Designing Standard Operating Procedures (SOP)

Designing Standard Operating Procedures (SOP)

SOPs are basically set of data flow diagrams combined with templates and guidelines for a business process. Different types of business processes could be:

• Procure to Pay (P2P) (material and production planning, procurement, production, and payment to vendors)
  
  
• Order to Cash (O2C) (receiving customer orders, processing orders, customer invoicing, sales returns and payment receipts from customers/ follow up on outstanding payments)
  
  
• Inventory Management (IM) (inbound logistics, warehousing, distribution, and outbound logistics

Each business process (say P2P) will have many sub processes (like material and production planning, procurement, production, and payment to vendors). For each sub process which has a significant impact on business should have a SOP.

Why SOP should be made?

1) Streamlining of Processes

2) Tasks performed correctly and consistently

3) Tasks performed in accordance to company policies

4) Preventive, Detective and Corrective controls

5) Benchmarking is possible

6) Knowledge Transition to a new employee

7) Training of new employee

8) Company bible for reference

Now that we understand, SOPs are essential part for a company, let's see how to draft and finalize a SOP.

Any SOP is about designing a data flow diagram for a process i.e. chronological process steps defined in an organized manner to understand what should follow once an activity has been completed. For eg, in case of vendor payment the process should be: Vendor invoices are received, invoices are verified by user department, validated invoices are sent to finance team, finance team reviews and further validates the invoices w.r.t. completeness of invoices (3 way matching: Purchase Order  vs. Goods Receipt Note  vs.  Invoice details), accounts the invoice in books, makes the payment on due date. These steps are to be defined in a flow chart show casing activities under departments involved in this process (like in the discussed example, departments involved are: User Department, Finance Department (Accounting) and Finance Department (Payments/ Treasury)) and putting control activities/ decision boxes after each required step. Every SOP contains some symbols- activity boxes, decision boxes, process inter-linkages, and control actions. 

(Refer snapshot of an SOP and symbol chart below for better clarity)

 

Following approach can be used to make an SOP:

• Conduct process discussion in detail with Process Owners. Draft some questions before the discussion which can be asked in initial meeting
• Basis process discussion, draft an SOP (as is process)
• Discuss the draft SOP with process owner, understand the changes required and identify gaps in current process and controls required
• Work on controls required and build up a detailed framework for the process. Prepare a final draft of SOP (to be process)
• Discuss the final SOP draft with Head of Department, Internal Controls Team/ Finance Controller. Make changes, if any.

An SOP has input column, department column, output column and few notes attached to it.

P.S.: Mail the final SOP to all stakeholders at each stage of discussion for documenting the understanding acquired in order to avoid confusions at later stage. “As is” is the process followed in the business at present. It may lack basic controls and have design issues. “To be” is a desired stage of process. It contains all controls built in and no design gaps

Tools for making SOPs:  draw.io (online), Microsoft visio (offline) etc.