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
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