Reasons why you should develop your own Standard Operating Procedures

My management philosophy places a great emphasis on standard operating procedures (SOP). This document is tedious and time-consuming to develop, but once in place, can save your company a lot of costs and decrease operational inefficiencies. The common misconception is that a small-scale company doesn’t require SOPs, and this is where the problem initially starts. Years later when they try to scale up their business, they’ll realise that reverse engineering is almost impossible or too costly as the operation processes are too badly intertwined. This bottleneck is the major cause of why many companies fail to scale despite having great products.

SOPs ensure consistency across an organisation and it streamlines the tasks to be executed. A great SOP is more than just a list of tasks that has to be executed accordingly. It needs to fulfil these few aspects below to actually be truly beneficial to an organisation.

  • Precision

This attribute can be achieved by asking the 5W1H questions – Why? When? Who? Where? Which? How (much)? These details have to be as accurate as possible so that when you show them to a dummy, it will be able to understand and execute it without further instructions.

  • Risk Management

If a risk can be anticipated, steps and countering methods can be written down to mitigate the risk and to guide the employees on the appropriate approach when the issues arise. This also intends to minimize discrepancies within the business such as thefts, damaged items, fraud, system incompatibility and etc.

While the top management might be able to highlight risks which are not necessarily obvious to the employees working at the frontline, they could miss out on the lower-level risks which are only known to the employees. This kind of risks should never be ignored as they could induce a huge direct or indirect costs and they’re much easier to mitigate.

I find interviewing the employees under an environment where they’re given enough room to think to be particularly useful to identify these minor risks. Sometimes, to be able to spot these risks, one has to be highly intuitive.  A risk analysis can then be done by creating a risk table which essentially consists of the severity, the cost of the consequences and the probability of the risks to happen. Pareto Principle or the 80/20 rule can then be used to further optimize the spending on risk mitigation.

  • Hierarchical Structure

A list of person-in-charge and their roles and responsibilities should be included in the documents. This is essential in the case when escalation of decision-making is inevitable. It also maps out the reporting relationship within the organisation which will increase the efficiency of communication and enable faster reaction in the face of crisis.

  • Up-to-date

The SOPs of a company should always stay updated to fit the business needs and requirements. If strictly following the SOPs incurs greater costs to the business, the validity of the SOPs should be questioned and the top management should take time to revise the SOPs. Companies should nurture an environment in which employees are encouraged to voice out their own opinions on how their routine work can be done more efficiently and effectively.

I always use the ‘elephant with matchstick legs’ metaphor to address the state of a company which the business internal processes and controls can no longer support its progression. Documents like the policies and procedures and SOPs are supposed to handle this problem, but they’re often overlooked or underenforced. If you’re having problems managing the performance of your employees, try developing and enforcing the SOPs. You’ll be shocked at how effective the SOPs are in tackling this issue.

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