project auditing

2. Project Audit/Evaluation/Review
• A more or less formal inquiry into any aspect of the
project
• A major vehicle for evaluation
• “Evaluation” – to set the value of; to appraise
• “Project evaluation” – appraises the progress and
performance of a project compared to that project’s
planned progress and performance, or compared to
the progress and performance of other similar projects

3. 12-3
The Project Audit
 What and why
 Benefits of a project audit
 Judging success and failure
 Determining project objectives
 Contents and format of a project audit
 Project Audit Life Cycle
 Responsibilities of an auditor

4. 12-4
What is a Project Audit, & Why Is It Done?
 A formal inquiry into any or all aspects of a project
 Possible reasons:
 Revalidate the business feasibility of the project
 Reassure top management
 Confirm readiness to move to next phase of project
 Investigate specific problems

5. 12-5
Some Specific Benefits of a Well-Done Project
Audit
 Identify problems earlier
 Clarify performance/cost/schedule relationships
 Improve project performance
 Identify future opportunities
 Evaluate performance of project team
 Reduce costs
 Inform client of project status/prospects
 Reconfirm feasibility of/commitment to project

6. 12-6
Judging a Project’s Success
 To what extent is a project meeting its objectives?
 Efficiency: Does the project use resources in a cost-
effective manner? Cost efficiency? Schedule efficiency?
 Customer impact/satisfaction: Quality, timeliness,
customer satisfaction, meeting/exceeding specifications.
 Business success: Meeting expectations in ROI, market
share, cash flow
 Future potential: Will project lead to future business
prospects?

7. 12-7
The Difference Between Project Success &
Failure
 Audits of 110 projects over 11 years reveal four basic
differences between success and failure
 Objectivity in design, scope, cost and schedule
 Experienced people throughout project
 Authority commensurate with responsibility
 Clear responsibility and accountability

8. 12-8
Determining What the Project
Objectives Really Are
 Explicit objectives are easy to find
 Cost, schedule, performance specs
 Profit targets
 Ancillary objectives are not
 Examples include retaining employees, maintaining a
customer, getting a “foot in the door,” developing a new
capability, blocking a rival

9. 12-9
Ancillary Objectives are Important, but Often
Obscure
 If an audit ignores ancillary objectives, it will draw
an incomplete picture
 But people tend to disguise ancillary objectives.
Why?
 If not explicit, how can it be judged a failure?
 People and teams may have their own goals and
priorities
 The stronger the project culture, the greater the
suspicion toward outsiders, e.g., auditors

10. 12-10
Costs of Project Audits
 While audits offer benefits, they aren’t free
 Some costs are obvious, others less so
 Salaries of auditors and staff
 Distraction from project work
 Before and during the audit
 Anxiety and morale within the project
 Cost of outside experts

11. 12-11
Timing of the Audit
 Early audits tend to focus on technical issues, and tend
to benefit the project
 Later audits lean toward cost and schedule, and tend
to benefit the parent organization
 Transfer of lessons learned to other projects

12. 12-12
Contents of a Project Audit
 Format can vary, but six areas should be covered
 1. Project status, in all dimensions
 2. Future projections
 3. Status of crucial tasks
 4. Risk assessment
 5. Information relevant to other projects
 6. Limitations of the audit

13. 12-13
A Format for a Project Audit
 Introduction
 Including project objectives
 Also audit assumptions, limitations
 Current project status
 Cost
 Schedule
 Progress/Earned Value
 Quality

14. 12-14
Format for Project Audit (cont’d)
 Future Project Status
 Conclusions and recommendations
 Critical Management Issues
 A Pareto approach
 Risk Management
 Major threats to project success
 Appendices

15. 12-15
The Project Audit Life-Cycle
 Like the project itself, the audit has a life cycle
 Six basic phases:
 1. Project audit initiation
 Focus and scope of audit; assess methodologies, team
members required
 2. Baseline Definition
 Determine the standards against which performance will be
measured

16. 12-16
The Audit Life Cycle (cont’d)
 3. Establishment of Audit Database
 Gathering/organizing pertinent data
 Focus on what’s necessary
 4. Data Analysis
 The judgment phase
 Comparison of actuals to standard

17. 12-17
The Audit Life Cycle (cont’d)
 5. Audit Report Preparation
 Present findings to PM first
 Then, prepare final report
 6. Audit Termination
 Review of audit process
 Disbanding of team

18. 12-18
Responsibilities of a Project
Auditor
 As in medicine, “first do no harm”
 Be truthful, upfront with all parties
 Maintain objectivity and independence
 Acknowledge entering biases
 Project confidentiality
 Limit contacts to those approved by management

19. 12-19
Baseline Marketing Data, Figure 12-2

20. Purposes of Evaluation
• Four dimensions of project success
– Efficiency in meeting both the budget and schedule
(meeting cost, time and scope objectives)
– Customer impact/satisfaction (loyalty, repurchase,
fulfilling customer’s needs, actual use by the customer)
– Business/direct success (level of commercial success,
market share; yields, cycle times, quality, processing
steps)
– Future potential (factors relating to opening a new
market, developing a new line of products and services,
developing a new technology, skills, competencies)

21. Purposes of Evaluation, 2
 To help translate the achievements 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.
 It is the equivalent of an application of Six-Sigma or
TQM to project management.
 Result in a set of recommendations for the project’s
direct goals

22. Purposes of Evaluation, 3
 To review contributions of ancillary/ unplanned goals:
 Improve understanding of the ways in which projects may be of value to the
organization
 Improve the process for organizing and managing projects (project management
maturity)
 Provide information and experience for entering new markets
 Provide a congenial environment in which project team members can work creatively
together
 Identify organizational strengths and weaknesses in project-related personnel,
general management and decision-making techniques and systems
 Identify and improve the response to risk factors in the firm’s use of projects
 Allow access to project policy decision-making by external stakeholders
 Improve the way projects contribute to the professional growth of project team
members
 Identify project personnel who have high potential for managerial leadership

23. The Project Audit
 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.
 Different from and broader than a financial audit (use
and conservation of resources) and technical audit
 It may deal with the project as a whole, or only with a
part of the project

24. The Formal Audit Report
 Current status of the project
 Does the work actually completed match the planned
level of completion?
 Future status
 Are significant schedule/scope changes likely? If so,
indicate the nature of the changes
 Status of crucial tasks
 What progress has been made on tasks that could
decide the success or failure of the project?

25. The Formal Audit Report, 2
 Risk assessment
 What is the potential for project failure or monetary
loss?
 Information pertinent to other projects
 What lessons learned from the project being audited
can be applied to other projects being undertaken by the
organization?
 Limitations of the audit
 What assumptions or limitations affect the data in the
audit?

26. The Project Audit Life Cycle
 Project Audit Initiation
 Project Baseline Definition
 Establishing an Audit Database
 Preliminary Analysis of the Project
 Audit Report Preparation
 Project Audit Termination

27. Responsibilities of the Project
Auditor/Examiner
 “Tell the truth”: objective, ethical manner
 Walker et al (1980): independence:
 Assemble a small team of experienced experts
 Familiarize the team with the requirements of the
project
 Audit the project on-site
 After completion, debrief the project’s management
 Produce a written report to the PM and project team for
their response
 Follow up to see if the recommendations have been
implemented