Notable Friday Chat: Fraud Risk Management

Happy Friday! I hope you’ve had a great week. With that said, I want to leave you with a short message about Fraud Risk Management. Until next week, have a wonderful weekend and remember, “Success is continuous improvement”!

 

“To minimize fraud risk, top management must be committed to a Fraud Risk Management program, implement visual controls and employee guides, have clear reporting procedures and whistle-blower protection, have an efficient investigation process, and most importantly, translate policy into daily activities.”

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Preventing Process Failure with FMEA (Failure Modes & Effects Analysis)

FMEA (Failure Modes & Effects Analysis) is a Lean Six Sigma technique for identifying both the ways that a product, part, process or service can fail and the effects of those failures.Once these failure modes are identified, they are rated by the severity of their effects and failure probability. This is critical to the design of any system, process, service or product.

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Sample FMEA GRID

There are 3 types of FMEA’s; system, process and design. However in this post I will only touch upon the Process FMEA. Process FMEA’s identify the different ways that a process could fail and the effects of those failures. They are often used to identify and rank process improvement opportunities. For the lower risk failure modes preventative plans are put in place to ensure minimal impact to productivity, costs, and delivery.

For example, say a Health Tech Startup, creates an app for patient on-boarding with a plethora of functionalities that they consider to be in the “cool factor”. However, this overload of features could overwhelm the user and miss the value curve completely.  With an FMEA analysis they would be able to identify the most critical features, risks, and problems with the product before they take it to market, in turn, significantly reducing rework, product, and process costs.

Contact us now to learn more about how to minimize rework costs and identify problems in processes, systems or products before they are used or put into production.

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Continuous Budgeting & The What Ifs

It is always good to be prepared. In business being unprepared for the unexpected could lead to loss of clients, reduced profits, damaged reputation, et cetera. Small business are not exempt from this either. Budgets and Forecasts need to include a reserve for the What ifs, such as, what if the office gets flooded?, what if a machine breaks down and a replacement is required ASAP?!, What if our supplier’s plant gets flooded?

Many companies use historical budgets (utilizing and analyzing past expenses from 3-4 past fiscal periods) to see revenue and expenses trends and using this information to create the current budget. The problem with this budget method is that it does not consider the future, therefore, it is impaired by the unforeseen. To minimize this risk, companies should assess all business operation risks and add reserves for the accounts that have “high budget risks”.

For example, let’s say your business is growing and you just finalized a big contract deal, but this is now the 2nd quarter of the fiscal year. Now you have to analyze sales, hiring and purchasing forecasting data and update the budget accordingly. This is also true when you lose a big client, you have to be prepared to revise your budget despite efforts to replace the lost client to ensure profitability at the end of the year; meaning cutting costs. budget-clipart-587364-ze-budgeting-and-savings-in-your-p-Stock-Photo

Continuous budgeting ensures that your company is abreast of all risks, revenue and expenses trends that are and could affect the company. Companies that have a frugal mindset (e.g. Apple, Microsoft, Google) and hoard their cash are always prepared for the worst. Historical budgets essentially just demonstrate the past and provide a budget amount base for all your accounts but you have to ensure sales demand, hiring, purchasing and risk data is taken into account to finalize the budget properly and update accordingly per any changes in the business.

 

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