Strategic audits help to eliminate waste, encourage better resource utilization and help companies effectively accomplish its goals. 

Strategic audits are performed when organizations want to know how effective its strategy is being executed. A strategic audit, when performed properly, will analyze an organizations strategy as it relates to its goals, communication of that strategy, resource utilization and measurement metrics. The goal of any strategic audit would be to provide information to the organization for how to better align its activities and resources with its strategic goals.

Audit of the strategy itself-

Just because an organization has a strategy doesn’t mean that it is appropriate given the organizations goals. Therefore, the first part of a strategic audit is to analyze this. The strategy must be defined well enough to ensure accomplishment of the goal.

Communication of the strategy-

The next part of the audit is to decide how effectively the strategy is being communicated throughout the organization. If the executive team knows the strategy and no one else really understands it, then an organization’s resources won’t be aligned. Continuous communication of the strategy is key when seeking to accomplish a goal. Otherwise, an organization may fight itself to achieve the same goal.

Resource utilization-

An effective strategic audit will inventory and analyze all resources available to the organization and decide how well these are being used to implement the strategy and accomplish the goal. These resources include capital assets, human assets, partnerships, and intangible assets, such as public perception, corporate culture, etc.

Measurement metrics-

The last major part of a strategic audit will focus on the measurement metrics employed to evaluate, real time, how well the organization is doing at accomplishing the goal. We believe success must be measured to have its full effect. Therefore, carefully deciding how to measure progress and success is important to any strategy.

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1. Purchase of a modest home. Note the word modest. While going into debt for a home can be positive on many levels, don’t get in to deep and avoid future home equity loans.
2. Borrowing for education. Government backed student loans tend to be reasonable and rarely a better substitute can be found. Avoid unsubsidized loans, as you will be responsible for interest while in school.
3. Borrowing for a business. If you have a sound idea and believe fully that you can succeed, then getting a small business loan can be worth the price of debt. Remember to bootstrap for everything, so you can make that money last a long time.
3.5 Borrowing for a car. I only give this a half reason because I believe it is necessary to get you to and from work to earn a living. However, a $3500 used Toyota Camry, with sporadic maintenance, gets you to work just like a $17,000 newer Toyota Camry. The principle here is get what you need, not what you want, if you have to borrow to get it.

So why are all of these debts “good” and all others bad? The reason the first three can be “good” is because they all appreciate or increase your earning ability. The housing market always appreciates over the long run and even if it doesn’t you still need a place to live. Education can be expensive, but it pays you back your whole career. Businesses are created to make money and therefore can justify a debt. A car depreciates; however, it enables you to make a living and therefore can be considered on a small scale.

Generally, all other debts should be avoided like the plague. Consumer debt in particular will bind you and it shows lack of discipline and common sense. (Disclaimer: Note the word “general” that starts the paragraph, I am discussing general sound principles, of course there are always exceptions for each person’s circumstances). A good rule of thumb is if you went without it this long, you could probably go longer until you have the money to buy it. And if you can’t then I would suggest looking to your savings to see you through. No savings? Well then start now.

Remember this most important principle, “Spend less than you make.” You accomplish both principles by doing this. No debt, and money to save.

Basically, the United States’ top accountant, David Walker, is suggesting that changes need to be made immediately or we as a country are going to find ourselves in a terrible position. Keep in mind that this is not a politician. If anyone has ever talked to an accountant before, you will know that these guys tell it how it is and tend to not posture for anything except to keep their job by keeping their employer solvent.

In this case, you will notice that Mr. Walker does not point to the immense amounts of money being pored into the war on terrorism as a cause for worry. He mentions that those are manageable. It is in fact, were we have been and are going with Social Security and Medicare that has our top bean counter worried. We have $54 trillion ($54,000,000,000,000) in debt and $34 trillion of that is Medicare. By doing nothing we increase $2-3 trillion a year. Put another way, that is $440,000 of debt per household. He states that there is no way to tax our way out of this problem. We have to make changes in our fundamental policies on our budget, social security and medicare.

So what is the big deal? Well, first we have an election year and we need someone to take on this problem. Will we get that person? I hope so. Second, we have a small window, according to Mr. Walker, in which we can actually do something about this. He estimates 5-10 years at the most. If we don’t address and solve the problem our interest rates will go up because others won’t want to buy our debt. Mr. Walker explained, “And when interest rates go up, then believe me, we can have something a lot worse than a recession.” Last, this problem is not in a vacuum. This has the certain potential of breaking down other parts of our system, namely our defense system. If foreign countries stop believing we are a superpower, then they will be more likely to challenge our policies.

If for some reason you have gotten this far and have still not read the interview, please read it…I will wait here….

Ok, so now what do we do. We can vote for the right people, but that may not make a large enough change, so we must do what we can to take care of ourselves if and when crisis hit. The best way to prepare is to get out of debt yourself. I will post something very soon on this subject and then will link to it. Until then, get your financial house in order.