process/

·      HR University, https://hr.university/shrm/hr-audit/

·      Indeed, https://www.fm.gov.lv/lv/media/20751/download?attachment

·       World Economic Forum, https://www.weforum.org/stories/2015/09/why-getting-directors-on-board-with-risk-management-matters/

·       AGH, https://aghlc.com/resources/pillar-pages/hr-audit-guide.aspx