AMASIMAP 1IMAP 2IMAP 3IMAP 4IMAP 5IMAP 6IMAP 7IMAP preface

 

Management Control of Projects

ISSUED BY THE
INTERNATIONAL FEDERATION OF ACCOUNTANTS

Foreword

The Council of the Malaysian Institute of Accountants has approved this Foreword for publication.

The status of Statements on International Management Accounting Practice is set out in the Councilís statement on Approved Management Accounting Statements.

CONTENTS

  Paragraph

INTRODUCTION

1

SECTION 1 - NATURE OF PROJECTS

2-5

SECTION 2 - THE CONTROL ENVIRONMENT

6-25

1.

Project Organization Structure

6-7

2.

Evolution of Organization Structure

8

3.

Contractual Relationships

9-10

4.

Fixed-Price Contracts

11-12

5.

Cost-Reimbursement Contracts

13

6.

Analysis of Fixed-Price Contracts and Cost-Reimbursement Contracts

14-19

7.

Information Structure

20

8.

Work Packages

21-23

9.

Indirect Cost Accounts

24-25

SECTION 3 - PROJECT PLANNING

26-32

1.

Nature of the Project Plan

29-30

2.

Preparing the Control Budget

31-32

SECTION 4 - PROJECT EXECUTION

33-53

1.

Nature of Reports

36-37

2.

Quantity of Reports

38

3.

Incomplete Work Packages

39

4.

Summarizing Progress

40

5.

Use of Reports

41-44

 

* Trouble Reports

 

 

* Progress Reports

 

6.

Cost to Complete

45-46

7.

Informal Sources of Information

47-48

8

Revisions

49-52

9.

Project Auditing

53

SECTION 5 - PROJECT EVALUATION

54-60

1.

Evaluation of Project Control

55-60

SECTION 6 - IMPLEMENTATION

61-62
 
:: INTRODUCTION ::
  1. This Statement describes the management control of projects, as contrasted with the management control of ongoing operations. As used here, a project is a set of activities intended to accomplish a specified end result of sufficient importance to be of interest to management. Projects include construction projects, production of a sizable unique product (such as a turbine), rearranging a plant, developing and marketing a new product, consulting engagements, audits, acquisitions and divestments, litigation, financial restructuring, research & development work, development and installation of information systems, and many others.

 
:: SECTION 1 - NATURE OF PROJECTS ::
  1. Project control begins when management has approved the general nature of what is to be done and has authorized the approximate amount of resources that are to be spent in doing this work. The project ends when its objective has been accomplished or if it has been abandoned. An important difference between a project and ongoing operations is that a project team usually is disbanded when the product is produced, whereas in ongoing operations, the organization tends to operate indefinitely. The construction of a building and the renovation of a building are projects; the routine maintenance of the building is not. The production of a motion picture is a project; the production of a daily television program is an ongoing operation.
     

  2. The completion of a project may lead to an ongoing operation, as in the case of a successful development project. The transition from the project organization to the operating organization involves complex management control issues.
     

  3. Projects vary greatly. At one extreme, a project may involve one or a few persons working for a few days or weeks, performing work similar to that done many times previously, as on an annual financial audit that is conducted by a public accounting firm. At the other extreme, a project may involve thousands of people working for several years, performing work unlike anything ever done before, as was the case with the project to land the first men on the moon. This Statement is limited to projects that involve enough people so that a formal project organization is necessary and enough resources so that a formal management control system is necessary.
     

  4. The function of the management accountant is fundamental to the management control of projects. It is to provide timely and reliable information and assistance to management as a basis for planning and controlling decisions by:
     

    1. developing, installing, and operating the systems used to collect and report this information;

    2. ensuring that this information conforms to the rules prescribed in these systems; and

    3. assisting management in using this information in planning and controlling the project.

 
:: SECTION 2 - THE CONTROL ENVIRONMENT ::

Project Organization Structure

  1. A project organization is a temporary organization. A team is assembled for conducting the project, and the team is disbanded when the project has been completed. Team members may be employees of the organization that authorized the project (the sponsoring organization), they may be hired for the purpose, or some or all of them may be engaged under a contract with an outside organization. The sponsor may be a single organization, or the project may be a joint venture sponsored by several organizations.
     

  2. If the project is conducted entirely, or partly, by an outside contractor, the sponsoring organization should ensure that there is a proper management system in place to deal with tenders and that the best tender is accepted. The sponsoring organization should designate someone to act as liaison with the project, and that person should quickly establish satisfactory working arrangements with the contractor's personnel. These arrangements are influenced by the terms of the contract, as will be discussed below. If the project is conducted by the sponsoring organization, some of the work may be assigned to support units within the organization, and similar relationships should be established with them. For example, a central drafting unit in an architectural firm may do drafting for all projects, and management control problems of such arrangements are similar to those involved in contracting with an outside drafting organization.

Evolution of Organization Structure

  1. Different types of management personnel and management methods may be required as the project evolves.
     

    1. The planning phase emphasizes the skills of architects, engineers, and management accountants.

    2. The execution of the project will often require the input of production managers and trouble-shooters.

    3. As the project matures, the principal test will be to obtain approval of the sponsor; marketing skills will often predominate (especially in consulting projects).

The management accountant should be able to make a significant contribution throughout the planning, execution, and commissioning of a project.

Contractual Relationships

  1. If the project is conducted by an outside contractor, an additional level of project control is created; in addition to the control exercised by the contractor who does the work, the sponsoring organization has its own control responsibilities. The contractor may bring its control system to the project, and this system may need to be adapted to provide the information that the sponsor needs; it is essential that a consistent set of data be used by the sponsor and the contractor. The sponsor reserves the right to revise the scope or schedule of the project under certain circumstances, and may put pressure on the contractor to improve performance. The sponsor's management control system, therefore, should identify the need for changes in the project, document the specifics of changes that have been agreed to, and facilitate the implementation of these changes. (This does not mean that there should be two separate systems; a summary of information collected by the contractor becomes a part of the sponsor's system).
     

  2. The form of the contractual arrangement has an important impact on management control. Contracts are of two general types: fixed-price and cost-reimbursement, with many variations within each type.

Fixed-Price Contracts

  1. In a fixed-price contract, the contractor agrees to complete the specified work by a specified date at a specified price. Usually, there are penalties if the work is not completed to specifications or if the scheduled date is not met. It would appear, therefore, that the contractor assumes all the risks and, consequently, has all the responsibility for management control; however, this is by no means the case. If the sponsor decides to change the scope of the project or if the contractor encounters conditions not contemplated by the contractual agreement, a change order (also known as a "variation order" or "contract modification") is issued. The parties must agree on the scope, schedule and cost implications of each change order. To the extent that change orders involve increased costs, these costs are borne by the sponsor. On some complex fixed-price projects, there are thousands of these change orders. In these circumstances, the final price of the work is in fact not fixed in advance. Thus, the sponsor ultimately is responsible for the project.
     

  2. In a fixed-priced contract, the sponsor is responsible for auditing the quality and quantity of the work to ensure that it is done as specified. This may be as comprehensive a task as auditing the cost of work under a cost-reimbursement contract.

Cost-Reimbursement Contracts

  1. In a cost-reimbursement contract, the sponsor agrees to pay reasonable costs plus a profit; therefore the sponsor has considerable responsibility for the control of costs. In these circumstances, the sponsor needs a management control system and associated control personnel used by a contractor with a fixed-price contract. A cost-reimbursement contract is appropriate when the scope, schedule, and cost of the project cannot be reliably estimated in advance.

Analysis of Fixed-Price Contracts and Cost-Reimbursement Contracts

  1. The price for a fixed-price contract is bid by, or at least proposed by, the contractor. In arriving at this price, a competent contractor includes, in addition to a profit component, an allowance for contingencies; the size of this allowance varies with the degree of uncertainty. Thus, for a project with considerable uncertainty and a correspondingly large contingency allowance, the sponsor may end up paying more under a fixed-price contract than under a cost-reimbursement contract in which there is no such contingency allowance. This extra payment is the contractor's reward for the assumption of risk.
     

  2. Fixed-price contracts are appropriate when the scope of the project can be closely specified in advance and when uncertainties are low. In these circumstances, the contractor cannot significantly increase the price by negotiating change orders and is therefore motivated to control costs. If the contractor signs a contract that does not include adequate provisions for adjustments caused by changes in scope or by uncontrollable uncertainties, it will resist the sponsor's requests to make desirable changes and in the extreme case may be unwilling to complete the project. If the contractor "walks away from the project," no one gains; the sponsor doesn't get the product, the contractor doesn't get paid, and both parties may incur legal costs.
     

  3. In a cost-reimbursement contract, the profit component, or fee, usually should be a fixed monetary amount; if it is a percentage of costs, the contractor is motivated to make the costs high and thereby increase its profit. However, the fixed fee is normally adjusted if the scope or schedule of the project is significantly changed. Moreover, many cost-reimbursement contracts have a "not to exceed" upper limit, and this too may be adjusted.
     

  4. There are many variations within these two general types of contracts. For example, in an incentive contract, completion dates and/or cost targets are defined in advance, and the contractor is rewarded for completing the project earlier than the target date or for incurring less than the target cost. This reward is in the form of a completion bonus that is set at an amount per unit of time saved, and/or a cost bonus that is set as a percentage of the costs saved. Such a contract would appear to overcome the inherent weakness of a cost-reimbursement contract, which has no such rewards. However, if the targets are unrealistic, the incentive may be nonexistent. Thus, an incentive contract is a middle ground; it is appropriate when moderately reliable estimates of completion and cost can be made.
     

  5. Different contract types may be used for different activities on the project. For example, direct costs may be reimbursed under a cost-reimbursement contract because of the high degree of uncertainty, while the contractor's overhead costs may be covered by a fixed-price contract, either for the total project or for each month. A fixed-price contract for overhead motivates the contractor to control these costs; avoids the necessity of checking on the reasonableness of individual salary rates, fringe benefits, bonuses, and other amenities; reduces the contractor's tendency to load the overhead payroll with less qualified personnel, and encourages the contractor to complete the work as soon as possible so that supervisory personnel will be freed for other projects. However, such a contract may also motivate the contractor to skimp on supervisory personnel, a good control system, and other resources that help get the project completed in the most efficient manner.
     

  6. If unit costs can be estimated reasonably well, but the quantity of work is uncertain, the contract may be for a fixed price per unit applied to the actual number of units provided. An example is an extractive contract with payment made at a specified price per unit of output.

Information Structure

  1. In a project control system, information is structured by the elements of the project. For the project as a whole and for each of its elements, information is collected in three categories:
     

    1. its scope, or specifications for the end product;

    2. its schedule, or the time required; and

    3. its cost.

Work Packages

  1. The smallest units of the project with which these elements are associated are called work packages, and the way in which these work packages are aggregated is called the work breakdown structure.
     

  2. A work package is a measurable increment of work, usually of fairly short duration (a month or so). It should have an identifiable starting point and completion point so that there is an unambiguous way of knowing when a work package has been completed. The completion point is called a milestone. Each work package should be the responsibility of a single manager.
     

  3. If the project has similar work packages (e.g., a work package for the electrical work on each floor of an office building), each should be defined in the same way, so that information about one work package can be compared with similar ones. If an industry has developed cost or time standards for the performance of certain types of work packages (as is the case in many branches of the construction industry), or if the project organization has developed such standards on the basis of prior work, definitions used in these standards should be followed so that the actual cost for a work package can be compared with these standards costs.

Indirect Cost Accounts

  1. In addition to work packages for direct project work, cost accounts are established for overhead and support activities. Unlike the work packages, these activities have no defined output. Their costs are usually stated per unit of time, such as a month, just as the overhead costs of ongoing responsibility centers are stated.
     

  2. The chart of accounts and the rules for charging costs to projects are also developed in advance. During their development several questions need to be considered:
     

    • Which cost items will be charged directly to work packages?

    • How, if at all, will indirect costs be allocated to work packages?

    • What will be the lowest level of monetary cost aggregation? (Small work packages might be monitored in terms of person days, rather than money, for example.)

    • Should committed costs be collected, in addition to actual costs? (For many types of projects, this is highly desirable.)

    • How will off-site overheads and the cost of equipment be treated?

 
:: SECTION 3 - PROJECT PLANNING ::
  1. In the planning phase, the project team takes as a starting point the rough estimates that were used as the basis for the decision to undertake the project. It refines these estimates into detailed specifications for the product, detailed schedules, and a cost budget. It also develops a management control system, underlying task control systems (or adapts these from systems used previously), an asset control system, and an organization chart. The boxes on this organization chart gradually are filled with the names of personnel who are to manage the work, and who report to the one person who has final responsibility and authority for the entire project. An asset control system is required to exercise proper control over the acquisition, operation, and eventual disposal of major items of plant and equipment used for the project and disposed of when used. Disposal proceeds may be a significant contributor to cash flow and overall profitability.
     

  2. On a project of even moderate complexity, there is a "plan for planning," that is, a description of each planning task, who is responsible for it, when it should be completed, and the interrelationships among tasks. The planning process is itself a sub-project within the overall project. There is also a control system to ensure that the planning activities are properly carried out.
     

  3. If during the project it turns out that the work breakdown structure or the accounting system does not provide a useful way of reporting what is happening on the project, the structure must be revised. This may require re-analyzing much information, both information already collected and information describing future plans. Revising the information structure in midstream is a difficult, time consuming, frustrating task. In order to avoid this work, the project planners should give considerable attention to designing and installing a sound management control system before the project starts.

Nature of the Project Plan

  1. The final plan consists of three related parts: scope, schedule, and costs.
     

    1. scope. This states the specifications of each work package and the name of the person or organization unit responsible. If the project is one in which specifications are nebulous, as is the case with many consulting and research & development projects, this statement is necessarily brief and general.

    2. schedule. This states the estimated time required to complete each work package and the interrelationship between work packages (i.e., which work package(s) must be completed before another can be started). The set of these relationships is called a network. The schedule may be stated as a PERT (Program Evaluation and Review Technique), Line of Balance, or Critical Path Method chart.

    3. costs. Costs are stated in the project budget, usually called the control budget. Unless work packages are quite large, monetary costs are shown only for aggregates of several work packages, rather than for individual work packages. Resources planned to be used for individual work packages are stated as nonmonetary amounts, such as person-days or cubic meters of concrete.
       

  2. In order to compare actual performance to the plan, the scope, schedule, and cost dimensions must be carefully related to one another. The work package device is the basis for maintaining this relationship. The estimated time required and the estimated cost of each work package are established for the scope specified in each work package. Both actual time and actual cost are measured in relation to the work accomplished on the work package (i.e., its scope).

Preparing the Control Budget

  1. The control budget is prepared close to the inception of the work, allowing just enough time for approval by decision makers prior to the commitment of costs. It supersedes the preliminary cost estimate that was prepared in an earlier planning phase. For a lengthy project, the initial control budget may be prepared in detail only for the first phase of the project, with fairly rough cost estimates for later phases; detailed budgets for later phases are deferred until just prior to the beginning of work on these phases. Delaying preparation of the control budget until just prior to the start of work ensures that the control budget incorporates current information about scope and schedule, the results of cost analyses, and current data about wage rates, material prices, and other variables. It also avoids creating budgets based on what may turn out to be obsolete information.
     

  2. The control budget is an important link between planning and control of performance. It represents both the sponsor's expectations as to what the project will cost and also the project manager's commitment to carry out the project at that cost. If, as the project proceeds, it appears that there will be a significant budget overrun, the project may no longer be economically justified. In these circumstances the sponsor may re-examine the scope and the schedule, and perhaps modify them.

This re-examination is necessary even for fixed-price projects; large cost overruns may indicate a need to renegotiate the price.

:: SECTION 4 - PROJECT EXECUTION ::
  1. At the end of the planning process, there exists for most projects a specification of work packages, a schedule, and a budget; the manager who is responsible for each work package is identified. The schedule shows the estimated time for each activity, and the budget shows estimated costs of each principal part of the project. The cost information is often stated in a financial model. If resources to be used in detailed work packages are expressed in nonmonetary terms, such as the number of person-days required, the control budget states monetary costs only for a sizable aggregation of individual work packages. In the control process, data on actual cost, actual time, and actual accomplishment (in terms of both quantity and quality) are compared with these estimates. The comparison may be made either when a designated milestone in the project is reached, or it may be made at specified time intervals, such as weekly or monthly.
     

  2. The sponsor and the project manager are basically concerned with these questions:
     

    1. Is the project going to be finished by the scheduled completion date?

    2. Is the completed work going to meet the stated specifications?

    3. Is the work going to be done within the estimated cost?

If at any time during the course of the project the answer to one of these questions is "no," the sponsor and the project manager need to know the reasons and what can be done to correct the situation.

  1. These three questions are not considered separately from one another, for it is sometimes desirable to make trade-offs between time, quality, and cost, using the financial model and other available information. For example, overtime might be authorized in order to assure completion on time, but this would add to costs; or some of the specifications might be relaxed in order to reduce costs.

Nature of Reports

  1. Managers need three somewhat different types of information which may be described as trouble reports, progress reports, and financial reports.
     

    1. trouble reports. These report both on trouble that has already happened (such as a delay resulting from any of a number of possible causes) and also on anticipated future trouble. Critical problems are flagged. It is essential that these reports get to the appropriate manager quickly so that corrective action can be initiated; they often are transmitted by face-to-face conversation or by telephone. Precision is sacrificed in the interest of speed; rough numbers are often used - person-hours rather than labor costs, or numbers of bricks rather than material cost. If the matter reported on is significant, the oral report is later confirmed by a written document so that a record is maintained.

    2. progress reports. Progress reports compare actual schedule and costs with planned schedule and costs for the work done, and contain similar comparisons for overhead activities not directly related to the work. Variances associated with price, schedule delays, and similar factors may be identified and measured quantitatively, using techniques for variance analysis that are similar to those used in the analysis of ongoing operations. Expected differences between planned and actual scope, schedule, and cost for the whole project are included in these reports.

    3. financial reports. Financial reports of project costs must be accurately prepared if there is a cost-reimbursement contract because they are the basis for any contractual progress payments; usually they are necessary even for a fixed-price contract because they are the basis for financial accounting entries. The time required to produce accurate, validated reports for such purposes diminishes the value of financial reports for management control purposes. Less precise information that is available quickly, such as the reports described in a) and b) above, is more important to project management.
       

  2. Much of the information in management reports comes from detailed records collected in task control systems. These include such things as work schedules, time sheets, inventory records, purchase orders, requisitions, and equipment records. When designing these task control systems, their use as a source of management control information is one consideration.

Quantity of Reports

  1. In order to make certain that all needs for information are satisfied, management accountants sometimes create more than the optimum number of reports. An unnecessary report, or extraneous information in a report, incurs extra costs in assembling and transmitting the information. More importantly, users may spend unnecessary time reading the report, or they may overlook important information that is buried in the mass of details. In the course of the project, therefore, a review of the set of reports is often desirable, and this may lead to the elimination of some reports and the simplification of others.

Incomplete Work Packages

  1. Some work packages will be only partially completed at the reporting date, and the percentage of completion of each such work package must be estimated as a basis for comparing actual time with scheduled time and actual costs with budgeted costs. If accomplishment is measured in physical terms, such as cubic meters of concrete poured, the percentage of completion for a given work package can be easily measured. If no quantitative measure is available, as in the case of many research & development and consulting projects, the percentage of completion is subjective. Some organizations compare actual labor hours with budgeted labor hours as a basis for estimating completion, but this assumes that the actual labor effort accomplished all that was planned, which may not have been the case. Narrative reports of progress may be of some help, but these often are difficult to interpret. If the percentage of completion is not determinable from quantitative data, the manager necessarily relies on personal observation, meetings, and other informal sources as a basis for judging progress.

Summarizing Progress

  1. In addition to determining the percentage of completion of individual work packages, a summary of progress on the whole project is also useful. Progress payments often are made when specified completion points are reached. The employment of a "third party" expert for an opinion in this regard may be advisable if such skills are not otherwise available to the sponsor. The system usually contains some method of aggregating individual work packages, so as to develop an overall measure of accomplishment to date. A simple approach is to use the ratio of actual person-hours for work packages completed to date to total person-hours for the project, but this is reliable only if the project is labor intensive. A weighting based on the planned cost of each work package may be more informative, subject to the limitation that the system may not include costs at the level of individual work packages.

Use of Reports

Trouble Reports

  1. Managers spend much time dealing with reports of trouble. A large project has many such reports, and one of the manager's tasks is to decide which ones have the highest priority. In the limited number of hours in a day, the project manager cannot possibly deal with all the situations that have caused, or may cause, the project to proceed less than smoothly. The manager, therefore, has to decide which problems will get his or her personal attention, which will be delegated to someone else, and which will be disregarded on the premise that operating personnel will take the necessary corrective action.

Progress Reports

  1. Not only do managers limit the number of trouble spots to which they give personal attention, but they also are careful not to spend so much time solving immediate problems that no time remains for careful analysis of the progress reports. Such an analysis may reveal potential problems that are not apparent in the reports of current trouble, and the manager needs to identify these problems and plan how they are to be solved. The temptation is to spend too much time on current problems and not enough time identifying problems that are not yet apparent. Some managers deliberately set aside a block of time to reflect on what lies ahead.
     

  2. The approach to analyzing progress reports is the familiar one of "management by exception." If progress in a particular area is satisfactory, no attention needs to be paid to that area (except to congratulate the persons responsible). Attention is focused on those areas in which progress is, or may become, unsatisfactory.
     

  3. The analyses of reports that show actual cost compared to budget, and actual time compared to the schedule, are relatively straightforward. In interpreting the time reports, the usual presumption is that if a work package is completed in less than the estimated time, the responsible supervisor is to be congratulated, but if more than the estimated time has been spent, questions are raised. The interpretation of the cost reports is somewhat different, for the possibility exists that if actual costs are less than budget, quality may have suffered. For this reason, unless there is some independent way of estimating what costs should have been, good cost performance is often interpreted as meaning being on budget, neither higher nor lower.

Cost to Complete

  1. Some organizations compare actual costs to date with budgeted costs for the work accomplished to date. Others report the current estimate of total costs for the entire project, compared with the budgeted cost for the entire project. The current estimate is obtained by taking the actual cost to date and adding an estimate of the costs required to complete the project. The latter type of report is extremely important; it shows how the project is expected to come out, provided that the estimated cost to complete is properly calculated.
     

  2. Experience to date in over running or under running estimated costs for work undertaken should be reflected in the estimates of the costs yet to be incurred. If overruns to date are caused by factors that are likely to persist in the future, such as unanticipated inflation, the current estimates of future costs probably should be higher than the amounts estimated originally.

Informal Sources of Information

  1. Because written reports are visible, the description of a management control system tends to focus on them. In practice, the documents are usually less important than information that the project manager gathers from talking with people who actually do the work, with members of his or her staff, from regularly scheduled or ad hoc meetings, from informal memoranda, and from personal inspection of how the work is going. From these sources, the manager learns of potential problems and of circumstances that may cause actual progress to deviate from the plan. This information also helps the manager to understand the significance of the formal reports because these reports may not disclose important circumstances that affected actual performance.
     

  2. In many cases a problem may be uncovered and corrective action taken before a formal report is prepared, and the formal report does no more than confirm facts that the manager has already learned from informal sources. This is an illustration of the principle that the formal reports should contain no surprises. Nevertheless, formal reports are necessary. They document the information that the manager has learned informally, and this documentation is important if questions about the project are raised subsequently, especially if there are legal issues. Also, subordinate managers who read the formal reports may discover that the reports are not an accurate statement of what has happened, and the managers may take steps to correct the mis-understanding.

Revisions

  1. If a project is complex, or if it is lengthy, there is a good chance that the plan will not be adhered to in one or more of its three aspects; scope, schedule, or cost. A common occurrence is the discovery that there is likely to be a budget overrun; that is, actual costs will exceed budgeted costs. If this happens, the sponsor might decide to accept the overrun and proceed with the project as originally planned; to cut back on the scope of the project with the aim of producing an end product that is within the original cost limitations; or to replace the project manager if the sponsor concludes that the budget overrun was unwarranted. Changes in scope or schedule may also be made. Whatever the decision, it usually leads to a revised plan. In some cases, the sponsor may judge that the current estimate of benefits is lower than the current estimate of "cost to complete" and, therefore, decide to terminate the project.
     

  2. If the plan is revised, the following question arises: Is it better to monitor future progress against the revised plan or against the original plan? The revised plan is presumably a better indication of the performance that is currently expected, but the danger exists that a persuasive project manager can negotiate unwarranted increases in budgeted costs or that the revised plan will incorporate, and thus hide, inefficiencies that have accumulated to date. In either case, the revised plan may be a rubber baseline; that is, instead of providing a firm benchmark against which progress is measured, it may be stretched to cover up inefficiencies.
     

  3. The possibility of a rubber baseline can be minimized by taking a hardheaded attitude toward proposed plan revisions. Nevertheless, there is a tendency to overlook the fact that a revised plan, by definition, does not show what was expected when the project was initiated. On the other hand, if performance continues to be monitored by comparing it with the original plan, the comparison may not be taken seriously because the original plan is known to be obsolete.
     

  4. A possible solution to this problem is to compare actual cost with both the original plan and the revised plan. Such a summary report starts with the original budget, and in the first section sets forth the revisions that have been authorized to date and the reasons for making them. Another section shows the current cost estimate and the factors that caused the variance between the revised budget and the current estimate of costs.

Project Auditing

  1. In many projects, the audit of quality must take place as the work is being done; if it is delayed, defective work on individual components may be hidden; it is covered up by subsequent work. (For example, the quality of electrical work on a construction project cannot be checked after walls and ceilings have been finished.) In some projects, audits of costs and quality are also done as the work progresses; in others, cost and quality audits are not made until the project has been completed. In general, auditing as the work progresses is preferable, for it may uncover potential errors that can be corrected before they become serious. However, project auditors should not absorb an undue amount of the time of those who are responsible for doing the work.

 
:: SECTION 5 - PROJECT EVALUATION ::
  1. The evaluation of projects has two separate aspects:

    1. an evaluation of performance in executing the project, and

    2. an evaluation of the results obtained from the project.

The former is carried out shortly after the project has been completed; the latter may not be feasible until several years thereafter. During a long project, re-evaluation of anticipated results may occur in order to determine if the project is worth continuing.

Evaluation of Project Control

  1. The evaluation of performance in executing the project has two aspects:
     

    1. an evaluation of project management, and

    2. an evaluation of the process of managing the project.

The purpose of the former is to assist in decisions regarding project managers, including rewards, promotion, constructive criticism, or reassignment. The purpose of the latter is to discover better ways of conducting future projects. In many cases these evaluations are informal. If the results of the project were unsatisfactory and if the project was important, a formal evaluation is worthwhile. Also, formal evaluation of a highly successful project or of an important unsatisfactory project may identify techniques that will improve performance on future projects.

  1. Because work on a project tends to be less standardized and less susceptible to measurement than work in a factory, evaluation of a project is more subjective than evaluation of production activities. It resembles the evaluation of marketing activities in that appraisal of performance requires that the effect of external factors on performance be taken into account.
     

  2. In looking back at how well the work on the project was managed, the natural temptation is to rely on information that was not available at the time. With hindsight, one can usually discover instances in which the "right" decision was not made. However, the decision made at the time may have been entirely reasonable: the manager may not have had all the information at that time; or the manager may not have addressed a particular problem because other problems had a higher priority; or the manager may have based the decision on personality considerations, trade-offs, or other factors that are not recorded in written reports.
     

  3. Nevertheless, some positive indications of poor management may be identified. Diversion of funds or other assets to the personal use of the project manager is an obvious example. If there were major specification changes or cost overruns, these changes should have been authorized, and cash flows should have been recalculated so as to determine whether the return on the project was still acceptable. Still another example of poor management is a manager's failure to tighten a control system that permits others to steal, but this is more difficult to judge because overly tight controls may impede progress on the project. Evidence that the manager regards cost control as much less important than an excellent finished product completed on schedule, is another indication of poor management, but it is not conclusive. The sponsor may overlook budget overruns if the product is outstanding, as often happens for motion picture projects.
     

  4. The evaluation of the process may indicate that reviews conducted during the project were inadequate, or that timely action was not taken on the basis of these reviews. For example, the review may indicate that on the basis of information available at the time, the project should have been redirected or even discontinued, but this was not done. This may suggest that more frequent or more thorough analyses of progress should have been made; consequently, requirements for such reviews on future projects should be modified.
     

  5. The evaluation may also lead to changes in rules or procedure. It may identify some rules that unnecessarily impeded efficient conduct of the project. Conversely, it may uncover inadequate controls. As part of the evaluation, suggestions for improving the process should be solicited from project personnel.

 
:: SECTION 6 - IMPLEMENTATION ::
  1. Some projects lead to ongoing operations. For example, a development project may lead to a promising new product. Although the skills needed to produce and market a new product may be different from the skills possessed by the project team, team members often have information and insights that are valuable to the managers who are responsible for turning the project results into successful operations. If the project team disbands too quickly, the new managers may not be able to take advantage of this knowledge. On the other hand, project team members usually are anxious to go on to something new once their report has been finished and sold. Thus, the transition from the project to an ongoing operation may be difficult.
     

  2. The schedule should include work packages that define end-of-project hand-over tasks such as writing manuals; liaising with, and training the staff of, operations management; and post-completion consultation or monitoring.

 

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Last edited : Wednesday, 06 May 2009 02:59 AM
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