100 Ways to improve your payroll processes

If you were offered 100 ways to improve your payroll processes would you accept ?

This case study covers how Leanpal specialists identified just that by working with a client team in a large organisation.

Background

The payroll department for the national branch of a global service organisation discovered some anomalies with their data processing, which was handled by an external organisation. These anomalies effectively meant that they had underpaid national insurance by hundreds of thousands of pounds in one financial year. Recognising the error 9 months into the financial year enabled the company to correct the payment deficit (so punitive penalties were avoided) but the outwards cash flow was an unexpected shock for the company in the 4th financial quarter.

Normally there should have been controls in the payroll department and finance function, which would have detected the error sooner, but nonetheless the national branch placed the blame firmly with the data processing company. The local management claimed 100% of the fault was due to the data processor, and wanted to change the service provider immediately, however the senior management decided a thorough review of the payroll processes was a more prudent approach, to ensure if and when the service provider was changed, that their own internal processes for payroll were as robust as possible.

The approach

Leanpal was contracted to map the payroll processes, identify any issues and prepare an action plan for the management to address. Leanpal specialists - one an expert in lean principles and value stream mapping, one a chartered accountant with expertise in payroll and auditing undertook the project in 6 weeks over a 3 month period.

The approach was as follows:-

Scoping the work and agreeing with management a charter for the project

Defining measures of activity and performance for the payroll department

Value stream mapping the payroll processes

Identifying the issues then prioritising these into an action plan

As those of you who have tackled lean in the office already know, the issue with understanding losses and wastes in administrative functions is the lack of transparency.

In this case the payroll office was “boxed in “ with historical records (so an opportunity for some basic 5S!) but other than that all of the “added value” or non-added value work was conducted through data entry data processing and data manipulation.

It is much easier to see added value in a factory as the product is transformed, and consequently the famous lean wastes, overburden and unevenness are also easier to detect. Faced with a room full of people desks and computers the process has to be teased out into a visual format to help understand whats going on - hence the use of value stream maps.

In our case the payroll team identified a number of work streams. Each stream was mapped by the participants identifying all the tasks performed within the process from start to end..

After mapping this, the time for each task was established, then each task was challenged as to whether it added value or not. From the performance measures established we were able to quantify the non-added value issues.

Problems were identified in discussions with the participants both from their own perspective and by comparing their process to “best in class” from the Leanpal audit perspective  In all over 100 issues were identified, some of which were easy to fix, others requiring improved discipline at all levels of management. Of the 100 only 32 were the responsibility of the external service provider.

What went well during the project?

We had good participation from about half of the people assigned to the project, they were open and honest about the issues and keen to make a difference.

We were able to establish a performance measurement system (which they didn’t have time to do before as they were so busy correcting mistakes! ) This system helped the team see where the real problems were, and in future gives them the tools to further improve performance with management support.

On the Leanpal side the combination of a process mapping expert with a lean background and a chartered accountant with payroll experience meant that all of the process was drawn up and that the right questions were asked at the right time to thoroughly understand the issues. We were able to compare and contrast the payroll processes with industry best practice, a san external objective view.

What could have been improved?

The team allocated to the project was too small - we were unable to convince the national manager to release representatives from all the functions to participate. So we were reliant on only a few viewpoints, other functions did not get the opportunity to add their contributions or understand the process we were going through. The action plan developed could have been more quickly implemented if more of the functions had been involved both from the viewpoint of resource availability and “buy-in” to the issues identified. Team building and communication would have been improved if more people had been involved.

Benefits of the exercise

In all, the company were convinced of the value of the exercise and went on to implement the actions identified. It’s perhaps difficult to fully quantify the financial benefit of the project because the benefits will arise from improving system controls and reducing risk of future errors.

Interested in applying this approach to your organisation? Call +44 7870134609 or email mark.colvin@leanpal.com