Policies and Procedures Minimise Risk
Today more than ever you need to run your business based on systems.
Systems are manageable and properly monitored will provide invaluable information for management decisions.
Systems deliver consistent output from your business and deviations from the system if picked up early can save a business tens of thousands of dollars and hours of wasted time.
The building blocks of systems are your business Policies and procedures.
Today we added a short basic training program – “The Basics of Policies and Procedures” to YouTube and you can view it here
(if for some reason the video below fails).
Here is a transcript of the training –
Welcome to ProfiTrain
in this presentation we look at the basics of policies and procedures.
Policies and procedures are the elements that make up business systems and even though they can be quite complex they are an important part of risk management in any business.
Let’s start with a little background information.
Successful businesses rely on their systems to ensure everything runs smoothly.
Systems allow a business to be more easily managed and
systems produce consistent and predictable outcomes.
I can’t think of any part of the business that you can’t set up a system for.
Systems are made up of policies and procedures and even in a very small business there are numerous subsystems in play. We will look in detail in this program at the basics of developing policies and procedures. The methods introduced in this program are suitable for very small businesses and can be used by larger businesses as a starting block for building their business system
Michael Gerber in his book the “E myth Revisited-Why small businesses don’t work and what to do about it” offers a great illustration of how important business systems are. In real life you don’t need to look very far to see businesses and institutions that use the systems very effectively. Think for a moment about military forces, air traffic control, hospitals and of course love them or hate them there is McDonald’s.
Systems enable a business to produce consistent and predictable results.
Systems provide structure for business operations.
People can be trained to use a system and a benefit of that for the business owner is that you need less skilled and less experienced staff which usually will save the business money.
A consistent output is something that customers appreciate, and systems help deliver a predictable and consistent product or service delivery or both.
Because systems are made up procedures it usually makes them much easier to manage. If the system is not being followed this will show up usually in faulty or substandard output.
At the end of this program we will briefly look at compliance with your systems policies and procedures.
The idea of building a business is generally to give the owner more freedom and time. Good systems will deliver that and will also help the business owner build a business that is not solely dependent on their input. A true business is one in which the owner does not have to work because it will operate without him or her. This can make the business quite saleable in the right circumstances and market.
As I mentioned before systems consist of policies and procedures.
Your complete business system is made up of many subsets or subsystems which collectively join together through intersystem interfaces which enable different parts of the business to interact efficiently and effectively. Being efficient means time and money is not wasted and being effective means that the right things are done to produce the right output stop
What then is a policy?
The policy is simply a statement of purpose and it tells you WHAT you want to achieve or what your objective is and WHY you have that policy. A study I read quite a few years ago showed that a policy which included the reason why it existed had almost twice the compliance rate of the same policy prior to adding the reason for the policy to the policy. Unfortunately I’m unable put my hands on it at present but will provide details if I can find them.
A word of caution – policies can have unintended consequences, as can compliance monitoring, so consider any possible outcomes that could be detrimental to your business when setting your policies and compliance monitoring.
Let’s have a look at how to put together and write your policy.
The process will be a little different depending on whether you are doing this by yourself or in a team.
If you’re in a team become familiar with idea capture tools like brainstorming so that everyone’s contribution can be considered.
If you’re by yourself, you can just get in and capture your thoughts and work with them.
The 1st question to ask is –
“What is the objective or what is it we want to achieve?”
Jot down responses that come to mind and work out how to incorporate them into a single statement of purpose.
One way of getting a clever idea of your purpose is to start a sentence or statement with the word “Ensure” or the words “To ensure”. In my experience, with many groups in Business Management training, the term “ensure” seems to work like magic and get people’s minds on the right path.
When you have that statement written to your satisfaction rewrite it without using the expression “ensure”. The resulting statement should have captured the purpose for the policy.
Here is a simple example of putting that process to work.
Let’s say in our business that we want our customers to pay us within 21 days of issuing our invoice. What we might write initially would be –
“Ensure account receivables are paid within 21 days of issue of invoice.”
This can be restated as –
“Accounts receivable terms of 21 days are enforced”
The 2nd part of the policy statement is working out the “Why”.
Ask the question “Why is this objective needed?”
The magic word for this one is to use the word “because”.
A little more brainstorming may be needed to capture the reasons.
For our example there are reasons like –
• Cashflow must be maintained
• Historically older debts are harder to collect
• The cost of collection after 21 days is high
• Bonuses are paid based on customer adherence to the policy
Our example policy would become –
“Accounts receivable terms of 21 days are enforced because tight cashflow management means debt recovery costs are avoided and staff bonuses are maximised”.
Lets review what we’ve been through
What’s a policy?
In basic terms it’s your statement of purpose and the reason why you have the policy.
Whats a Procedure?
It is the statement that tells you what needs to be done to achieve the policy objective.
In its simplest form it is It is an ACTION statement detailing how a task or series of tasks is to be completed. It is the statement that tells you what needs to be done to achieve the policy objective.
Think of your POLICY as the WHAT you want to achieve and WHY you want to achieve that objective.
The WHAT and WHY of your PURPOSE.
Your PROCEDURE is the HOW.
it’s an action statement that tells
you what is to be done,
who is responsible to see it’s done, and
when it is to be done
It always helps to have a tool or guide to help with pretty much every area of business development.
You might find it useful to set up A POLICY AND PROCEDURE WORKSHEET like the one on screen at the moment.
This one you could map out a piece of paper, or set up a table on a word processor or in a spreadsheet.
In the 1st blank cell you detail the area of your business for which you want to develop your Policy and Procedure.
Then there is the policy column where you can record the What part of your policy and below that the Why part of your policy.
The 3rd column is for your procedure and here you can record how you are going to implement the policy and the actions that need to be taken to achieve the objective.
There is then an area where you can write out your Policy Statement.
And in the bottom section you write your action statement, that is, your Procedure.
For most small businesses this process will enable you to develop a useful and effective set of policies and procedures as you build your business system.
Let’s talk about monitoring and compliance with your policies.
Many businesses go to the trouble of setting up systems in their business and then fail to take the effort to monitor what is going on within the business.
What is really happening is that they engage in what is best described as crisis management. That is, something goes obviously wrong and then they try to fix it.
If systems were monitored then flaws in the system or non-compliance will become evident usually before any catastrophic event or major problem occurs.
If we were in a live situation I’d conduct a brainstorming exercise with the training group or with my client to come up with ways that compliance with their policies and procedures can be monitored. We’re recorded so that’s not happening here..
I’ve compiled a list, using frequently given answers from my clients and training groups, of ways you can monitor your systems and the policies and procedures compliance in your business.
You could seek feedback from many sources like customers, staff, suppliers and perhaps even the community in which your business operates.
Audits are another way to check that you are complying with the laws of the land, for example in regard to tax areas, workplace health and safety, consumer affairs and equal opportunity and anti-discrimination.
When setting up your policies and procedures you should look at Key Performance Indicators that will indicate whether or not satisfactory levels of compliance are occurring. For each Key Performance Indicator you will need to come up with a set of Key Performance Measures to give you feedback in real time or near to real-time.
Observation is another method of checking compliance.
Checklists that are required to be completed for each job generate a sense of accountability and can be quite easily reviewed to ensure the required steps were completed.
Spot checks can also be an effective generator of policy compliance. The unpredictability of spot-checks makes them quite effective
So let’s review where we’ve been
We briefly looked at systems and recognise that these are very beneficial for any business because they enable management of the business and produce predictable and consistent outcomes. Systems are made up of Policies and Procedures.
We’ve had a pretty good look at policies and we now know that policies are statements of purpose that provide guidance and define specific objectives within the business.
We know that policies that include the reason for their existence have much higher rates of compliance than those that don’t.
Procedures tell us not only what has to be done but who is responsible and when the procedure needs to be carried out.
We had a look at ways you can improve compliance with your Policies and Procedures. Without compliance your business will not run efficiently or effectively and you as a business owner can expect to frequently be putting out fires and dealing with crises in your business.
Well we have now come to the end of this presentation and on behalf ProfiTrain I’d like to thank you for your time and sincerely hope you have found some value for your business here.
ProfiTrain helps individuals and businesses develop and grow through personal development and business training.
If you’d like more information please send an email to email@example.com
Thanks for your time and have a fantastic year.
P.S. Policies and Procedures implemented and managed are powerful tools in any business.