April 06, 2009

Operations Management – Lesson 8


Payroll Process of Lesson 2 is used.


Below is the process flowchart - which has 9 steps.


slide8.gif

Lean

The Payroll Process has lot of improvements to be made as;

  1. The process on not completed "when needed" (irregular flow)
  2. Quality is inconsistent and from time to time very poor, as the Outsourced Vendor has high staff turnover and new joiners not 100% firmiliar with the process.(inflexible repsponse)
  3. Wastage is unacceptable as days are lost due to incorrect processing of input (Unneccessary variability)
  4. Costs are fixed as overtime is not paid

The 9 steps with description of what the key roles are and also what the Added Value - ranked with 5 being

highest (based on my personal perception)


Nr

Step

Key Role

Add Value

(5 highest)

1

HR Assistant

Ensures that all input from employees has been received and that extracts data from Employee Data System

3

2

HR Manager

Validates input from other sources (Commission for Sales staff) – consolidates input from HR Asst into Payroll Input file, which is send to Chief Account for Approval

5

3

Chief Accountant

Chief Accountant has an Approval role for both Payroll Input and Payroll Output process

4

4

CFO

CFO has a final Approval role

1

5

Outsource Payroll Vendor

Payroll Vendor processes that Gross to Net calculation and creates DataFileInput (DFI) to be loaded into the ledger and also loads net payments into e-banking system

4

6

Treasury

Ensures that e-banking data loaded is correct and gives the OK to 1st and 2nd approver to proceed

2

7

Employees

Need to provide monthly data on “personal calls” + “days spend overview (vacation) etc...)

1

8

Local Authorities

Receive payments of payroll taxes and social taxes

1

9

Accounting Center

Loads the DFI file into the ledger

3



Push vs pull

The Payroll process is a push proces where the the previous process is pushing his/her process to ensure that there are no bottlenecks, to ensure that his/her process is closed from a chain perspective.

Risk in Delays;

  1. Employees Input - this is currently the source of most delay as HR waits for final processing until all "personal mobilephones" input has been received. Solution can be to use have cut off date, afterwhich point in time everything else is processed in the month
  2. Chief Accountant - currently CA double checks and triple checks all the input and output stream, which combined with ongoing CA's workload is delaying the process. Solution to have Asst CA, dedicated for Payroll Checking and be available during the 1 week of the month (this person is not yet hired)
  3. CFO - adds no value in this process and can be removed, or have involvement limited to checking top 10 earners. However due to busy CFO schedule this delays the final process.
  4. Outsourcing Payroll Company - due to poor quality and the re-itteration process where errors are correct and re-submitted for approval and still not corrected correctly, this causes huge delays and when the date moves past the weekend this is unacceptable. Solution is to start the Payroll process a few days earlier and Asst CA jointly with Payroll Vendor review the critical changes (new hires... leavers... bonusses...)


Checking points;


  • This is very well incorporated and also causes the highest risk in delay, as CA is fully responsible for the financials (in Ukraine), hence needs to ensure that all input and output is correct. In some instances an error of less than $1.00 delayed the process  as this needed to be corrected.
  • CFO - also have a checking point role where the Top 10 earners details are reviewed and most important that of all the inviduals who are part of the process execution.
  • At the end of each Closing Month Cycle - Sarbanes Oxley (SOX) Business Control is performed on Payroll and several control points are tested with full evidences of documents.


End



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References


Slack et al, 2006, "Operations and Process Management", Prentice Hall


Wally, 2009, Warwick MBA Study note on "Operations Management"

















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