Project Management

Project Management: A Managerial Approach 4/e

By Jack R. Meredith and Samuel J. Mantel, Jr.

Published by John Wiley & Sons, Inc.

Presentation prepared by RTBM WebGroup

Project ManagementA Managerial ApproachChapter 12

Project Auditing

Project AuditingA major vehicle for evaluation is the project audit, a more or less formal inquiry into any aspect of the projectA project audit is highly flexible and may focus on whatever matters senior management desiresThe 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 performedChapter 12-1

Purposes of Evaluation - Goals of the SystemFour independent dimensions of success:The most straightforward dimension is the projects efficiency in meeting both the budget and scheduleAnother dimension, and the most complex, is that of customer impact/satisfactionA third dimension, again somewhat straightforward and expected, is business/direct successThe last dimension, somewhat more difficult and nebulous to ascertain, is future potentialChapter 12-2

Purposes of Evaluation - Goals of the SystemAnother primary purpose of evaluation is to help translate the achievement of the projects goals into a contribution to the parent organizations goalsTo do this, all facets of the project are studied in order to identify and understand the projects strengths and weaknessesThe result is a set of recommendations that can help both ongoing and future projectsChapter 12-3

Purposes of Evaluation - Goals of the SystemA successful project evaluation can help an organization:Identify problems earlierClarify performance, cost, and time relationshipsImprove project performanceLocate opportunities for future technological advancesEvaluate the quality of project managementReduce costsChapter 12-4

Purposes of Evaluation - Goals of the SystemA successful project evaluation can help an organization (cont.):Speed the achievement of resultsIdentify mistakes, remedy them, and avoid them in the futureProvide information to the clientReconfirm the organizations interest in, and commitment to, the projectChapter 12-5

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

Chapter 12-6

Purposes of Evaluation - Goals of the SystemAncillary goals Identify organizational strengths and weaknesses in project-related personnel, management, and decision-making techniques and systemsIdentify risk factors in the firms use of projectsImprove the way projects contribute to the professional growth of project team membersIdentify project personnel who have high potential for managerial leadershipChapter 12-7

The Project AuditThe 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 completionThe formal report may be presented in various formats, but should, at a minimum contain comments on some specific pointsChapter 12-8

The Project AuditSix parts of a project audit:1. Current status of the project2. Future status3. Status of crucial tasks4. Risk assessment5. Information pertinent to other projects6. Limitations of the auditIt 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 projectChapter 12-9

Depth of the AuditTime and money are two of the most common limits on depth of investigation and level of detail presented in the audit reportAccumulation, storage, and maintenance of auditable data are important cost elementsTwo 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 auditChapter 12-10

Depth of the AuditThere are three distinct and easily recognized levels of project auditing:General 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 auditDetailed audit - usually conducted when a follow-up to the general audit is requiredTechnical audit - generally carried out by a qualified technician under the direct guidance of the project auditorChapter 12-11

Timing of the AuditThe first audits are usually done early in the projects lifeEarly audits are often focused on the technical issues in order to make sure that key technical problems have been solved Audits done later in the life cycle of a project are of less immediate value to the project, but are more valuable to the parent organizationChapter 12-12

Timing of the AuditAs the project develops, technical issues are less likely to be matters of concernConformity to the schedule and budget become the primary interestsManagement issues are major matters of interest for audits made late in the projects lifePostproject audits are often a legal necessity because the client specified such an audit in the contractChapter 12-13

Construction and Use of the Audit ReportThe information should be arranged so as to facilitate the comparison of predicted versus actual resultsSignificant deviations of actual from predicted results should be highlighted and explained in a set of footnotes or commentsNegative comments about individuals or groups associated with the project should be avoidedChapter 12-14

Construction and Use of the Audit ReportInformation that should be contained in the audit report:1. Introduction2. Current status3. Future project status4. Critical Management issues5. Risk Analysis6. Caveats, Limitations, and Assumptions

Chapter 12-15

Responsibilities of the Project Auditor/EvaluatorFirst and foremost, the auditor should tell the truthThe auditor must approach the audit in an objective and ethical mannerMust assume responsibility for what is included and excluded from consideration in the reportThe auditor/evaluator must maintain political and technical independence during the audit and treat all materials as confidentialChapter 12-16

Responsibilities of the Project Auditor/EvaluatorSteps to carry out an audit:Assemble a small team of experienced expertsFamiliarize the team with the requirements of the projectAudit the project on siteAfter the completion, debrief the projects managementChapter 12-17

Responsibilities of the Project Auditor/EvaluatorSteps to carry out an audit (cont.):Produce a written report according to a prespecified formatDistribute the report to the project manager and project team for their response Follow up to see if the recommendations have been implementedChapter 12-18

The Project Audit Life CycleLike the project itself, the audit has a life cycle composed of an orderly progression of well-defined events:Project audit initiationProject baseline definitionEstablishing an audit databasePreliminary analysis of the projectAudit report preparationProject audit terminationChapter 12-19

Essentials of an Audit/ EvaluationFor 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:The audit team must be properly selectedAll records and files must be accessibleFree contact with project members must be preservedChapter 12-20

The Audit/Evaluation TeamThe choice of the audit/evaluation team is critical to the success of the entire processThe size of the team will generally be a function of the size and complexity of the projectFor 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 areasChapter 12-21

The Audit/Evaluation TeamTypical areas that may furnish audit team members are:The project itselfThe accounting/controlling departmentTechnical specialty areasThe customerThe marketing departmentPurchasing/asset managementHuman resourcesLegal/contract administration departmentChapter 12-22

The Audit/Evaluation TeamThe main role of the audit/evaluation team is to conduct a thorough and complete examination of the project or some prespecified aspect of the projectThe team must determine which items should be brought to managements attentionThe team is responsible for constructive observations and advice based on the training and experience of its membersChapter 12-23

Access to RecordsIn order for the audit/evaluation team to be effective, it must have free access to all information relevant to the projectMost of the information needed will come from the project teams records or from various departments such as accounting, personnel, and purchasingSome of the most valuable information comes from documents that predate the project

Chapter 12-24

Access to RecordsExamples of documents that predate the project:Correspondence with the customer that led to RFPMinutes of the project selection committeeMinutes of senior management committees that decided to pursue a specific area of technical interestPriorities must be set to ensure that important analyses are undertaken before those of lesser importanceChapter 12-25

Access to Project Personnel and OthersThere are several rules that should be followed when contacting project personnelCare must be taken to avoid misunderstandings between the audit/evaluation team and project team membersProject personnel should always be made aware of an in- progress auditCritical comments should be avoidedChapter 12-26

Access to Project Personnel and OthersAt times, information may be given to audit evaluation team members in confidenceDiscreet attempts should be made to confirm such information through non-confidential sourcesIf it cannot be confirmed, it should not be usedThe auditor/evaluator must protect the sources of confidential information Chapter 12-27

MeasurementMeasurement is an integral part of the audit/evaluation processPerformance against planned budget and schedule usually poses no major measurement problemsMeasuring the actual expenditure against the planned budget is harder and depends on an in-depth understanding of the procedures used by the accounting departmentChapter 12-28

MeasurementIt is a very difficult task to determine what revenues should be assigned to a projectAll cost/revenue allocation decisions must be made when the various projects are initiatedThe battles are fought up front and the equity of cost/revenue allocations ceases to be so serious an issueAs long as allocations are made by a formula, major conflict is avoided-or at least, mitigatedChapter 12-29

The Auditor/EvaluatorAbove all else, the auditor/evaluator needs permission to enter the systemIf the auditor maintains a calm, relaxed attitude, the project team generally begins to extend limited trustThe first step is to allow the auditor qualified access to information about the projectChapter 12-30

The Auditor/EvaluatorThe auditor/evaluator should deal gently with information gathered, neither ignoring nor stressing the projects shortcomingsRecognition and appreciation should be given to the projects strengthsIf this is done, trust will be extended and permission to enter the system will be grantedTrust-building is a slow and delicate process that is easily thwartedChapter 12-31

SummaryThe purposes of the evaluation are both goal-directed and also aimed at achieving unspecified ancillary goalsThe 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 limitationsChapter 12-32

SummaryAudit depth and timing are critical elements of the auditThe difficult responsibility of the auditor is to be honest in fairly presenting the audit resultsThe audit life cycle includes audit initiation, project baseline definition, establishing a database, preliminary project analysis, report preparation, and terminationChapter 12-33

SummarySeveral essential conditions must be met for a credible audit: a credible audit/evaluation team, sufficient access to records, and sufficient access to personnelMeasurement, particularly of revenues, is a special problemChapter 12-34

SummaryThe purposes of the evaluation are both goal-directed and also aimed at achieving unspecified ancillary goalsThe 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 limitationsChapter 12-35

Project Auditing

Questions?

Chapter 12-36

Project Auditing

Table Files

Chapter 12-36

Project Auditing

Project Auditing

Project Auditing

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