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How to create unprecedented relevance of Internal Audit to the bottom line. See how Project Audits can expose hundreds of millions of dollars of enterprise risk that is currently ignored by Executive Management, Board Audit and Risk Committees, and Internal Audit, Risk & Governance…. Contents.
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How to create unprecedented relevance of Internal Audit to the bottom line See how Project Audits can expose hundreds of millions of dollars of enterprise risk that is currently ignored by Executive Management, Board Audit and Risk Committees, and Internal Audit, Risk & Governance…
Contents Introduction This isn’t really happening… Council of War Core Conflict Debunking the myth Resolving the Conflict Infliction Approach Collaborative Approach Success Next Steps
Introduction Why do enterprises embark on large and complex streams of projects and programs? To achieve a benefit that outweighs the cost… How does the executives determine if the projects that they approved are going to deliver the benefits and outcomes stated in the business case? More importantly, how do they ensure that the risk of these benefits is measured from beginning of the project to well beyond the Go-Live date?
This isn’t really happening… A project will fail because of a misalignment on strategy or a failure in execution. Execution can be addressed quite simply in a variety of ways through additional resources, more time or alternatively a change in the management. A strategic problem is far harder to address. The greatest challenge to a project lies in a fragmented understanding of its purpose and status. Reality will not be shared by all stakeholders, and often a pervasive fear exists of knowing the truth. Organisation memory is poor. Little understanding exists of baseline performances to measure inflight projects against. Organisations consequently repeat mistakes and have no grounded basis to assess performance, resorting to phrases like “We are just not good at doing projects!”
Council of War The SC is responsible for steering the investment. This requires ongoing validation of the market and proof that a market still exists. Project status reports rarely provide this validation. The challenge lies in providing a SC with comfort that the pack is accurate, and ensuring that the members understand the status clearly. Often what occurs is that various people will draw different conclusions. Project manager focus is on timely delivery. Benefit realisation and investment management is owned by the sponsor, who will seek council from key areas that will be represented by the SC. But who bears the risk of the benefit realisation and investment pay back?
Core Conflict Generally audits review project functions and deliverables. Has the project delivered the key artefacts expected, have they managed their risks and issues properly. There is a greater need however, to ensure that the document serves its purpose as a control feature appropriately. How will this review be different from other reviews? Not another review!!!!! The core conflict lies in governance of the benefit management plan. The project sponsor does not have authority to commit appropriate resource to engage the market to realise benefits. How could Internal Audit have a qualified opinion on the risk of the project to the enterprise bottom line?
Debunking the myth Everyone's attention is on the execution. But the reality is, that other then normal project issues, there is a high degree of confidence that the project will deliver in an acceptable timeframe. The more challenging issue, is that the SC are not fully engaged to drive the benefits. Everyone points to everyone else to mobilise the necessary resources to realise the benefits. An example is an organisation, $4bn revenues, project portfolio is said to deliver $350m NPV over next 3 years. That’s 80% of current annual profit! 20% shortfall means wiping out shareholder value…
Resolving the Conflict The completed audit review provides a snapshot of the projects strengths and weaknesses at a point in time. It shows the level of engagement across the organisation, and the extent to which the intent of the project is understood by key stakeholders. The experienced reviewers will build a picture of the investment showing where the strategy is not consistent, or where particular risks lie in realising the benefit. This will then provide a residual risk of success or failure against which to assess the investment. Often the sponsor does not have control over other stakeholders. As a consequence organisational change to support the investment is difficult to manage.
The Infliction Approach Measure the project on the “Iron Triangle” – Time, Quality and Scope. Then every project is “on time and on budget” but the business is still in the red. Problems like this compound. Reduce budgets, no bonuses, mass redundancies…Most companies measure project benefit by writing the benefit into people’s performance (cost or revenue) targets. Question is, why not just write the benefit in without actually spending a cent on projects. Outcome will be the same! This approach sounds crazy… but it has been done over and over at YOUR organisation. Peter Drucker famously said “What get’s measured gets done!” Internal Audit is in a unique position to measure on behalf of the Board and Executive.
Are we spending $200m+ well? • After extensive research coupled with analysis of 50+ past projects, the following Key Success Factors were found to determine successful delivery of project benefits and outcomes: • Sponsorship and Governance – Proactive and effective governance, strong sponsorship, visible commitment • Value and Benefits Management – benefit realisation strategies, cost management • Business Transition Management – engagement of process owners, communications, end users readiness • Project Execution – schedule, milestones, dependencies, scope , quality processes, risk / issue resolution, data migration, testing • Sustainability - engagement of end user stakeholders, level of localisation, lessons learnt
Where is the Value Steering Committee/PCG • Alignment of stakeholders (Biz/IT/etc) • Support for the project • Strengths/Weaknesses • Risks/Issues beyond project execution Audit Committee Project Sponsor • Enterprise-wide view of projects and their respective risk profile • Independent update of progress/risk/reward potential of large expenditure projects/programs • Alignment of stakeholders (PSC/PCG) • Support for the project at senior level • Strengths/Weaknesses • Benchmarking within Post Project Manager • Alignment of stakeholders (PSC/PCG) • Tasks/Recommendations to reduce risk and increase support for the project • Transition/comms m’ment focus
Independent, auditable, evident Artefact observations are quantitative and qualitative Survey results demonstrate direct feedback from key stakeholders Interviews delve deeper into potential issues and misalignment Ratings are automatically calculated based on findings Presentation is at a high level with details that allow effective decision making
What this means… The people who are involved in the project, day to day and at a high level are given the ability to deliver timely feedback to the Steering Committee/Executives on the status and likely success of this project
Success The executive management committee feels comfortable that its investment portfolio is aligned to its strategy with a degree of certainty around likelihood of success. Regular snapshots of project performance, reduces the margin of error significantly. The more often the snapshot the less organisational effort required to address misalignment. An audit provides a snapshot of a projects status at a point in time which can go on the record formally. Regular audits therefore serve a very useful purpose of showing the progress of an investment from concept to cash. When a risk to revenue is realised, the organisation has a mechanism to review the risk and retrospectively what could have been done as a mitigation.
Next Steps Go to www.projectaudits.com Register as an Auditor Next page…
