1. Project Management A Managerial Approach Chapter 12 Project Auditing

2. zA major vehicle for evaluation is the project audit, a more or less formal inquiry into any aspect of the project yA project audit is highly flexible and may focus on whatever matters senior management desires yThe evaluation of a project must have credibility in the eyes of the management group for whom it is performed and also in the eyes of the project team on whom it is performed

3. Purposes of Evaluation - Goals of the System zFour independent dimensions of success: yThe most straightforward dimension is the project’s efficiency in meeting both the budget and schedule yAnother dimension, and the most complex, is that of customer impact/satisfaction yA third dimension, again somewhat straightforward and expected, is business/direct success yThe last dimension, somewhat more difficult and nebulous to ascertain, is future potential

4. Purposes of Evaluation - Goals of the System zAnother primary purpose of evaluation is to help translate the achievement of the project’s goals into a contribution to the parent organization’s goals zTo do this, all facets of the project are studied in order to identify and understand the project’s strengths and weaknesses zThe result is a set of recommendations that can help both ongoing and future projects

5. Purposes of Evaluation - Goals of the System zA successful project evaluation can help an organization: yIdentify problems earlier yClarify performance, cost, and time relationships yImprove project performance yLocate opportunities for future technological advances yEvaluate the quality of project management yReduce costs

6. Purposes of Evaluation - Goals of the System zA successful project evaluation can help an organization (cont.): ySpeed the achievement of results yIdentify mistakes, remedy them, and avoid them in the future yProvide information to the client yReconfirm the organization’s interest in, and commitment to, the project

7. Purposes of Evaluation - Goals of the System zEvaluation often makes recommendations that relate to ancillary, unplanned, but important contributions to the project and its parent: yImprove understanding of the ways in which projects may be of value to the organization yImprove processes for organizing and managing projects yProvide a congenial environment in which project team members can work creatively together

8. Purposes of Evaluation - Goals of the System zAncillary goals yIdentify organizational strengths and weaknesses in project-related personnel, management, and decision-making techniques and systems yIdentify risk factors in the firm’s use of projects yImprove the way projects contribute to the professional growth of project team members yIdentify project personnel who have high potential for managerial leadership

9. The Project Audit zThe project audit is a thorough examination of the management of a project, its methodology and procedures, its records, its properties, its budgets and expenditures and its degree of completion zThe formal report may be presented in various formats, but should, at a minimum contain comments on some specific points

10. The Project Audit zSix parts of a project audit: y1. Current status of the project y2. Future status y3. Status of crucial tasks y4. Risk assessment y5. Information pertinent to other projects y6. Limitations of the audit zIt is far broader in scope than a financial audit and may deal with the project as a whole or any component or set of components of the project

11. Depth of the Audit zTime and money are two of the most common limits on depth of investigation and level of detail presented in the audit report zAccumulation, storage, and maintenance of auditable data are important cost elements zTwo often overlooked costs are the self protective activity of team members during an audit, and the potential for project morale to suffer as a result of a negative audit

12. Depth of the Audit zThere are three distinct and easily recognized levels of project auditing: yGeneral audit - normally most constrained by time and resources and is usually a brief review of the project touching lightly on the six parts of an audit yDetailed audit - usually conducted when a follow- up to the general audit is required yTechnical audit - generally carried out by a qualified technician under the direct guidance of the project auditor

13. Timing of the Audit zThe first audits are usually done early in the project’s life zEarly audits are often focused on the technical issues in order to make sure that key technical problems have been solved zAudits done later in the life cycle of a project are of less immediate value to the project, but are more valuable to the parent organization

14. Timing of the Audit zAs the project develops, technical issues are less likely to be matters of concern zConformity to the schedule and budget become the primary interests zManagement issues are major matters of interest for audits made late in the project’s life zPostproject audits are often a legal necessity because the client specified such an audit in the contract

15. Construction and Use of the Audit Report zThe information should be arranged so as to facilitate the comparison of predicted versus actual results zSignificant deviations of actual from predicted results should be highlighted and explained in a set of footnotes or comments zNegative comments about individuals or groups associated with the project should be avoided

16. Construction and Use of the Audit Report zInformation that should be contained in the audit report: y1. Introduction y2. Current status y3. Future project status y4. Critical Management issues y5. Risk Analysis y6. Caveats, Limitations, and Assumptions

17. Responsibilities of the Project Auditor/Evaluator zFirst and foremost, the auditor should “tell the truth” zThe auditor must approach the audit in an objective and ethical manner zMust assume responsibility for what is included and excluded from consideration in the report zThe auditor/evaluator must maintain political and technical independence during the audit and treat all materials as confidential

18. Responsibilities of the Project Auditor/Evaluator zSteps to carry out an audit: yAssemble a small team of experienced experts yFamiliarize the team with the requirements of the project yAudit the project on site yAfter the completion, debrief the project’s management

19. Responsibilities of the Project Auditor/Evaluator zSteps to carry out an audit (cont.): yProduce a written report according to a prespecified format yDistribute the report to the project manager and project team for their response yFollow up to see if the recommendations have been implemented

20. The Project Audit Life Cycle zLike the project itself, the audit has a life cycle composed of an orderly progression of well- defined events: yProject audit initiation yProject baseline definition yEstablishing an audit database yPreliminary analysis of the project yAudit report preparation yProject audit termination

21. Essentials of an Audit/ Evaluation zFor an audit/evaluation to be conducted with skill and precision, and to be generally accepted by senior management, the client and the project team, several conditions must be met: yThe audit team must be properly selected yAll records and files must be accessible yFree contact with project members must be preserved

22. The Audit/Evaluation Team zThe choice of the audit/evaluation team is critical to the success of the entire process zThe size of the team will generally be a function of the size and complexity of the project zFor a small project, one person can often handle all the tasks of an audit, but for a large project, the team may require representatives from several areas

23. The Audit/Evaluation Team zTypical areas that may furnish audit team members are: yThe project itself yThe accounting/controlling department yTechnical specialty areas yThe customer yThe marketing department yPurchasing/asset management yHuman resources yLegal/contract administration department

24. The Audit/Evaluation Team zThe main role of the audit/evaluation team is to conduct a thorough and complete examination of the project or some prespecified aspect of the project zThe team must determine which items should be brought to management’s attention zThe team is responsible for constructive observations and advice based on the training and experience of its members

25. Access to Records zIn order for the audit/evaluation team to be effective, it must have free access to all information relevant to the project zMost of the information needed will come from the project team’s records or from various departments such as accounting, personnel, and purchasing zSome of the most valuable information comes from documents that predate the project

26. Access to Records zExamples of documents that predate the project: yCorrespondence with the customer that led to RFP yMinutes of the project selection committee yMinutes of senior management committees that decided to pursue a specific area of technical interest zPriorities must be set to ensure that important analyses are undertaken before those of lesser importance

27. Access to Project Personnel and Others zThere are several rules that should be followed when contacting project personnel zCare must be taken to avoid misunderstandings between the audit/evaluation team and project team members zProject personnel should always be made aware of an in- progress audit zCritical comments should be avoided

28. Access to Project Personnel and Others zAt times, information may be given to audit evaluation team members in confidence zDiscreet attempts should be made to confirm such information through non-confidential sources zIf it cannot be confirmed, it should not be used zThe auditor/evaluator must protect the sources of confidential information

29. Measurement zMeasurement is an integral part of the audit/evaluation process zPerformance against planned budget and schedule usually poses no major measurement problems zMeasuring the actual expenditure against the planned budget is harder and depends on an in-depth understanding of the procedures used by the accounting department

30. Measurement zIt is a very difficult task to determine what revenues should be assigned to a project zAll cost/revenue allocation decisions must be made when the various projects are initiated zThe battles are fought “up front” and the equity of cost/revenue allocations ceases to be so serious an issue zAs long as allocations are made by a formula, major conflict is avoided-or at least, mitigated

31. The Auditor/Evaluator zAbove all else, the auditor/evaluator needs “permission to enter the system” zIf the auditor maintains a calm, relaxed attitude, the project team generally begins to extend limited trust zThe first step is to allow the auditor qualified access to information about the project

32. The Auditor/Evaluator zThe auditor/evaluator should deal gently with information gathered, neither ignoring nor stressing the project’s shortcomings zRecognition and appreciation should be given to the project’s strengths zIf this is done, trust will be extended and permission to enter the system will be granted zTrust-building is a slow and delicate process that is easily thwarted

33. Summary zThe purposes of the evaluation are both goal-directed and also aimed at achieving unspecified ancillary goals zThe audit report should contain at least the current status of the project, the expected future status, the status of crucial tasks, a risk assessment, information pertinent to other projects, and any caveats and limitations

34. Summary zAudit depth and timing are critical elements of the audit zThe difficult responsibility of the auditor is to be honest in fairly presenting the audit results zThe audit life cycle includes audit initiation, project baseline definition, establishing a database, preliminary project analysis, report preparation, and termination

35. Summary zSeveral essential conditions must be met for a credible audit: a credible audit/evaluation team, sufficient access to records, and sufficient access to personnel zMeasurement, particularly of revenues, is a special problem

36. Summary zThe purposes of the evaluation are both goal-directed and also aimed at achieving unspecified ancillary goals zThe audit report should contain at least the current status of the project, the expected future status, the status of crucial tasks, a risk assessment, information pertinent to other projects, and any caveats and limitations

37. Project Auditing Questions?

38. Project Auditing Table Files Chapter 12-36

39. Project Auditing