Project Audit

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No one enjoys an audit! Indeed, if an individual is given the choice between an audit of their person tax return or having his or her wisdom teeth extracted, nine out of ten will immediately pick up the phone and call the dentist's office.

But in business, audits are more common, even if they are not ‘painless’.

Accounting audits, both internal and external, are tolerated primarily because they are required to comply with government regulations. Even quality control or customer satisfaction surveys, while they have both proven their value, are barely tolerated in some organizations.

Why do people find it difficult to tolerate audits? Probably, because they are concerned that if problems are encountered during the audit they will be penalized, reprimanded, or punished. At the extreme they might lose their jobs or suffer a major setback in their careers.

Audits however perform a very necessary control function in business. They tell us if we are on-track, are complying with governmental regulations, or are meeting the needs of the organization’s customers.

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Because audits are often barely tolerated and because they require time and resources, they are seldom undertaken during the project management process.

Our study of project failures suggests that avoiding audits is risky behavior. In almost every project studied, if an independent review of the project had been undertaken, it is reasonable to conclude that many of those projects could have been saved or in the case of a few projects abandoned before more good money chased very unlikely results.

Because there are no federal regulations that require project audits, some very basic principles must be followed if such an audit is to be tolerated or if the audit is expected to have any impact on the project management process.

The first principle is that audits must be done collaboratively. It cannot be seen as a police action or as a process that threatens to punish those in charge. If seen this way, the audit will not work.

The second principle is that an audit team must include an unbiased representative as well as the project manager and a representative from top management. Depending on the scope, cost and impact of the project the unbiased outside member of the audit team can be chosen from inside or outside the company. For large strategic projects outside auditors are a must! But here is where the first principle must be observed. The team, including internal and external members must work collaboratively with the project manager. The objective must be clear, to take action that is in the best interest of the project. While this seems like such an obvious objective, the study of failures, once again, points very clearly to the conclusion that project management decisions are not always in the best interest of the project. This was clearly illustrated in the Denver Baggage Handling, Vioxx, Airbus A380 projects, just to name a few.

Perhaps the biggest obstacle to undertaking an audit during the project management process is that those who manage unsuccessful projects may find their careers derailed. Therefore, there may be every incentive to continue with a failing or possibly disappointing project in the hope that it will succeed at the last minute or succeed long enough for the problems to be buried and its consequences surface on someone else’s watch.

The third principle of effective project audits is that, with rare exception, the outcome of the audit cannot jeopardize a person’s standing on the project team or that person’s career.

One of the best examples of last principle is the recent case where project managers at Merck were reluctant to terminate research on Vioxx after drug trials showed that the drug led to an increase risk of stroke and heart attacks. Only after significant publicity did the drug company pull the drug from the shelves.  But this error cost them over $5 billion in litigation costs. What is interesting is that Merck did learn from its mistake. They now offer incentives for early termination of those projects where evidence suggests that the risk of a possible project failure is substantial.