15.6: Postaudit
Learning Outcomes
- Conduct a postaudit on an example case to determine if the expected results were achieved
So you had prepared an analysis for your company of several different projects. One project was chosen based on the analysis. How can you know if the results were achieved? In a capital budgeting process, this is one of the key components because it holds managers accountable and helps to keep them honest in their proposals. Imagine for example, that as a manager, you really want your company to choose your investment proposal. You have worked long and hard on it, but you feel that it is coming up a bit short in the return on investment component. Without the post audit process, it might be too easy to fudge a number, by possibly inflating the benefits or minimizing the pitfalls.
The postaudit process will analyze the actual results, using the actual data from the project. Begin with the side-by-side analysis. So if a project was chosen based on net present value analysis, the postaudit should use the identical analysis to insure that you are comparing apples to apples.
If a project comes in very out of line with the original proposal, further analysis may be needed. By comparing the actual data to the estimated data, it will help to insure that submitted proposals in the future are carefully prepared. As a manager, if you are aware that your project will be evaluated you are more likely to make sure that your projected outcomes are accurate.
The postaudit process is an important one for all business decisions, but in the capital budgeting process it is crucial.
Practice questions