Step 3 - Perform Internal Audit

Step 3 in strategic planning is to perform an internal audit. The internal audit is very similar to the external audit except the focus in on internal factors, that is areas the firm can control such as its own marketing. The internal audit is not an accounting audit, but rather an assessment of all internal activities. Performing an internal audit requires the organization to determine the firm's strengths and weaknesses in management, marketing, finance, computer information systems, and all other internal areas of the firm. An assessment of strengths and weaknesses is needed before objectives or strategies can be established.

Management focus areas to assess in performing an internal audit include human resources, organizational structure, manager/employee relations, vendor relations, production/operations, inventory control, packaging, shipping, and distribution. Obviously these areas can and do vary by type of firm. For example in a hospital, areas would include radiology, urology, cardiology, nursing, outpatient, etc. In a university, areas would include alumni relations, food service, curriculum, athletic facilities, and student activities.

Marketing focus areas to assess include advertising, promotion, customer service, salespersons, test marketing, target marketing, pricing, Internet marketing, customer loyalty, and product quality. Finance and computer information systems areas may include ratios, budgeting, accounting, costs, expenses, cash flow, leverage, liquidity, profitability, equity, management information systems, Internet, web site, hardware and software.

An internal audit is important in strategic planning because strategies must capitalize on strengths and must improve upon weaknesses. A firm's strengths and weaknesses evolve and change. Relative deficiency or superiority is important strategic information. Comparisons with competitors can change rapidly. Morale, attitudes, and opinions can change rapidly. Any of these changes can alter the firm's strengths and weaknesses.

In performing an internal audit, first gather information in all internal areas using benchmarks, performance data, and comparisons over time by product, division, territory, department, and individual. Make comparisons to competitors and to objectives. Conduct surveys as needed to monitor employee morale, customer loyalty, advertising effectiveness, etc. Share this information with managers who then should meet to jointly develop a complete list of important internal factors. Be as specific as possible in stating each strength and weakness. Include facts, figures, ratios, numbers, percentages - anything that moves decision making from the realm of mere opinion. Categorize the factors into strengths and weaknesses. Finally, narrow the list to the top twenty factors.
 

Internal Audit Worksheets

In the space provided below, list up to sixteen internal strengths and sixteen internal weaknesses that characterize your organization. Be as specific as possible in stating each factor. Then in the left margin, rank all factors you listed in terms of importance to the firm in formulating strategies. Let 1 be the most important factor to consider, 2 next most important, ... to 20, the 20th most important.

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Internal Weaknesses

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