Introduction
Since little is written in textbooks and journals about when and why post completion audits (PCA) should be performed, the following presentation includes professional citations as well as analysis to discuss the purpose and nature of PCA. The paper shows how PCA can give added value to an organization, on what projects it would be most effective and the personnel demand when it is implemented.
The Purpose of a Post Completion Audit
Post completion audits (PCA) are used as a guide for future decision-making in the realm of capital budgeting. In Pinches schema, PCA is conducted as a way to identify mistakes in past investment decisions and uses the information to create a comprehensive resources allocation framework. Specifically, PCA aims to identify operating difficulties in order to impose intervention, assess manager’s expertise to establish reward systems and lower managerial autonomy to the local level (1992). PCA is the process of monitoring and evaluating a capital investment project through a comparison of the actual cash flows and other benefits with those that are forecasted or planed at the time of authorization for star-up (2007).
PCA is also referred as post completion review. In this framework, PCA is a process of assessing ex post efficiency and effectiveness of capital budgeting as well as its implementation. It compares planned and actual actions, cost and resource allocation and results against benefits analysis. In addition, it reviews the assumptions made earlier about markets, technology, human resources, financing schemes and other external variables. As a result, PCA intends organizations to learn and improve through adoption of processes that is rationalized by continuous analysis of their implications (2007).
There are three specific purpose of PCA; namely, to support continuous improvement in the capital investment and implementation process in forward-looking stance, allowing the organization to determine and execute corrective actions as intervention strategies that suggest opportunity to evaluate financial factors at the date of review but also future cash flows and allow the review of current processes and create more efficient ones to improve future decision alternatives leading to better conformance of results (2007)
PCA helps the firm to be a learning organization. It also polishes the rough edges that the organization uses when it is forecasting or creating forecasting parameters. A learning organization is one that is skilled in crating, acquiring and transferring knowledge in which it uses these to change its behavior towards better results. This definition makes PCA an important component of learning approach because it sets conditions for the organization to develop an effective learning capability especially on projects (1998).
Circumstances a Post Completion Audit should be undertaken
PCA is carried under circumstances of a project’s life; namely, the regular monitoring of a project during its planning stage, the regular monitoring of a project during its early phases of operation, the examination of the performance of managerial employees who are responsible and accountable with the operations and the extensive examination of the initial evaluation of the project against its actual results ( 1992 ).
In the case forwarded by Baker Corporation, PCA should be implemented in cases where the project has new and ambiguous technology in it. The organization was left unaware about the effectiveness of the IT department’s program that is why the PCA is conducted to detect the actual competencies of the new technology. In the implementation, PCA was called post-implementation audit or PIA where it is defined as a top-to-bottom evaluation of hard and soft benefits derived from a strategic information system, the security of the system and the project management process for deploying the technology. At the end of PIA, it is found that the firm is able to save at least 0,000 yearly and identified that the returns on the new technology is pulled down by unexpected need for additional operators which served as additional cost pressure (2007).
The experience of Baker showed that PCA is a tool that not only determine the strengths of an uncertain technological strategy but also it transforms the organization of pro-active thinking because employees are able to create solutions to problems as they emerge. In effect, employees are more confident with the new technology because they know its potential if only they cooperate as well as actual benefits. In addition, PCA is also applied during continuous improvement strategies because an organization will not know how much they improve if they do not have a benchmark ( 2007). In a study, PCA is applied only if the project exceeded a specified monetary amount of the budget. However, the author argued that this approach or also referred as negative budget analysis dilemma made the respondent’s capital budgeting system inefficient because expensive investment’s problems are let undetected (2000).
Since PCA has the capacity to monitor operations, projects that have costs that are highly sensitive to certain business forces should be applied with it. In this way, the cause of deviations to intended results will be determined and will serve as a platform for appropriate action plan. However, PCA does not have the ability to discipline accountable persons who failed to produce planned operation/ strategy outcome. Due to this, PCA is the suitable tool in monitoring big projects that employees may hesitate to handle due to certain bonds or disciplinary clauses if they fail to succeed (2007).
PCA should be implemented based on three criteria; namely, significant projects, nature of objectives of the project and nature of the project. The first obliges the firm to apply PCA in cases where the project affects its strategic direction, financial scope is comparable to its size, strategic duration, limited risk or extraordinary returns and the requirements to use new forecasting or planning techniques does not adversely affect some societal ethical issues. The second refers to the projects simplicity or complexity because PCA is more useful when projects are categorized as the latter. The third component suggests that non-recurring projects should not be applied by PCA because learning would be useless (2007).
Nature and Size of a Post Completion Audit Team
Most PCA are applied within a formal and complex system especially for large organizations. Due to this, the cost of applying PCA can compensate the risk attached to adopting new process or technologies. However, small organizations, small projects and relatively less risky strategies would not be able to compensate the costs and human resources burden associated with PCA (2007).
According to , VP of Greif Manufacturing, when the project tends to benefit the entire firm, departmental projects should hold the entire firm also accountable if it fails. This stance will put every employee and department accountable to the project’s success even though they are indirectly participating in the project. It usually take ten (10) days when an organization undergoes PCA but other firms like Sun Financial aspires to complete PCA within two weeks. In determining the people who will be involved in PCA, the quality of their feedback is the core criteria for most companies. For example, Honeywell Aviation Services and its projects use its employees who have training in Six Sigma to evaluate IT department projects and assure that the system has streamlined workflows ( 2007).
Usually, the most common groups or workers involved in PCA are members of project implementation team from IT, members of project implementation team from both IT and the business and/ or representatives from a company’s internal audit department. In this view, Sun Life Financial approach to PCA implementation is one of the industries best according to PricewaterhouseCoopers. In the latter opinion, PCA should consist of a businessperson, IT personnel and someone who is not part of the project team like the internal auditor. In this way, a group of people with different functions participates in the audit, which creates holistic approach to benefits, deliverables and requirements for the project ( 2007).
Managers and top-level executives carry PCA team. Furthermore, committee should be formed consisting of persons who are experienced in the firm’s financial control system and familiar with technical, financial and marketing aspects of the project in question as well as its outcome. Since PCA is more than financial evaluation, the team should be headed by a managerial accountant to prevent overly focus on accounting processes rather business thinking. Lastly, the size of the committee to be formed is dependent on the size of the organization or it can also be suited to the size of the project in terms of the assets used, personnel involved, time frame for completion and business partners engaged (2007).
Conclusion
It is found that PCA is a tool that helps the organization to prevent mistakes once they have confronted it through the lifespan of a project. However, to balance its costs and benefits, the organization should be able to identify the key financial/ business features of a project and compared it to the demands to the organization when PCA is applied. In this way, the benefits of PCA will be more appreciated and not simply lead them to exaggeration and false hopes. The nature and size of PCA can show signs of how much the company will benefit from PCA for a certain project.
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