Auditing: What it is & Why It’s Done

What is AuditingThe Importance of Auditing

Auditing typically refers to an objective review of a company’s financial statements, which consists of the cash flow statement, the income statement and the balance sheet. It analyzes the level of accuracy that the business has characterized its financial records. The process looks at how a business documents investing, financing and operating ventures.

Depending on the type of audit and what it aims to accomplish, it can be conducted by internal employees or independent, third-party examiners like a Certified Public Accountant (CPA) firm or a government agency such as the Internal Revenue Service. When it comes to the United States, the Generally Accepted Accounting Principles (GAAP) is what auditors look to when analyzing financial statement preparation. External audits are guided by the American Institute of Certified Public Accountants’ (AICPA) Auditing Standards Board (ASB). The AICPA requires that the generally accepted auditing standards (GAAS) are followed by external auditors to ensure proper protocol is followed.

When it comes to regulations, the Sarbanes-Oxley Act of 2002 requires publicly traded companies to have their internal controls’ impacts reviewed. It also states that companies that do not implement and enforce their internal controls may be subject to criminal charges.

Defining Internal Controls

These can be thought of as how businesses can manage operations by regulating permissions, documentation, congruency, protection/safety and partitioning of responsibilities for business processes. These are broken into preventative and detective activities.

Sometimes referred to as protective activities, responsibilities are compartmentalized and distributed among different individuals to dissuade mistakes or deceit from occurring.

It also integrates highly detailed written procedures and validation procedures for further cautionary measures. It’s meant to verify that no sole person is able to approve, document or be responsible for monetary transactions and final products. Permitting invoices and validation of expenses are examples of internal controls. Only permitting appropriate access to the fewest employees necessary and the fewest required business equipment is one way to implement this type of internal control.

Detective Controls Defined

These are redundant systems that are put in place to intercept issues that might have fallen through the initial round of quality control measures. Looking to reconciliation procedures, which matches data in question against known accurate data sets, it’s used to fix discrepancies.

Internal Audits

This type of audit is usually conducted by the business’ employees, primarily performed as a way to evaluate internal operations and internal controls. It looks to identify any deficiencies or weaknesses in the business’ operations, often occurring before an external auditor reviews its financial statements. It’s also meant to review and identify any legal or regulatory compliance issues.

External Audits

This type of audit occurs when an independent auditor, such as a third-party CPA firm, assesses a business’ internal controls and financial statements. It is performed to provide an objective opinion that an audit conducted by the business itself cannot. With a “clean opinion” or “unqualified opinion” provided by the independent auditor, businesses can provide those looking at financial statements confidence that such financial statements are reliable. It enables the outside entity to focus on the financials, the business’ internal controls, etc. by providing a conflict-of-interest-free perspective.

Government Audits

This type of audit is done to ensure that businesses have accurately reported their taxable income to respective government agencies. This can include federal agencies such as the Internal Revenue Service (IRS) and Canada Revenue Agency (CRA), which are the U.S. and Canada’s respective tax collection agencies.

When an IRS audit has concluded its review, there may be a few different preliminary results and resulting paths. The tax return may see no modification. There may be a modification the taxpayer agrees to, which could result in additional money being owed. The third result occurs when the filer doesn’t agree with the change, and it is worked out through an appeal process.

Whether it’s an investor for a publicly traded company or a business looking for creditors for help with money, materials, etc., having audited financial statements provides confidence that they’ll see a return on their investment or a high likelihood of their debts being satisfied in the future.

Sources

https://www.congress.gov/bill/107th-congress/house-bill/3763

 

 

Financial Accounting Overview

Financial accounting is how accounting professionals document, compile and outline how a business performs financially over a discrete period of time. Unlike cost accounting, which is used primarily for internal short and long-term strategic planning, financial accounting focuses primarily on producing relevant documentation for outside parties interested in short- and long-term financial performance.

Small businesses, large corporations and nonprofits use the following financial statements produced for relevant parties: the Balance Sheet, the Cash Flow Statement and the Income Statement. When it comes to publicly traded companies, their financial accounting standards are overseen by generally accepted accounting principles (GAAP). It’s one way to provide a standardized means to communicate the business’s monetary details to potential and current shareholders, lenders, government oversight and tax enforcement agencies.

Balance Sheet

As the U.S. Securities and Exchange Commission (SEC) explains, the balance sheet is a financial statement that informs readers about a business’s assets, financial obligations and shareholders’ equity. It’s how a business documents its asset valuation, its financial obligations and cash holdings. It provides owners, lending institutions and investors a way to analyze a business. The current ratio shows the ratio of current assets to current liabilities. This is a way to evaluate a business’ ability to manage financial obligations over the next year. Shareholders’ equity represents how much cash would remain if the business satisfied all creditors and all assets were liquidated; whatever remains would be the property of the shareholders.

Income Statement

Released once a month, every quarter or once per year, an income statement reports revenue, expenses, and net earnings or losses of a company for a given period. A company’s net revenue is calculated by subtracting allowances for uncollectable accounts, discounts, etc. from a business’s gross sales or revenues. From there, subtract the cost of sales, or how much the lot of products or services cost to make for the accounting period, from the net revenues figure. This results in gross profit or gross margin. Depreciation, along with amortization, or the cost of machinery and equipment losing life over time, is subtracted from the gross profit figure.

From there, operating expenses, which aren’t directly attributable to product or service production but are running day-to-day operations, are deducted from the resulting gross profit figure. This number is now called income from operations or operating profit before interest and income expense. Depending on the number, the interest income or interest expense is either added or subtracted from operating profits to arrive at the operating profit before income tax. Finally, income tax is deducted, resulting in net profit (net income or net earnings) or net losses. For publicly traded companies, it gives investors insight as to how much the company is making per share, so-called “earnings per share” (EPS).

Statement of Cash Flow

Per the SEC, a statement of cash flow features three sections that detail sources and utilization of the business’ operating, financing and investing cash flows. It paints a picture of inflows and outflows of the business’s cash levels. At the end of the day, it helps anyone interested in the company’s financials, especially potential and current investors, see the latest status and trends of cash flow.

One way to calculate cash flow, according to the SEC, is to look at a company’s free cash flow (FCF). This is calculated as follows:

Free Cash Flow = Operating Cash Flow – Capital Expenditures

Free Cash Flow = $50 million – $20 million = $30 million

This information is helpful because free cash flow can help determine a company’s financial health, how well (or not) the business model is performing, and its overall likelihood of success moving forward. Additionally, understanding the difference in accounting methods is another helpful piece of financial accounting analysis.

Accrual Method vs. Cash Method

Accrual Method

When it comes to the accrual method, according to the Congressional Research Service, when a business is paid for services or products to be rendered in the future, the payment is permitted to be recognized as revenue only when the product or service has been rendered. When it comes to accounting for expenses that are presumably deductible, under the accrual method, the expense can be recorded when it’s experienced by the business, not when payment has been made to the utility, raw material supplier, etc.

Cash Method

If a consultant gets payment immediately but isn’t expected to do said job until the following month, this approach requires revenue to be recognized when the cash has been received. Similarly, when expenses are paid is when expenses are recorded.

Considerations

For any businesses that handles inventory or sells to customers on credit, accrual accounting is required by the Internal Revenue Service. Similarly, for companies with average gross receipt of revenues greater than $25 million for the past 36 months, the IRS mandates accrual accounting. For companies with average gross receipt of revenues of less than $25 million, depending on the exact circumstances of the company’s business nature, cash or accrual may be used.

Financial accounting provides investors, business owners and those providing businesses with legal and accountability a way to monitor performance and compliance.

Sources

https://www.irs.gov/publications/p538#en_US_202112_publink1000270704

https://www.irs.gov/pub/irs-drop/rp-22-09.pdf

https://www.irs.gov/pub/irs-pdf/p538.pdf

https://sgp.fas.org/crs/misc/R43811.pdf

https://www.sec.gov/oiea/reports-and-publications/investor-publications/beginners-guide-financial-statements

https://www.sec.gov/Archives/edgar/data/104169/000119312508177102/dex992.htm

How Cost Accounting Helps Businesses Measure Performance

Cost AccountingCost accounting is a type of accounting that analyzes a business’ complete production costs by looking at both variable and fixed costs. This includes the concepts of marginal costing, lean accounting, standard costing and activity-based costing. It’s used by a business’ management to evaluate fixed and variable costs involved in the manufacturing operations.

The initial step is to assess and document such costs one-by-one. Once production is finished, it will contrast projected costs to what actual costs ended up being and see how processes can be improved. Management gleans information on how funds are used, revenue is earned, and where funds might be misdirected. It can help businesses create greater productivity and financial efficiencies after analyzing such information.

Looking at it more in-depth, there are different types of costs analyzed. The first is fixed costs, such as a monthly mortgage or lease payment, or those that are static regardless of the production level. The next is a variable cost that correlates directly with the production level. Operating costs can be either fixed or variable, depending on each business’ type of operation. Other types of costs include direct or directly connected; and indirect costs, which are costs such as administrative expenses that are less directly associated with production.  

Variable Cost Ratio

Variable Cost Ratio (VCR) looks at what percentage a business’ variable production costs is of its net sales. Businesses can calculate the VCR by:

VCR = Variable Costs / Net Sales. Net sales is a business’ gross sales after subtracting any discounting, customer returns and allowances.

It can also be calculated this way: VCR = 1 – Contribution Margin

If each widget’s variable unit cost is $40 and it sells for $200 individually, the VCR equals 0.2 or 20 percent. It’s also possible to be completed within a certain time frame. For example, if a single month’s total variable production costs are $6,000, and the business has revenues of $30,000 within that same month, the variable cost ratio is 0.2 or 20 percent.

The VCR shows if a company is able to earn a higher rate of revenues and a slower growth in input costs. It can help businesses determine when it hits an equilibrium between a loss and profit. It’s also important to note that fixed costs are excluded.

Marginal Costing

Marginal costing, or cost-volume-profit analysis, is a way to determine how much more it would cost a company to increase its manufacturing by one more widget.

It helps analyze the impact of varying levels of costs and volume on operating profit. This calculation looks at potentially profitable new products, sales prices to establish for existing products, and the impact of marketing campaigns. It assumes that the retail price and the variable and fixed costs per unit don’t change. It’s a way for businesses to calculate when they’ve developed a price point to cover all expenses. It also can indicate when the business can obtain profits at a particular price point and mix of manufacturing output. It’s a way for businesses to determine which levels are unprofitable, break-even and make a profit.

When it comes to determining how much sales volume a business needs to break even, the formula is as follows:

Sales Volume = Fixed Costs / Contribution Margin (Contribution Margin = Sales – Variable Costs)

If a business is looking to determine its break-even sales revenue figure, it must determine what its fixed costs are and its contribution margin. This calculation would be as follows:

$210,000 in fixed costs and a contribution margin of 30 percent = 210,000 / 0.30 = $700,000

However, it’s important to note that there’s no profit with the first calculation. If the business wanted to make $100,000 in profit, it would add that to the $210,000 in fixed costs. This would be calculated as follows: $310,000 / 0.30 = $1,033,333.33

Considerations of Marginal Costing/Cost-Volume-Profit Analysis

This formula tells a company if a widget is profitable. The contribution margin is what’s left over after each item or a lot of items is sold after deducting the variable costs for the respective number of units sold. When the contribution margin exceeds the fixed cost for the item or respective number of units sold, this signifies a profit. 

Companies that have the time and resources to analyze their performance beyond the traditional financial statements can see what’s right with their processes; but can more importantly, they can find out what’s wrong and how to fix it going forward.

How Businesses Can Mitigate Inflation & Maintain Pricing Power

Mitigate Inflation, Maintain PricingWhether it’s tariffs, trade wars, or post-pandemic inflation caused by kink-ridden supply chains and what many experts believe to be excess money printing, inflation is an insidious drag on businesses’ operations. When it comes to energy’s contribution to inflation, the U.S. Energy Information Administration (EIA) reports that crude and natural gas prices in 2022 have increased on an annualized and weekly basis. Looking at the snapshot of 7/21/2022, WTI crude on the futures market was $96.35 a barrel. This was up more than $26 compared to 12 months ago, and $0.57 higher than a week earlier. For the same time frame, natural gas futures were $7.932/MMBtu, an increase of $3.973 from 12 months ago and an increase of $1.332 from a week earlier.

When it comes to businesses using any type of commodity, they’re faced with the question of how to raise retail prices when their prices increase. However, many business owners are hesitant to increase prices on their goods and services as they fear it will drive away customers. But in light of increasing input prices, not implementing price increases correctly will impact a business’s earnings and profitability.

As McKinsey & Company explains, there are many considerations why businesses have had trouble with mitigating costs in light of rising input costs. It’s important to monitor raw material costs with a fine-tooth comb. Businesses that bury costs of commodities, labor or tariffs under general accounting categories hide spikes in input costs due to factoring ancillary costs. If volatile input or uncontrollable factors, however, like tariffs can be monitored independently and in real time, businesses are more likely to be able to increase prices – and do so more gradually. With this in mind, McKinsey & Company highlighted four practices that businesses can implement to combat pressure from input costs and pushback from customers who question the reason for price increases.

1. Create a Database of Dynamic Costs

By looking at historical records going back as far as 36 months, businesses can determine trends and keep track of increases or decreases of input materials to share with the sales and customer service department, who can then communicate with customers. Along with looking at how contracts are written and if there are escalator clauses that permit conditions to adjust for increases in input materials, taking steps to accurately measure the impact of raw material costs can be helpful for price increase considerations.

It could look at costs by department. If a plating department at a manufacturing company plates 50,000 pieces of metal a month, incurs $200,000 of direct material costs and has $50,000 in labor and overhead costs, it can be broken down into a per unit cost of $4 for materials and $1 of labor and overhead costs. If the per unit cost of materials fluctuates, investigation can occur through the supply chain from the supplier to the price of futures contracts to see if prices can be negotiated or must be increased for customers.

2. Mind the Economy

Businesses are advised to keep an eye on current economic conditions. This is how companies can set a dynamic pricing strategy. Building on the first step, it’s advised to index prices to those of commodities to reduce the lag time between when companies experience changes in costs for their input materials and when retail prices actually reflect the true cost to the company. Be it fuel, wood, coffee or metals, understanding how the price of commodities fluctuates in real time is essential to determine when and how to adjust prices for retail customers. It also can help businesses determine how competitors are adjusting their pricing to customers, how far prices could increase, and how to augment delivery of goods or services to stay competitive and profitable.  

In addition to escalation clauses, companies adapting to changing input material prices could, for example, introduce shorter-term contracts, look for more competitive suppliers, or substitute different but equal quality/performance materials.

3. Coaching Staff to Educate and Explain Price Fluctuations

Continual evaluations for sales teams are imperative. Supervisors must see what accounts have (and have not) been informed of price increases. They should focus on what accounts have accepted price increases (and what level of price increases have been accepted). They also should look at what accounts are likely to accept price increases and what accounts are not likely to accept price increases. Businesses also must factor in the business cycle for the sales process and how each account is performing relative to its price increase targets due to cyclical increases in input commodity prices and interest rates for financing availability. Ongoing coaching should be implemented to identify major issues and ways to resolve them. Anticipating and preparing sales representatives for customer questions through role playing can help better prepare employees to explain why price increases are a part of doing business.

4. Managing Performance

Businesses must play the long game after products or services have been priced accordingly to commodity and input prices. Since inflation follows the economic cycle, upside and downside pricing dynamics can catch companies off guard. Consistently updated product or service pricing systems and prepared sales teams can lead to more profitable margins and hopefully the ability to weather volatile and long-term price spikes.

Much like the price of commodities and labor fluctuate based on dynamic market conditions, finding ways to adapt one’s business practices can increase chances of surviving and thriving in a challenging economy.

Sources

https://www.bls.gov/news.release/ppi.nr0.htm

https://www.eia.gov/

https://www.mckinsey.com/business-functions/growth-marketing-and-sales/our-insights/defying-cost-volatility-a-strategic-pricing-response

How Businesses Can Stay Current with the Digital Economy

Digital EconomyAccording to the U.S. Chamber of Commerce, the level of usage and data swirling around the internet is expanding at an accelerating pace. The amount of data on the internet globally during 2020 amounted to 3 trillion gigabytes; and 2022’s traffic is expected to increase to 4.5 trillion gigabytes. As a result, the U.S. Chamber of Commerce is concerned about the challenges American companies will have when it comes to business competitiveness.

According to a survey from Statista titled “Challenges encountered as a result of digital transformations in global organizations as of 2020,” there are common challenges that businesses are facing, such as:

  • 51 percent of respondents said that “skill gaps have opened up on traditional teams as top talent moves to digital teams or products”
  • 48 percent said that “cultural differences or conflicts have arisen between traditional and digital teams”
  • 41 percent also mentioned that “traditional teams have struggled to keep up with the pace of how digital teams work”

With so many issues businesses face as technology races ahead, it’s important for organizations to recognize and adapt to the dynamics of digital commerce. According to Harvard Business Review (HBR), it’s important to align the business and its goals correctly, especially when it comes to getting the most out of software development. For example, when companies buy software, they generally use third-party software for all their needs. While accounting and human resources functions may be fine for standardized uses, there are often situations when a personalized approach is needed to provide customers with a memorable experience.

HBR suggests businesses take certain steps that can make the journey easier and more effective in the long run. The first thing to do is identify current information technology-focused employees, because they’re the most closely aligned and ready for the transition. Along with looking for outside talent, it’s important to let internal software developers have an active role in the process.

It’s also important to let developers be stakeholders (along with accountability for failure) for solving organizational challenges versus giving them rigid assignments. Don’t focus exclusively on punishing failure; instead, encourage developers to analyze, pick apart reasons why failure happened and how future experiments can incorporate learning from past failures. Include developers in discussions with the people who will be using the software (other employees and customers who will be using it in the future).

Let’s look at Domino’s mobile application development as a case study. They were able stand out by improving their app with a feature that gave customers the ability to track their order from when it was being prepared to delivery. This process included increasing the efficiency of its systems, practices and techniques, along with having employees who performed advertising related functions work closely with software developers. It helped their stock price increase dramatically, performing better than many publicly traded technology companies.  

One challenge for businesses going forward is since there are still tens of millions expected to come online with broadband, the amount of data and traffic will only increase. When it comes to broadband service requirements set by the Federal Communications Commission (FCC), they are at least 25 Mbps to download and 3 Mbps to upload. According to the FCC, approximately 14 million Americans lack broadband, with as many as 42 million reporting lack of access, according to Broadband Now Research. New York City’s Mayor’s Office of Technology reports that 18 percent of NYC residents lack broadband, making it problematic to work from home, access government services online, make doctor appointments, etc.

According to a December 2021 Digital Trade and U.S. Trade Policy report from the Congressional Research Service, there’s no stopping the expansion of trade in the digital world. It found statistics from the Department of Commerce for the “digital economy,” where 9.6 percent of GDP was generated from this sector. It also found that 7.7 million workers were employed because of this approach to commerce. However, unless businesses take care to ensure the same level of communication is accessible, formally and informally, there may not be the same level of efficiency for remote workers.

According to MIT Sloan Management Review, remote workers are at a disadvantage when it comes to indirect types of learning employees have compared with in-person settings. Whether it’s before work starts, during break or lunch time, or interacting with or observing a customer or client, employees working virtually have little to zero of these types of passive opportunities to learn on the job. Be it an additional comment after signing off an email, having a few opportunities to chat or talk online during breaks or similar, this type of passive informal communication needs to be addressed to make up for the in-person experiences other employees have.

While the way work will be conducted in the future can’t be predicted, it will certainly include using the internet – and for many employees, it will involve some time away from the office.

Sources

https://www.uschamber.com/international/ten-trends-in-2022-global-perspectives-for-business

https://www.statista.com/statistics/1133436/challenges-digital-transformation/

https://hbr.org/2021/01/in-the-digital-economy-your-software-is-your-competitive-advantage

https://docs.fcc.gov/public/attachments/FCC-21-18A1.pdf

BroadbandNow Estimates Availability for all 50 States; Confirms that More than 42 Million Americans Do Not Have Access to Broadband

https://sgp.fas.org/crs/misc/R44565.pdf

https://sloanreview.mit.edu/article/overcoming-remote-work-challenges/

What’s the Future for Measuring Employee Performance?

Measuring Employee PerformanceYearly performance evaluations just might be heading out the door, according to a recent WorkHuman Analytics & Research Institute Survey. Findings reveal that these appraisals are less than effective and used less often. Based on select findings, 55 percent of employees responded that yearly evaluations don’t help them become better in their role. Almost as many, 53 percent, indicated that annual reviews recognize an employee’s complete workload. The survey also found that only 54 percent of businesses used annual reviews in 2019, compared to 82 percent of workers saying their employer used annual reviews in 2016.

According to Gallup, only 14 percent of workers responded positively that performance reviews motivated them to get better at their skill set. It also found that among businesses with 10,000 workers, time taken for performance evaluations reduced employee productivity by at least $2.4 million and up to $35 million. It also found that one-third of workers’ output and quality declined.

When it comes to traditional performance reviews, many employees believe they are run by managers with little regard to any employee input whatsoever. However, there are other ways to evaluate an employee: the worker can evaluate themselves; their co-workers can appraise them; or a combination of a self-, peer- and manager-focused assessment.

As Harvard Business Review explains, since traditional performance reviews are mutually stressful for managers and their subordinates, there are a few recommendations to attempt to make it a more productive experience.

The first recommendation is to set initial, mutual expectations for manager and employee. When the year begins, the business’ performance requirements should be detailed for the employee so that expectations are clear. By setting performance objectives with the employee, the manager and business will ensure that employees are answerable for their performance.

The second step is to prepare for the in-person evaluation as it gets closer to the meeting. Two weeks before the in-person evaluation, HBR recommends that workers and managers review their past accomplishments – good, bad, etc. Managers could also ask for objective co-workers’ assessments of the employee’s work to garner different perspectives on their performance.

Before a face-to-face meeting, give the employee the assessment to let them internalize it and let their emotions settle before the discussion. From there, the atmosphere should be established by the manager. When it comes to competent, high performers, managers should keep the reviews on the workers’ accomplishments and progression at the company, along with concerns they might have in their role. For poor performers, putting the focus on accountability and improved results is the recommended route.

Asking employees what’s working and what’s not working can be helpful for both manager and employee. It’s also recommended to point out what specific actions, not generalities, employees should take to keep improving.

Based on the evolution of how and where work is being conducted, it seems that the annual performance review needs to be re-evaluated and updated. Only time will tell how it will change, but based on what’s not working, it will evolve as the workplace moves deeper into the 21st century.

Sources

https://www.workhuman.com/press-releases/White_Paper_The_Future_of_Work_is_Human.pdf

https://hbr.org/2011/11/delivering-an-effective-perfor

How Businesses Can Combat Inflation’s Toll

According to the U.S. Bureau of Labor Statistics (BLS), the Producer Price Index (PPI) or the increase in prices, goods and services that producers experienced for their input costs, saw a substantial rise, according to its latest report issued on Dec. 14.

For November 2021, the PPI grew by 0.8 percent. For the past year ending in November 2021, it rose by 9.6 percent on an annualized basis. According to the BLS, this is the hottest PPI reading since this metric originated in November 2010. With costs not appearing to abate anytime soon, how can businesses combat rising costs?

Figure out Financial Priorities

Harvard Business Review (HBR) details steps that companies can take to evaluate and make adjustments to mitigate the rising cost of inflation. The first decision is to determine “high-resolution spending visibility,” which means a fully transparent documentation of how much money is spent, in what way it’s spent and how effective such spending is in the organization.

When it comes to effectively deploying capital, HBR recommends reducing expenses and/or investing capital to grow and maintain a businesses’ market edge. If there’s a unique customer experience that would suffer, that might not be the right area to cut. However, HBR cites an energy business that conducted an audit of its operations and determined a savings of $10 million was possible if it temporarily suspended 80 business operation expenses.

Analyze Past Spending for Future Efficiency

After a business understands spending patterns and how they impact profitability, this can be analyzed to see how to work around inflation. HBR gives the example of how “external groups” beyond the decision makers on new build projects cost certain companies more than $400 million and six months of time. By using “cross-functional collaboration,” costs that could be cut or work that could be done differently gave the company a way to realize greater efficiency.

Reduce Choices for Consumers

As the competition among employers to find and retain workers is tough, including the pressure to raise wages, simplifying what a company offers can help reduce costs.

Mondelez International, a global producer of comestibles, reduced the number of products it offered to customers by 25 percent when the COVID-19 pandemic started. Similarly, hotels began reducing the need for housekeeping by asking guests, especially during the pandemic, if they needed their rooms freshened up during stays.

Selectively Digitize Tasks

When it comes to businesses fighting for their survival, one silver lining of the pandemic is automation. Many companies discovered the benefits of automation, including higher profits, gains in output, etc.

HBR explains that processes on data for products, such as weight, size, images, etc., can be automated, freeing up human workers for higher level tasks, such as analysis and projections. Citing the example of David’s Bridal, through its Zoey messaging concierge service during the beginning of 2020, appointment and communication center expenses fell by 30 percent. This helped shift human workers to devote more time to in-person assistance.

While there’s no magic recipe to combat inflation, by analyzing a company’s books and keeping up with trends, there are many ways to affect cost savings.

Sources

https://hbr.org/2021/09/6-strategies-to-help-your-company-weather-inflation

https://www.bls.gov/ppi/

How Businesses Can Recognize and Combat Employee Burnout

Employee BurnoutAccording to the job site Indeed, COVID-19 has taken a toll on workers even more in 2021, compared to 2020. The survey conducted by Indeed found that 52 percent of those surveyed felt “burned out” in 2021. Sixty-seven percent of those asked said that feeling burned out has become more pronounced as COVID-19 has progressed. It’s more noticeable among remote workers (38 percent), compared to 28 percent of employees working in person.

Gallup reported in October 2020 that between 2016 and 2019, worker burnout was already on the radar. Once COVID-19 hit workers in 2020, those working remotely 100 percent of the time are reporting even higher levels than those who work outside the home.

Pre-COVID-19, when employees worked remotely either 100 percent of the time or via a hybrid approach, they had lower levels of burnout compared to those who worked at their place of employment full-time.

When it comes to remote-only employees who “experience burnout at work always or very often,” levels have gone from 18 percent pre-pandemic to 29 percent during the coronavirus pandemic.

This phenomenon is blamed on not being able to choose to work remotely or at the workplace – the choice is not there with COVID-19. As of September 2020, 4 in 10 full-time employees worked exclusively from home, compared to 4 percent pre-COVID.

According to the Mayo Clinic, “job burnout is a special type of work-related stress.” Internal factors, according to the Mayo Clinic and Gallup, include uneven treatment by management, excessive work assigned to an individual, a toxic workplace and ambiguous or unclear assignment instructions.

Outside factors such as their personal life, their natural disposition, mood disorders, etc. may add to it. When a worker is fatigued, physically or intellectually, this also grips the worker with a feeling of lower productivity and a loss of who they are professionally.

For those who can’t manage job-related stressors, burnout often leads to negative results. According to the Centers for Disease Control and Prevention (CDC), this includes feeling dubious about one’s future at the company, experiencing an inability to sleep, an inability to concentrate, feeling tired and having little motivation to complete one’s work.

If there’s a completely new way of working, unpredictability of being exposed to COVID-19, having to juggle work and personal obligations throughout the workday and the inability to have the right tools to get work tasks completed, burnout will likely ensue.

Managing Burnout

There are many recommendations to regain control and keep work-related stress in check. This includes creating a schedule for both regular sleep and time to fulfill work tasks, if feasible. Taking strategic breaks and finding constructive non-work interests can lessen the stress of work as part of a balanced schedule.

According to Gallup, managers must harmonize maintaining high-performance expectations with employee commitment to the organization and worker welfare.

Gallup credits effective managers and “organizational communication” with keeping full-time remote workers fully engaged by making them feel like an integral part of their company. Through purposeful training and crystal-clear expectations, workers are set up for success.

The CDC recommends how workers can reduce the effects of burnout. Staying diligent with emotional wellbeing treatments and recognizing and getting treatment for new substance abuse issues is recommended. Staying in touch with others can help both sides feel supported mentally and lower stress. Taking a break from constant negative news is also recommended.

Much like businesses, employees are unique. With COVID-19 impacting each of us differently, managers must evaluate their organization’s circumstances and employees to find a balance between employee performance and their ability to maintain wellbeing.

Sources

https://www.cdc.gov/coronavirus/2019-ncov/community/mental-health-non-healthcare.html

https://www.gallup.com/workplace/323228/remote-workers-facing-high-burnout-turn-around.aspx

https://www.mayoclinic.org/healthy-lifestyle/adult-health/in-depth/burnout/art-20046642

https://www.indeed.com/lead/preventing-employee-burnout-report

How to Develop Company Travel Policies Post-COVID

Company Travel Policies Post-COVIDAccording to a recent U.S. Travel Association forecast, only about one-third of companies are requiring their employees to travel. With business travel still at a low, how can companies develop a travel policy that reduces the risk of COVID-19?

Occupational Safety and Health Administration

When it comes to business travelers, whether employees are traveling domestically or internationally, OSHA recommends employers consult the Centers for Disease Control and Prevention (CDC) for guidance.

Travel Guidance

The CDC advises against traveling internationally if someone is not vaccinated, is exposed to, sick with, tests positive and/or is waiting results from COVID-19 exposure. Even for travelers who are fully vaccinated, the CDC reminds us that becoming infected and/or spreading the virus is still possible.

Travelers should similarly follow all guidelines at their point of departure, on the airline, and at their destination (e.g., wear face masks, get tested to show proof of being COVID-19 negative, maintain social distancing) to be compliant with requirements during each point of the journey.

For those returning to the United States, fully vaccinated travelers must have a negative COVID-19 test taken within 72 hours of travel. Fully vaccinated individuals are suggested to test three to five days post travel, keep an eye out for symptoms and test and isolate if there are symptoms. Travelers who are not fully vaccinated must have a negative COVID-19 test within 24 hours of travel. Travelers who are not fully vaccinated are advised to test three to five days after, along with self-quarantining for seven days, post return. Even if the COVID-19 test is negative, self-quarantining for seven days after travel is advised. If the COVID-19 test is positive, travelers should isolate. If you don’t get tested, stay at home and self-quarantine for 10 days post travel. If symptomatic, test and isolate.

When it comes to domestic travel, differences exist between fully vaccinated and partially/non-vaccinated travelers. Along with masking and government mandates for fully vaccinated travelers, upon return they need to keep an eye out for symptoms and isolate if any develop. However, there are no recommendations for testing or self-quarantining for fully vaccinated or those who have recovered from an infection within the past three months.

For unvaccinated travelers, along with following masking, social distancing, hand hygiene practices, and government mandates, testing 24 to 72 hours before departure is recommended. Upon return, travelers are advised to get tested three to five days later and isolate for one week. If non-vaccinated travelers don’t test, a 10-day quarantine is recommended. If a test is done and it’s negative, a one-week isolation period is recommended.

Assessing Financial/Legal Risk

Employers must determine if the work that requires travel is truly essential, and if it is in all jurisdictions, it should be documented. There are a few types of potential financial and/or legal liabilities if employees travel to perform their work duties. If an employee becomes infected, a workers’ compensation claim could be opened. If an employee does not receive an accommodation, either not having to travel or unable to work safely in the office with a worker who may have been exposed to COVID-19, legal issues may develop. Additionally, a whistleblower lawsuit may exist if an employee alleges the company has violated public health requirements. However, if business travel can’t be delayed, there must be guidelines to reduce the risk of travel becoming a way to catch COVID.

Protect Employees Before Travel Begins

Businesses are advised to give their employees adequate personal protective equipment (PPE). Depending on how and where the employee is traveling, he or she is required by federal law to wear a mask in and on mass transit (e.g., airplanes, trains). It also may help to provide gloves, hand sanitizer and wipes.

Study Transit and Destination COVID-19 Policies

Whether it’s domestic or international travel, different cities, states and countries have different requirements for those who are vaccinated and those who are not. Depending on where the traveler has a layover, there could be testing, proof of vaccination or masking/social distancing requirements in place at various spots.

Agree to Travel-Related Activities

By highlighting the risks of visiting certain venues that may pose higher risks (e.g., restaurants, gyms), an employer also can mandate employees to wear masks, socially distance, wash hands frequently, etc., regardless of the locale’s requirements.

Plan Ahead for Post-Travel Office Work

Another important component of a travel policy is how the business and its employee(s) will return safely to work and interact with co-workers and clients. For the most extreme cases, there could be a 14-day work-from-home policy to reduce the risk. Businesses can mandate testing for employees as long as they cover testing costs and testing requirements are applied fairly companywide.

While the world is reopening to commerce, especially instances when business deals necessitate face-to-face meetings with people from different cities and continents, safety with COVID-19 is paramount.

Sources

https://www.ustravel.org/press/new-forecast-signals-long-road-recovery-business-travel

https://www.osha.gov/coronavirus/control-prevention/business-travelers

https://www.cdc.gov/coronavirus/2019-ncov/travelers/travel-during-covid19.html

https://www.cdc.gov/coronavirus/2019-ncov/travelers/international-travel-during-covid19.html

How Businesses Can Help Employees Improve their Skills

Employees Improve their SkillsBased upon a recent McKinsey Global Survey, nearly 9 in 10 (87 percent) of management and above level respondents affirmed they are currently, or within the upcoming five years, dealing with the skill gap among their employees. With the vast majority of businesses experiencing or forecasting a skills-gap, how can they close or reduce this challenge?

Due to the so-called “Fourth Industrial Revolution,” as the World Economic Forum (WEF) explains, the best scenario it sees is 54 percent of workers requiring “reskilling and upskilling by 2022.” However, the WEF points out that 3 in 10 workers susceptible to occupation disruption due to advancements in applied science obtained additional training in 2018.

It’s important to clarify the differences between re-skilling and up-skilling. Re-skilling is where workers who are displaced by industries becoming obsolete, such as coal miners, are forced to retrain for a new career, such as coding, teaching, etc. Up-skilling, in contrast, involves building and staying current in one’s field – a programmer learning the newest programming language or a marketing manager learning the latest search engine optimization (SEO) techniques.

Carve Out Skill-Improvement Time Blocks

Even for companies that strive to provide their employees with flexible time for a work-life balance, it doesn’t always guarantee companies foster a culture of self-improvement and upskilling. When personal, professional and/or global crises occur, there’s not always time for employees to learn new computer programs or the latest programming language. However, by providing employees with a few hours a week dedicated to professional development, businesses give employees the opportunity to up-skill, leading to more satisfied employees, along with limited strain on the budget.

Arrange Worker-Guided Study Groups

When it comes to learning a new skill, according to Degreed via Harvad Business Review (HBR), workers will go to their peers 55 percent of the time, second only to reaching out to their supervisor for guidance, when looking to up-skill.

Few businesses are known to have developed a system for peer-to-peer learning in the workplace. According to McKinsey, “Learning & Development officers” reported businesses letting their employees put their skills into practice to develop additional skills, along with holding academic-type instruction and “experiential learning” for developing role competency. When it comes to structured peer-to-peer learning, fewer than 50 percent of businesses have anything established. Thirty-three percent of those surveyed responded that there’s no system established to facilitate skills development opportunities between co-workers.

From HBR’s “The Expertise Economy,” one reason that peer-to-peer learning is not the first choice for employee learning is due to a common belief that those who are proficient at a particular skill often exist outside the organization, such as a paid training consultant. This belief also is reinforced due to external educational experiences normally condensed into a single session, compared to smaller and more frequent in-house sessions.

HBR argues that peer-to-peer learning leverages the business’ internal expertise more effectively. If more experienced employees share their expertise with less seasoned co-workers to increase their skills, it can be very productive. In fact, HBR lays out a four-point plan for peer-to-peer learning to maximize employee up-skilling.

By using HBR’s “Learning Loop,” businesses can help employees learn new skills and knowledge through four steps:

  1. Employees obtain new information.
  2. After assimilating the new information, they practice implementing the new information.
  3. After it’s been applied, they obtain feedback on the application.
  4. The employee then reflects on what has been learned to further assimilate the new information.

While this program must be tailored to every organization, it shows that by taking a personal approach to up-skilling employees and building on their existing knowledge and skill sets, peer-to-peer learning can be one effective approach to helping employers and their employees close the skills gap.

Sources

https://www.weforum.org/agenda/2019/04/skills-jobs-investing-in-people-inclusive-growth/

https://www.mckinsey.com/~/media/McKinsey/Business%20Functions/Organization/Our%20Insights/Beyond%20hiring%20How%20companies%20are%20reskilling%20to%20address%20talent%20gaps/Beyond-hiring-How-companies-are-reskilling.ashx

https://hbr.org/2018/11/how-to-help-your-employees-learn-from-each-other