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
projects 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
projects goals into a contribution to the
parent organizations goals
To do this, all facets of the project are
studied in order to identify and understand
the projects 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 organizations 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 firms 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
Chapter 12-9
components of the 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
follow-up 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 projects 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 projects
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 projects
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 well-defined 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 managements
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 teams 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 nonconfidential sources
If it cannot be confirmed, it should not be
used
The auditor/evaluator must protect the
sources of confidential informationChapter 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
Chapter 12-29
least, mitigated

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 projects
shortcomings
Recognition and appreciation should be
given to the projects 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
Chapter 12-31
process that is easily thwarted

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

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