Post completion audit aims to evaluate the efficiency and effectiveness of the capital budgeting decision that the management has implemented. It compares between the planned and the actual outcome, costs and the use of resources, results and benefits. It contains all assumptions that were made during the decision-making period. It is one of the ongoing continuous processes through which the organisation learns and improves.
Recent research suggests that capital budgeting involves far more than a simple concern with appropriate methods of appraisal. As Neale interlinked successful operation of the key phases of a sequential system as depicted below . It highlights the key questions examined at different stages of the investment decision and control process.
1 Determination of the budget
* How much is available to spend?
* What project ideas have emerged?
* What costs and benefits will they generate?
* What is the value of the projected costs and benefits?
* What is the target rate of return?
* Does the project's internal rate of return exceed this? (Or does it have a positive net present value?)
* How risky is the project?
* During implementation
- Is the project on schedule?
- Will costs exceed the budget?
- Is the project performing to budget?
- If not, why not?
5 Post completion auditing
* Is the project performing to initial expectations?
* How justified were these expectations?
* What lessons can we draw to assist future appraisals?
According to Neale, the final phase of the process is the post-completion audit of the project, and it involves:
* examination of the project's progress in its implementation phase; and
* in-depth analysis of the realised costs and benefits to date and the likely future prospects of a project, as compared to initial expectations.
The post completion audit is a positive and forward looking tool. The decision to carry out a post completion audit is normally made before the project is engaged. Unless an appropriate information system already exists, otherwise, firms should set it up from the beginning to assure that the information needed for a proper audit is available as the project progresses. The carrying out of such an audit can lead to the identification of individuals who may appear to be responsible for deviations from forecast. However, the post completion audit team should always aim to determine why and how deviations occurred, not who can be blamed for them. Once the original cause has been determined, a key step must be taken toward choosing the appropriate action for the future. The emphasis is to be placed on collecting factual and quantifiable data and information, not on second guessing the decision makers who made decisions during the various phases of the project.
The post completion audit is not aimed to apportioning blame; it is aimed at understanding and at generating continuous progress. It is a major component of the strategic development of the firm. Neale also stretches that having focused on the implementation and early operation of selected investment projects, investigators may suggest one of three possible actions: fine-tuning a project to steer it back on course; a significant change in the future development of the project; or outright abandonment. A post completion audit that is primarily designed to produce one of these outcomes may be said to be "project control-oriented". At a more fundamental level, the post completion audit acts as a control device for the whole system of capital expenditure decision-making. Using the vehicle of detailed examination of particular investment projects, the investigating team can study both the quality of operation of individual stages of the decision and implementation activities and also the linkages between them. Such an approach may be described as "system control-oriented"....
References: 1. Bigg W. W. and Davies J.O., Internal Auditing, The Stellar press hatfield Herts, 5th ed., 1980, Ch.2, pp. 7-23
2. Cosserat, G. W., Modern Auditing, John Wiley & Sons, Ltd, England, 1999, Ch. 16, pp. 554-576
3. Garvin, D.A., "Building a learning organisation", Harvard Business Review, July-August 1993, pp. 78-91.
4. Johnson, H.T., Relevance Regained: From Top Down Control to Bottom Up Empowerment, Free Press, New York, NY, 1992.
5. Neale, C.W., "Post-completion auditing: avoiding the pitfalls", Managerial Auditing Journal, Vol. 10 No. 1, 1995, pp. 17-24.
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