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 Management A Managerial Approach Chapter 12 Project Auditing Project Auditing A major vehicle for evaluation is the project audit, a more or less formal inquiry into any aspect of the project A project audit is highly flexible and may focus on whatever matters senior management desires The 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 Chapter 12-1 Purposes of Evaluation Goals of the System Four independent dimensions of success: The most straightforward dimension is the project’s efficiency in meeting both the budget and schedule Another dimension, and the most complex, is that of customer impact/satisfaction A third dimension, again somewhat straightforward and expected, is business/direct success The last dimension, somewhat more difficult and nebulous to ascertain, is future potential Chapter 12-2 Purposes of Evaluation Goals of the System Another primary purpose of evaluation is to help translate the achievement of the project’s goals into a contribution to the parent organization’s goals To do this, all facets of the project are studied in order to identify and understand the project’s strengths and weaknesses The result is a set of recommendations that can help both ongoing and future projects Chapter 12-3 Purposes of Evaluation Goals of the System A successful project evaluation can help an organization: Identify problems earlier Clarify performance, cost, and time relationships Improve project performance Locate opportunities for future technological advances Evaluate the quality of project management Reduce costs Chapter 12-4 Purposes of Evaluation Goals of the System A successful project evaluation can help an organization (cont.): Speed the achievement of results Identify mistakes, remedy them, and avoid them in the future Provide information to the client Reconfirm the organization’s interest in, and commitment to, the project Chapter 12-5 Purposes of Evaluation Goals of the System Evaluation 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 organization Improve processes for organizing and managing projects Provide a congenial environment in which project team members can work creatively together Chapter 12-6 Purposes of Evaluation Goals of the System Ancillary goals Identify organizational strengths and weaknesses in project-related personnel, management, and decision-making techniques and systems Identify risk factors in the firm’s use of projects Improve the way projects contribute to the professional growth of project team members Identify project personnel who have high potential for managerial leadership Chapter 12-7 The Project Audit The 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 The formal report may be presented in various formats, but should, at a minimum contain comments on some specific points Chapter 12-8 The Project Audit Six parts of a project audit: 1. 2. 3. 4. 5. 6. Current status of the project Future status Status of crucial tasks Risk assessment Information pertinent to other projects Limitations of the audit It 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 Chapter 12-9 project Depth of the Audit Time and money are two of the most common limits on depth of investigation and level of detail presented in the audit report Accumulation, storage, and maintenance of auditable data are important cost elements Two 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 Chapter 12-10 Depth of the Audit There 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 audit Detailed audit - usually conducted when a followup to the general audit is required Technical audit - generally carried out by a qualified technician under the direct guidance of the project auditor Chapter 12-11 Timing of the Audit The first audits are usually done early in the project’s life Early 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 organization Chapter 12-12 Timing of the Audit As the project develops, technical issues are less likely to be matters of concern Conformity to the schedule and budget become the primary interests Management issues are major matters of interest for audits made late in the project’s life Postproject audits are often a legal necessity because the client specified such an audit in the contract Chapter 12-13 Construction and Use of the Audit Report The information should be arranged so as to facilitate the comparison of predicted versus actual results Significant deviations of actual from predicted results should be highlighted and explained in a set of footnotes or comments Negative comments about individuals or groups associated with the project should be avoided Chapter 12-14 Construction and Use of the Audit Report Information that should be contained in the audit report: 1. Introduction 2. Current status 3. Future project status 4. Critical Management issues 5. Risk Analysis 6. Caveats, Limitations, and Assumptions Chapter 12-15 Responsibilities of the Project Auditor/Evaluator First and foremost, the auditor should “tell the truth” The auditor must approach the audit in an objective and ethical manner Must assume responsibility for what is included and excluded from consideration in the report The auditor/evaluator must maintain political and technical independence during the audit and treat all materials as confidential Chapter 12-16 Responsibilities of the Project Auditor/Evaluator Steps to carry out an audit: Assemble a small team of experienced experts Familiarize the team with the requirements of the project Audit the project on site After the completion, debrief the project’s management Chapter 12-17 Responsibilities of the Project Auditor/Evaluator Steps to carry out an audit (cont.): Produce a written report according to a prespecified format Distribute the report to the project manager and project team for their response Follow up to see if the recommendations have been implemented Chapter 12-18 The Project Audit Life Cycle Like the project itself, the audit has a life cycle composed of an orderly progression of welldefined events: Project audit initiation Project baseline definition Establishing an audit database Preliminary analysis of the project Audit report preparation Project audit termination Chapter 12-19 Essentials of an Audit/ Evaluation For 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 selected All records and files must be accessible Free contact with project members must be preserved Chapter 12-20 The Audit/Evaluation Team The choice of the audit/evaluation team is critical to the success of the entire process The size of the team will generally be a function of the size and complexity of the project For 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 Chapter 12-21 The Audit/Evaluation Team Typical areas that may furnish audit team members are: The project itself The accounting/controlling department Technical specialty areas The customer The marketing department Purchasing/asset management Human resources Legal/contract administration department Chapter 12-22 The Audit/Evaluation Team The 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 The team must determine which items should be brought to management’s attention The team is responsible for constructive observations and advice based on the training and experience of its members Chapter 12-23 Access to Records In order for the audit/evaluation team to be effective, it must have free access to all information relevant to the project Most of the information needed will come from the project team’s records or from various departments such as accounting, personnel, and purchasing Some of the most valuable information comes from documents that predate the project Chapter 12-24 Access to Records Examples of documents that predate the project: Correspondence with the customer that led to RFP Minutes of the project selection committee Minutes of senior management committees that decided to pursue a specific area of technical interest Priorities must be set to ensure that important analyses are undertaken before those of lesser importance Chapter 12-25 Access to Project Personnel and Others There are several rules that should be followed when contacting project personnel Care must be taken to avoid misunderstandings between the audit/evaluation team and project team members Project personnel should always be made aware of an in- progress audit Critical comments should be avoided Chapter 12-26 Access to Project Personnel and Others At times, information may be given to audit evaluation team members in confidence Discreet attempts should be made to confirm such information through non-confidential sources If it cannot be confirmed, it should not be used The auditor/evaluator must protect the sources of confidential information Chapter 12-27 Measurement Measurement is an integral part of the audit/evaluation process Performance against planned budget and schedule usually poses no major measurement problems Measuring the actual expenditure against the planned budget is harder and depends on an in-depth understanding of the procedures used by the accounting department Chapter 12-28 Measurement It is a very difficult task to determine what revenues should be assigned to a project All cost/revenue allocation decisions must be made when the various projects are initiated The battles are fought “up front” and the equity of cost/revenue allocations ceases to be so serious an issue As long as allocations are made by a formula, major conflict is avoided-or at least, mitigated Chapter 12-29 The Auditor/Evaluator Above all else, the auditor/evaluator needs “permission to enter the system” If the auditor maintains a calm, relaxed attitude, the project team generally begins to extend limited trust The first step is to allow the auditor qualified access to information about the project Chapter 12-30 The Auditor/Evaluator The auditor/evaluator should deal gently with information gathered, neither ignoring nor stressing the project’s shortcomings Recognition and appreciation should be given to the project’s strengths If this is done, trust will be extended and permission to enter the system will be granted Trust-building is a slow and delicate process that is easily thwarted Chapter 12-31 Summary The purposes of the evaluation are both goal-directed and also aimed at achieving unspecified ancillary goals The 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 Chapter 12-32 Summary Audit depth and timing are critical elements of the audit The difficult responsibility of the auditor is to be honest in fairly presenting the audit results The audit life cycle includes audit initiation, project baseline definition, establishing a database, preliminary project analysis, report preparation, and termination Chapter 12-33 Summary Several essential conditions must be met for a credible audit: a credible audit/evaluation team, sufficient access to records, and sufficient access to personnel Measurement, particularly of revenues, is a special problem Chapter 12-34 Summary The purposes of the evaluation are both goal-directed and also aimed at achieving unspecified ancillary goals The 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 Chapter 12-35 Project Auditing Questions? Chapter 12-36 Project Auditing Table Files Chapter 12-36 Project Auditing Project Auditing Project Auditing Copyright © 2000 John Wiley & Sons, Inc. All rights reserved. Reproduction or translation of this work beyond that permitted in Section 117 of the 1976 United States Copyright Act without the express written permission of the copyright owner is unlawful. Request for further information should be addressed to the Permissions Department, John Wiley & Sons, Inc. The purchaser may make back-up copies for his/her own use only and not for distribution or resale. The Publisher assumes no responsibility for errors, omissions, or damages, caused by the use of these programs or from the use of the information contained herein.
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