What is SOP?
SOP stands for Standard Operating Procedures. It is a written document that provides step-by-step instructions on how to perform a specific task or carry out a process in a consistent and standardized manner. SOPs are designed to ensure that everyone who performs a particular task follows the same procedures and achieves the same results. It is a documented process created by companies to ensure consistency. They establish guidelines or instructions so that employees know what to do in specific situations, allowing them to work more productively while complying with regulations and expectations.
SOPs can help to minimize errors, reduce variability in outcomes, and improve efficiency. They are also useful for training new employees and for maintaining compliance with regulations and company policies.
SOPs fill the communication gap between employees and upper management, especially when a company is growing quickly and the management team may not be able to provide hands-on instructions. SOPs make it easier for employees to make decisions without direct guidance from their supervisors while still ensuring the choices they’re making are in line with the company’s goals and direction.
Standard operating procedures (SOPs) can help bring uniformity to the way any team works without requiring manual oversight and instruction. Creating SOPs can help employees navigate complex or confusing situations, keeping everyone on the same page and reducing bottlenecks so that processes move efficiently.
Below are the major contents of SOP –
Title
Document Identification Information. This will include below table
Change/Revision History. This will include –
Introduction
Purpose of this document
Intended Users
Process overview – This will include In-scope and out-scope
Process details – This will include SIPOC (Supplier, input, process, output and customer), Detailed process Map and Detailed process description. SIPOC table will be as follows, which can be used as interdependency table.
Additionally, it will include the following: -
Operating Procedure
Accounting Entries
Reports
Compliances (which include company rules)
Records
Exceptions and solutions
Yearend procedures
Systems used and access required
Annexures
This is just a simple example, and SOPs can be much more detailed and complex depending on the process being documented. The key is to make sure that the SOP is clear, concise, and easy to follow, so that employees can carry out the activities accurately and efficiently.
Types of SOPs, each with a specific purpose and function.
1. Step-by-step
The step-by-step SOP is probably what comes to mind when we think of an SOP. This type of standard operating procedure is a simple set of instructions that an employee should follow when performing a task or activity.
The same instructions are followed each and every time, regardless of who is performing the task or the context in which the task occurs. Each step needs to be followed in order (rather than treated as a checklist).
Step-by-step SOPs are easy to follow, regardless of skill or experience level. When a step-by-step SOP is written correctly, anyone can pick up the instructions and follow along.
2. Hierarchical SOP
If the procedure documenting is too complex for step-by-step instructions to make sense, one can use a hierarchical SOP. A hierarchical SOP breaks down each individual step with detailed instructions or guidelines on how the task should be performed.
It uses a top-down approach to break down business processes. It covers policy, procedures, guidelines and documentation.
A hierarchical SOP might also share details about who needs to follow the policy and when, like at the beginning of a shift or after returning from a break.
3. Flowchart SOP
A flowchart SOP is used if certain conditions or events could change the series of events an employee needs to follow. For example, if a manager or supervisor needs to step in to give approval for certain projects.
Flowchart SOPs help the team; work around if-then situations or processes that aren’t always straightforward. They’re often displayed visually, making it easier to follow complexities without creating confusion.
It’s best to keep flowcharts as simple as possible. If you try to add in too many steps or each step involves a number of tasks on its own, it can quickly become overwhelming.
Importance of SOPs -
SOPs do more than just provide consistent direction to help companies scale. SOPs can also facilitate various certifications that can give Companies good standing, like ISO certifications for example.
Here are some key benefits of having SOPs.
1. Reduce training time
Whether you are on-boarding a new hire or training an existing employee to take on new responsibilities, bringing them up to speed requires clear instruction and guidance. Asking another team member to sit by them while they learn isn’t always productive — especially when you are training more than one team member.
Using SOPs in the training process can make the education experience more consistent, ensuring all employees learn how to perform tasks or activities, the same (and correct) way. It also frees existing team members up to focus on their own work — and because employees in training can refer back to SOPs when they need a refresher, it cuts down on the amount of time spent waiting on answers or for feedback from supervisors.
2. Increase productivity by reducing errors
When tasks are done incorrectly, it causes a chain reaction that hurts morale and productivity. Those same tasks need to be redone (either by the person who did them incorrectly the first time or another employee — both frustrating situations), delaying the tasks that follow and setting the entire team behind schedule.
While mistakes are bound to happen from time to time, SOPs can help your team do things correctly the first time around. They know exactly what they should be doing and how to do it, so projects move forward smoothly.
As an added bonus, SOPs can also increase confidence in employees. Easy access to instructions and guidelines can encourage employees to step up and take on new tasks or feel confident in escalating projects to the next level without needing hands-on support from supervisors.
3. Improve brand loyalty
Consistency is one of the biggest contributors to brand loyalty. When customers trust that a brand will deliver on its promises, they are more likely to purchase products, reach out for support from team members, or recommend it to a friend.
SOPs are the key to creating consistency, especially when it comes to dealing with confusing or complex challenges. You will reduce quality errors to maintain high standards, keeping customers happy and increasing their loyalty to your brand.
4. Meet legal and regulatory compliance
Managing compliance obligations can be tricky, especially with new employees still learning the appropriate procedures and requirements. But missing a crucial component of a legal or regulatory process can mean serious consequences and fines.
SOPs help ensure nothing is missed, maintaining compliance without needing strict oversight from a more experienced employee.
5. Avoid knowledge loss
Depending on employees to store and capture steps of a process can result in knowledge loss when an employee moves on from a position or leaves the company. Your team is then left trying to remember how to do things without an expert, which can lead to issues and mistakes.
SOPs create a formal documentation process to get knowledge out of employees’ heads and onto paper. When an employee moves on, on-boarding to fill their role can be done faster and more efficiently.
Relevance of SOP in todays’ work environment -
While it is common for large companies to have Standard Operating Procedures (SOPs) in place, it cannot be assumed that every large company has them. The existence and extent of SOPs can vary based on the industry, organizational culture, and specific requirements of the company.
In industries where regulations and compliances are stringent, such as pharmaceuticals, healthcare, banking, financial services, insurance, and manufacturing, it is more likely to find extensive SOPs due to the necessity of adhering to strict guidelines and ensuring safety and quality standards.
However, even in industries with less regulatory oversight, many large companies recognize the benefits of implementing SOPs. SOPs can help streamline operations, improve consistency, enhance employee training and onboarding, and ensure compliance with internal policies.
Having a formal SOP, covering all the aspects of a process and its proper implementation, are crucial in today's work environment for several reasons:
1. Ensuring Consistency: SOPs provide a standardized method for performing tasks, which ensures consistency and helps to maintain quality across the organization. This is particularly important in industries such as healthcare, manufacturing, and BFSI where even minor deviations from standard procedures can have serious consequences. This can help to minimize errors and reduce variability in outcomes.
Today's work environment is rapidly changing and evolving due to various factors such as advancements in technology, globalization, and changing demographics. Many companies are adopting remote work or hybrid work models, allowing employees to work from home or other locations outside of the traditional office environment. This has been accelerated by the COVID-19 pandemic and has become a popular trend for many companies. SOPs will help address this concern as well as ensure consistency in the process followed by each and every person who is handling the operations.
2. Enhancing Efficiency: SOPs provide a clear and concise roadmap for completing tasks, which can help to streamline processes, reduce errors, and increase efficiency. By outlining the most efficient and effective way to complete a task, SOPs can help to save time, resources, and money.
Companies are recognizing the importance of diversity and inclusion in the workplace, striving to create a more inclusive and equitable work environment for employees of all backgrounds. SOPs will be an important step in achieving such objectives of a company.
3. Improving Safety: SOPs can help to reduce the risk of accidents and injuries by outlining safe working practices and procedures. By identifying potential hazards and providing instructions on how to avoid them, SOPs can help to create a safer work environment for employees.
In today's fast-paced business environment, companies need to be agile and adaptable to changing market conditions and customer demands. Flexibility is key, with companies needing to be able to pivot quickly to new opportunities and adapt to new challenges. To achieve this, SOPs will help to work on routing tasks more quickly and safely.
4. Supporting Compliance: SOPs can help to ensure compliance with regulatory requirements, industry standards, and best practices. By providing documented procedures for completing tasks, SOPs can help to demonstrate to regulators and auditors that the organization is taking the necessary steps to maintain compliance. This can help to mitigate risks and avoid legal and financial penalties.
5. Training and onboarding: SOPs can be used as a tool to train new employees and help them to quickly get up to speed on how to carry out specific tasks or processes. This can also help to ensure that everyone is working to the same standards and following the same procedures. By providing clear instructions on how to perform specific tasks, SOPs can help to ensure that new hires are properly trained and can quickly become productive members of the team.
Technology has revolutionized the way we work and communicate, with tools such as video conferencing, cloud computing, and collaboration software enabling us to work together seamlessly across locations and time zones. In these scenarios, SOPs will be very much useful. Also, with the help of technology, it is easier to communicate and follow the SOPs.
6. Continuous improvement: SOPs can be periodically reviewed and updated to reflect changes in technology, best practices, or other factors that could impact the task or process. This helps to ensure that the organization is always striving to improve its operations and stay competitive.
With technology and the nature of work constantly evolving, employees need to continually develop their skills to stay relevant and competitive. Companies are investing in employee training and development programs to help their workforce keep pace with these changes. Likewise, updated SOPs will help the employees to save on time for few of the activities and focus on more productive work areas.
7. Proper drafting and implementation: Below are the few common mistakes in drafting SOP –
A] Lack of Clarity - The language used in the SOP should be clear and concise. Avoid using technical jargon or complex words that may be difficult for the reader to understand
B] Failure to Include Necessary Information - An SOP should provide all the necessary information required to carry out a specific process or task.
C] Inconsistencies - Ensure that the language used in the SOP is consistent throughout the document. D] Lack of Accessibility - An SOP should be easily accessible to everyone who needs to use it.
E] Failure to Update - It is important to regularly review and update SOPs to ensure that they reflect the most current practices and procedures.
F] Lack of Testing - Before finalizing an SOP, it is important to test the process or task to ensure that the steps and procedures are accurate and effective.
G] Lack of feedback - Soliciting feedback from stakeholders can help to ensure that the SOP is clear, complete, and effective
One needs to avoid all the above mistakes while drafting so that its implementation will be as expected by the business. SOPs are not only useful for technical processes but non-technical processes as well can be documented and standardised. Non-technical processes would include – HR, Accounts, Admin etc. where we can document every step related to the function as follows: –
In the case of HR – process starting from how the vacancy is created in the company till the Full and final settlement of the employee. This will cover HR policy, company budget for recruitment, process of BGV (Background verification) etc. and all the other related areas of HR function
In case of Accounts – all the processes of Accounts function relating to passing of each accounting entry, its trigger point, respective applicable statutory laws, till finalisation of books and preparation of financial statements. This will also cover the financial budgets, cash flow, fund flow preparation, MIS reporting, audit preparation, cost benefit analysis, which will ultimately be useful for decision making by Management.
It is also useful in drafting the Risk Control Matrix (RCM) required as per the Internal Financial Controls over Financial Reporting. RCM is majorly dependent on SOP for its elements like, control description, control owner, control frequency, control type etc. All these elements can be easily extracted from SOP, which will ultimately be useful to achieve process maturity.
Such an SOP needs to bring out the relevance of Job Roles and Responsibilities for each function. Through SOP, we can also address SOD (Segregation of Duties) requirements so as to have a maker checker mechanism and pinpoint the accountability.
That being said, the implementation of SOPs depends on various factors, including the company's structure, complexity, and industry. Some organizations may have alternative methods for documenting procedures, such as work instructions, manuals, or best practice guidelines, rather than formal SOPs. Ultimately, the presence of SOPs in a large company can vary, and it depends on the specific needs and practices of each organization.
(SOPs) can play a role in promoting good corporate governance within an organization. While SOPs alone cannot guarantee good corporate governance, they are an important tool that supports and reinforces governance practices within an organization. When developed and implemented effectively, SOPs contribute to transparency, accountability, risk management, and operational efficiency, which are key components of good corporate governance.
To Summarize -
SOPs are essential documents that provide a consistent, efficient, and safe method for completing tasks. They are crucial in today's work environment as they help to ensure quality, efficiency, safety, compliance, and can facilitate training of new employees.
Overall, the modern work environment is dynamic, flexible, and constantly changing. Companies that can adapt to these changes and provide a supportive and inclusive work environment for their employees are likely to thrive in this new era of work.
SOPs are a valuable tool for organizations looking to improve their processes, reduce errors and variability, increase efficiency, and ensure compliance with relevant regulations and policies. They are especially relevant in today's fast-paced work environment, where organizations are constantly looking for ways to improve their operations and stay competitive.
In this process, Outsourcing can be an effective fall out of having SOPs which can help Companies to focus on their core competencies and outsource the non-core areas. few processes that are typically outsourced are Accounts Receivable (AR), Accounts Payable (AP), Perpetual Inventory Verification (PIV), Payroll, Fixed Assets Verification (FAV), SOP designing and Drafting, Reconciliations, Data Migration from one ERP to another etc. SOPs also have tremendous importance in creating and operating Local or Global Shared Services. SOPs play a critical role in creating a consistent, efficient, and scalable global shared services environment. They support knowledge transfer, training, compliance, quality assurance, and continuous improvement efforts. By establishing standardized procedures, SOPs enable organizations to optimize their shared service operations, enhance customer satisfaction, and achieve operational excellence across multiple locations or business units.
If it is practically difficult for companies, designing and drafting SOPs or review of existing SOPs can be done critically by a third party who are experts in Process Audits, as that will give benefit Timeliness, completeness and flavour of best practices organizations can follow. This can also help in identifying a few areas for automation, wherever possible! Considering the new era of technology, where we are moving towards data analysis, AI, RPA and block chain, we need to have strong basics and then only we can work towards these technological advancements.
Standardization of business processes can boost productivity, efficiency and achieve the aim of Operational Excellence!!
Article By
CA Shripad Kulkarni,
Partner
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