The following article is part of our blog series the "The Future of Audit" What is the reason for an in-depth confrontation with this topic you might ask?
We at zapliance are a team of auditors, scientists and developers and we have noticed over the past few years, that the general conditions of auditing are changing in an incredibly fast pace.
As a result, the steadily increasing amount of available data means that a holistic and valid view of the risk/opportunity perspective is becoming increasingly difficult without the support of partners within the organization.
In other words, this forces the auditor to reevaluate his own strengths and weaknesses, as the cooperation with partners requires personal competencies, that auditors until now did not have to rely on (You can find our main article, that discusses the aforementioned points in more detail here).
Our blog series about individual competencies supports auditors to reconsider and reflect their normal practices, to become even more successful in the future. Have a go and try it out!
My name is Alexander Rühle and I have been a passionate auditor since 2006 and have been the CEO at zapliance for 5 years by now.
In my last blog article, I touched on the highly discussed topic of “Agile Auditing”.
Today I will go a little further into the subject and discuss a special methodology often used in agile auditing – the OKR method, which we at zapliance have been following regularly for several years now.
The OKR method – not a trend, but a successful model that is decades old.
So first, what does OKR actually stand for?
The three letters stand for Objectives and Key Results and describe a management system with which goals are set at relatively short intervals (usually 3-4 months) and measured using key performance indicators.
But anyone who thinks the OKR method is just another new trend that is not going to last, is wrong.
The OKR method was developed as early as 1968 by the Co-Founder of Intel, Andrew Grove, who introduced it in his own company and therefore marked the beginning of a worldwide success story.
Nevertheless, the OKR Method only became really well known when it was used by Google, where it has been in constant use since 1999.
Important to know:
The OKR method is not specifically designed for auditing.
This does not mean, however, that it is not suitable for auditing.
On the contrary:
the OKR method is also highly relevant for auditing.
In my opinion, the multi-year plans that auditors have made in the past are outdated:
the never-ending flood of data with which auditors are confronted today and even more so in the future, makes long-term planning over many years impossible.
So, the wealth of available data allows us to uncover problems and potential savings much faster than just a few years ago.
At the same time, the need for taking action in the short term is trending.
Keep up in time to make it work.
There is no question in my mind that auditors will have to adjust individual measures and objectives more frequently, both now and in the future.
Surprisingly the OKR method has only been adopted by a – in my opinion – small proportion of audit departments.
In this article I would therefore like to take a closer look at the OKR method and show where it can be useful, specifically for auditors.
But how does the OKR method actually work?
The idea behind it is simple:
objectives decided by managements are broken down into small steps and transferred directly to the management, departmental and employee levels.
This means that managers, departments, and employees agree on individual goals, so-called objectives, as well as associated concrete key results, at regular intervals (for example at the beginning of each quarter) – and review them at the next meeting.
Even though the planning timeline is usually 3 months, the OKR methodology also allows annual OKRs to be broken down into quarterly OKRs to work flexibly towards annual target.
The good news for auditors: OKRs can be measured.
Basically, all areas in which auditors offer their companies added value can be chosen as targets.
As a recent study by Eulerich and Lenz (202) suggests, this added value lies in three areas according to a large-scale survey:
Auditors support their companies as GRC partners in the areas of governance, risk, and control on the one hand, and as trusted advisors on the other hand.
The third and last function of the auditor is seen as value driver.
But the study by Eulerich and Lenz also provides important information regarding possible key results.
It also examines the measurability of the value added by auditors.
widely used methods and tools to measure the added value of auditors include key performance indicators, external quality controls, and surveys among key stakeholders.
Perfect for defining key results.
OKRs require courage, but it’s worth it: Transparency at work.
Naturally, the next question would be, how is the OKR method implemented?
It works as follows:
all employees of a company of a department sit down together at the agreed intervals not only with their managers but also with their colleagues.
On the one hand they discuss what has been achieved in the last few months and on the other hand what is to be achieved in the upcoming months, both at individual and group level.
Ask yourselves, which contribution each individual or group OKR makes to the departmental OKR?
The defined OKRs are then entered into a software and can be accessed and viewed by each team member.
The important thing here is that the OKRs are always selected very ambitiously in order to motivate those involved to perform well.
At the same time, it is not a matter of achieving these goals a 100% - if 70% of them is achieved, one usually speaks of a success.
For the internal audit, the work with OKRs could look as follows:
Together with the management, the audit department sets the goal that the satisfaction of the departments with auditor’s work should increase.
The objective here is to increase the satisfaction by, for example, 30% in the next two years – this is measured by a survey of the department heads.
Long-term goals require time – as well as the OKR method?
In the next step the auditor team defines their own goals and key results.
This could look like this for an audit team member:
It’s very likely this auditor works with different departments, which all have different ideas about how this cooperation could look like and, as a result, have different levels of satisfaction with the auditors.
His goal is therefore to increase the satisfaction of his work from all the departments he deals with.
Since instruments to increase satisfaction must first be implemented and experience shows that their effectiveness takes time, the quarterly objective is set rather low:
In the first quarter an increase in satisfaction in all departments of 5% in total.
The O for Objective is therefore to increase the satisfaction of the departments.
Objectives should always be described qualitatively.
The measurable key results, which can lead to a 5% increase in satisfaction, are set next.
For example, one key result could be to meet with each department at least once a quarter to have an “ear” for the stakeholder.
This is an easy way of exchanging information with the department and meeting the quarterly objective.
In addition, a quarterly meeting is also measurable and realistic.
In is important not to be overly optimistic about key results, so that the key result is achievable.
A monthly meeting with each department may be too optimistic, as all departments have full schedules.
It is also questionable what added value a monthly meeting would have.
So here it is important to ask yourselves:
Are the key results realistic and relevant?
This question also helps to better define the key results.
Of course, it is also possible to set several key results per goal.
Here it is also possible to divide the responsibilities of the audit departments into key results, which additionally improved the motivation and the team spirit of the own department, but, more about this later.
At the heart of the OKR method: Communication.
When objectives and key results have been worked out together with all employees, everyone sets off to work to achieve them.
After three months, the participants then sit down together again and discuss the status of their work.
In such discussions, it could then become apparent that the survey of department heads showed a 4% increase in satisfaction after three months.
This means that the quarterly objective achieved is slightly below what was targeted – typical for the OKR method.
The reason given was, for example, that a one-hour meeting was not sufficient to include both the discussion of the past quarter and the planning of the next quarter.
A concrete and constructive feedback on how to improve the meetings in the next quarter.
Looking back at the OKRs is therefore so important in order to set the OKRs for the next quarter.
As a department you therefore need to discuss what went well and what you can improve in the next quarter.
Furthermore, you also have to review what was not achieved and where the obstacles were that need to be removed.
Small steps, big effect.
Following this method, medium-term goals and key results for the next quarter can be adjusted and long-term goals can be further developed in smaller steps.
This tactic of “small steps” has the advantage that goals never become unattainable, but always remain realistic.
However, there are several other advantages that make employee’s work easier.
Nevertheless, challenging might seem convincing the team to adopt a new and unfamiliar method, which at first glance may appear to exert pressure because of its transparency.
Of advantage is for example, that the small-step structure means that employees are no longer exposed to the great pressure of long-term, abstract goals.
Because goals are now concrete – this increases motivation and helps not to lose focus.
At the same time, employees now not only know the department’s main goal, but always know what their colleagues are working on.
This prevents colleagues from accidentally working on the same things without knowing about it.
It also makes it easier to coordinate with each other and the feeling of working together on the “big picture” increases motivation.
Not to be underestimated:
the increased personal responsibility may be initially perceived as scary obstacle for the individuals.
Bus as several colleagues have already told me, this impression quickly turns into the opposite.
After all, the increased personal responsibilities go hand in hand with the feeling of really being able to change something.
So, it is not uncommon for OKRs that are initiated by individual employees to bring about massive success for the entire company.
A nice side-effect is the closer cooperation with the specialist departments.
But for the audit department the OKR method has another advantage today and especially in the future.
The key word is teamwork! As I already mentioned in my editorial on the auditor of the future, cooperation with specialist departments will become increasingly important for us auditors in the future.
And OKRs can make an important contribution to this. Because, as already described in the example, OKRs should be defined together with the specialist departments.
In this way, it is made clear right from the start of a project that the OKRs can only be achieved together as a team.
This is an important message for the specialist departments, since experience shows that they often try to avoid the cooperation with the auditors.
Every beginning is hard – but it’s worth it.
The advantage of the OKRs is not only that you work together as a team – but also that it is done with a high intensity.
Because of the short intervals at which OKRs are checked and adjusted, close cooperation between the specialist department and the auditor is necessary.
The good thing about this is, that even if the cooperation is difficult in some cases at the beginning due to a possible reluctance of the specialist department to work in this type of teamwork, in the long run a certain routine will most likely establish itself.
This strengthens the relationship between the auditors and the specialist departments and helps to ensure that information can be exchanged more quickly and used more effectively.
This tight schedule and close coordination also prevent projects from running into the ground.
Sounds good, doesn’t it?
After reading this article you should now have two things to take with you:
What the OKRs are basically about – and why this method is particularly suitable for us auditors.
What you don’t need to understand 100% right away is how the details of the OKRs work out – for example the number of OKRs selected per employee, the different types of software to make the OKRs open to everyone or the design of the thin line between employee and company goals.
The good news is that there is a lot of reading material, also on the internet, to get a deeper understanding of the topic.
So, do it like Google, Zalando or MyMuesli – and just try the OKR method. It is definitely worth a try!
Eulerich, M. & Lenz, R. (2020). Defining, Measuring, and Communicating the Value of Internal Audit. Lake Mary: Internal Audit Foundation.
About the author:
Alexander Rühle, CAI, CISA, is the CEO and CO-founder at zapliance. After 15 years in the finance and auditing world and having met his partner in crime, Prof. Dr. Nick Gehrke, at PWC, they started zapliance together, with the mission to change the way business professionals of the future work with data.