Project Management and the Relationship to Corporate Governance

1. Project Management and the Relationship to Corporate Governance by Andrew Willis and Michael Porier July 18, 2002

2. Risk Consulting Approximately 800 Professionals Representing 75 Different Universities, Possessing 40 Representative Degrees, and 50 Professional and Technical Certifications • Technology • IT Internal Audit • IT Process Assessment • Enterprise Security • Application Controls and Effectiveness • Business Continuity Planning • Project Risk Management • Business Process • Internal Audit Services • Trading and Marketing • Treasury Operations • Environmental • Supply Chain Management • Construction Risk Management • Financial & Commodity • Deal Structuring & Accounting • Market Risk Management • Risk Systems • Risk Measurement & Valuation Company Background Protiviti is an independent business and technology risk consulting firm that specializes in information security, technology and operational risk consulting, internal audit, and financial and commodity risk consulting. Our Risk Consulting services trace their origins back to 1989, as many of our team members were formerly aligned with the Andersen professional services firm. From Andersen, we bring with us thirteen years of investment in tools, methodologies, and people which has prepared us to provide a broad spectrum of services across all industries. We have already made the investment and our clients are the beneficiaries of our cumulative experiences. Our vision at Protiviti is to be the premier provider of independent risk consulting services. Our clients immediately gain access to over 50 partners and more than 750 professionals across the United States, which represent a national pool of resources unfettered by restrictions in scope of practice or independence conflicts. We have 13 partners and over 175 professionals in the Houston and Dallas offices, who possess deep knowledge and experience providing unique solutions to clients from all parts of the corporate value chain. We enjoy critical mass in key offices and across key industries, and our strategic alliances enhance our range of solutions.

3. Company Locations We have hundreds of senior professionals in 25 major markets with unparalleled experience gained from working with world-class global companies. Atlanta, GA Chicago, IL Cincinnati, OH Cleveland, OH Dallas, TX Denver, CO Ft. Lauderdale, FL Houston, TX Kansas City, MO Los Angeles, CA Milwaukee, CA Minneapolis, MN New York City, NY Orlando, FL Philadelphia, PA Phoenix, AZ Pittsburgh, PA Sacramento, CA Salt Lake City, UT San Francisco, CA San Jose, CA Seattle, WA St. Louis, MO Tampa, FL Vienna, WA

4. “I cannot imagine any condition which could cause this ship to flounder. I cannot conceive of any vital disaster happening to this vessel.” E.J. Smith, Captain of the Titanic

5. Trends in Project Management Today Project Management Statistics • 31.1% of projects will be cancelled before completion • 52.7% of projects will cost 189% of their original estimates • 16.2% of software projects are completed on-time and within budget • 9.2% of projects within large companies are completed on-time and within budget • 222% of the original estimate is the average time overrun on projects • $145 billion will be spent on unsuccessful projects Reasons for Project Failures Source: Michael O’Malley Website: http://www.smu-training.com Article Title: Project Failures Spur Management Back to Basics

6. Project Success by Size (in dollars) According to a study performed by The Standish Group, the chance of a successful project decreases as the project size increases. Source: Standish Group Website: www.standishgroup.com Article: CHAOS: A Recipe for Success

7. Examples of Failed Projects • Other potential impacts of poor project management • Business performance/return on investment will suffer • Loss of confidence in the organization’s ability to successfully complete projects and causing future initiatives to suffer • Loss of customers • Legal repercussions Source: www.fortera.com/44NFailchart.pdf Article Title: Top 10 Corporate Information Technology Failures

8. What is Project Management? Project Management “Project management is the application of knowledge, skills, tools, and techniques to project activities in order to meet or exceed stakeholder needs and expectations from a project. Meeting or exceeding stakeholder needs and expectations invariably involves balancing competing demands among: • Scope, time, cost, and quality • Stakeholders differing needs and expectation • Identified requirements (needs) and unidentified requirements • (expectations)” Source: Project Management Institute - Project Management Body of Knowledge Page: 6

9. Project Risk Management Framework (source) The PRM framework illustrates Protiviti’s approach to managing project management risk. Our methodology, depicted by the outer circle, is a continuous process of risk management activities targeted to minimizing the potential impact of risks to the success of a project. Confidential: This document is for your company's internal use only and may not be distributed to any third-party.

10. Project Management Component Processes A stimulus such as a business need, project plan, or market demand will spark the need for another project or project phase to begin. During the initiating processes, the organization realizes and commits to this need. In the planning stage of the project or phase, a plan is established to address the needs of the project and to reach the project objectives. Executing involves gathering the necessary resources to perform the project plan activities and the actual execution of the plan. Controlling processes primarily involve the monitoring of project progress to identify significant variances to prevent problems from arising. During the closing processes, final open items will be resolved and a formal acceptance of the project or phase completion will occur. Source: Project Management Institute - Project Management Body of Knowledge Page: 29

11. Project Risks These four risks are inherent in any project and within all of the 5 processes of the project life cycle: Communication Resources Business Integration Scope Change Project Management Project Support Risk Quality Project Management Office Time Cost Design Strategic alignment Planning Testing Competition Project Life Cycle Project environment Development Implementation Stakeholders Culture Rollout Business environment

12. Project Elements Strong control environment ensures that project risks are mitigated and the primary goals of quality, time, and cost are achieved. Project management is the balancing of quality, time, and cost. It is difficult to achieve all three goals on one project. Is the project satisfying the needs for which the project was undertaken? Process The foundation of a project control environment is comprised of the people, processes, and technology. Is the project being completed in a timely manner? Is the project being completed within the approved budget? People Tools

13. PRM Methodology Steps to ensure a strong project management framework. These steps should be part of a continuous improvement methodology to ensure that projects continue to deliver needs and expectations to stakeholders. • Through these methodologies, we will assist your organization: • Evaluate your current risk management process, • Target areas for improvement, • Enable change, and • Perform ongoing monitoring and improvement.

14. Do you Need PRM? Is there a high dependency upon technology-centric projects to support or drive business strategy and key business processes? Does the implementation of major new systems or products have significant impact on business strategy? Does the introduction of unproven or unfamiliar technologies have strategic business impact? Is your infrastructure highly complex, fragmented and/or immature? Have you experienced significant personnel turnover, open positions, and gaps in key technical and management positions? Have you experienced significant or rapid changes in the business? Does management have concerns about cost containment and ROI? Has management been dissatisfied with project management issues?

15. What is Corporate Governance? “Corporate governance is about promoting corporate fairness, transparency, and accountability.”– J. Wolfensohn, president of the World Bank. July 21,1999 “Corporate governance deals with the ways in which suppliers of finance to corporations assure themselves of getting a return on their investment.”– Journal of Finance, 1997 Directors Company Mgmt Shareholders Stakeholders Directors Company Mgmt Shareholders Stakeholders Fairness Responsibility Accountability Transparency Fairness Responsibility Accountability Transparency

16. Why Bother with Governance? Provides assurance that management is acting with integrity Creates competitive advantage Reduces fraud and malpractice Shareholder protection Affects valuation Compliance with laws and regulations

17. Governance Framework Other Stakeholders Board of Directors Shareholders IT Steering Committee Audit Committees Executive Management Management Employees

18. Perception vs. Reality Perception IT projects deliver quality, are on time and within budget Harness and exploit IT to return business value Leverage IT to improve efficiency and productivity while managing risks Reality Business losses/damaged reputations and lost market position Enterprise and core process inefficiencies due to IT Failure of IT initiatives to bring innovation or deliver promise

19. Enterprise Governance Corporate Governance Traditionally includes: Duties of Directors/Leaders Legislative/Fiduciary Compliance & Control Ethics & Integrity Business Operations, Risks & Control Financial Accounting & Reporting Asset Management IT Governance Covers: Enterprise/IT Objectives Legislative/Fiduciary Compliance & Control IT Resources Information Knowledge Management Systems Communications Net Centric Technology IT Operations, Risks, & Control e-Commerce/EDI/EFT IT Asset Management Corporate Governance focuses on the enterprise’s: Future Health Strategy Accounting Management Risk Management Manage Critical Events Trustee Financial Resources IT Governance focuses on IT’s: Alignment with enterprise objectives Use of IT resources Management of IT related risks Value delivery Source: Ron Saull, IT Coordinators Association Presentation Title: IT Governance in Use

20. Key issues confronting project sponsors • Do not receive adequate decision support information Status reports do not support management Minimal to no third-party assessments • Projects tend to be initiated under irrational assumptions In an effort to “do the deal” significant warning indicators are often overlooked Political agendas skew decisions • Project financing has not adequately allocated commercial risks SPE’s and other finance mechanisms capitalize projects • Underlying data does not have transparency or integrity Project management and control systems are not effectively operating Processes and internal controls inadequate • Public Confidence