Postaudit of Investment Projects:
After an investment project has been approved and implemented, a postaudit
should be conducted. A postaudit involves checking whether or not expected
results are actually realized.
This is a key part of the capital budgeting
process. It helps to keep managers honest in their investment proposals. Any
tendency to inflate the benefits or downplay the costs in a proposal should
become evident after a few post audits have been conducted. The postaudit also
provides an opportunity to reinforce and possibly expand successful projects and
to cut losses on floundering projects. The same technique should be used in
the postaudit as was used in the original approval process. That is, if a
project was approved on the basis of a net present value analysis, than same
procedure should be used in performing the postaudit. However, the data used in
the postaudit analysis should be actual observed data rather than estimated
data. This affords management with an opportunity to make a side-by-side
comparison to see how well the project has worked out. It also helps assure that
estimated date received on future proposals will be carefully prepared, since
the persons submitting the data will know that their estimates will be given
careful security in the postaudit process. Actual result that are far out of
line with original estimates should be carefully reviewed. |
