An uncertain world economy will significantly impact all project managers as project accountability and risks take center stage
by GREG HUTCHINS, Contributing Editor
Project accountability seems like an oxymoron. From experience, I would say that more than half of projects don't meet stakeholder, cost, scope or schedule requirements. We've known this for years, but there seems to be reluctance to hold project managers’ feet to the fire. Things are about to change.
The economy has become uncertain following the 11 September 2001 terrorist attacks on the United States. Senior management, boards of directors and government don't want surprises. As more work gets “projectized,” a 25 percent project performance success rate won't cut it. Risk management and project management accountability will be top concerns of all senior management. Your projects are going to be audited very carefully.
The “math” of project decisions looks something like this: the higher the risk, the higher the costs, the higher the required project controls, the higher the required level of management assurance. Senior management will look to the internal auditing function to provide assurance that there aren't any “bet the company” surprises.
Taking Control. The Institute of Internal Auditors recently adopted an expanded definition of internal auditing: “Internal auditing is an independent, objective assurance and consulting activity designed to add value and improve an organization's operations. It helps an organization accomplish its objectives by bringing a systematic, disciplined approach to evaluate and improve the effectiveness of risk management, control and governance processes.”
Why are the concepts of internal control and internal auditing so important? Senior management in this chaotic global economy wants better ways to manage risks and control how projects are run. Internal controls allow senior management to deal with rapidly changing competitive environments as well as terrorist possibilities.
Within Reason … According to the Committee of Sponsoring Organizations of the Treadway Commission [Internal Control—Integrated Framework, 2000], internal control is a process designed to assure reasonable confidence regarding:
Effectiveness and efficiency of operations
Reliability of financial reporting
Compliance with applicable laws and regulations.
The first point addresses an organization's entire operations and the achievement of business objectives, such as project performance goals and profitability objectives. The second point deals with how to generate reliable and accurate financial statements. The third point speaks to complying with laws, regulations and standards.
How does an internal auditor evaluate internal and project controls? The organization has a strategy, mission, goals and objectives. The internal auditor asks, “What can go wrong? How likely is this to occur? What will the impacts be if this event occurs?” The auditor then assesses the existence and effectiveness of operational and project controls to ensure that the nonconformance, variance, exposure or risk event will not occur or recur.
Last, the auditor assesses if the current project controls provide reasonable assurance that the organization will meet its business objectives.
What's Different? Senior management wants to know that projects are getting done on time, on budget and within scope. Internal auditing has the high corporate profile, purview and reporting level to review and report on project performance.
In most organizations, the head of internal auditing is a senior vice president or vice president. This person usually reports to the chief financial officer (CFO) in a solid-line relationship and to the board of directors’ audit committee in a dotted-line relationship. The CFO and the board of directors authorize and sponsor these internal audits.
So you say you were 20 percent over budget … PM
Greg Hutchins, PE, is a principal with QPE, a program, process, and project management advisory firm In Portland, Ore., USA. He can be reached at firstname.lastname@example.org.
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PM NETWORK | DECEMBER 2001 | www.pmi.org