Some of the things you are going to see:
|1.||What post audit of investment decisions and appraisals is,|
|2.||The objective of post audit of investment decisions,|
|3.||Factors considered by a typical post audit|
There is no way of telling that an investment appraisal method used to arrive at an investment decision is a good one.
This is because methods such as expected value, sensitivity analysis, net present value and others are only aids to investment decision making that precede the actual investment decisions.
To assess the performance of an investment decision technique used, there is need to obtain information after taking an investment decision and starting a project.
The information can be obtained from a post audit review of an investment decision.
Now what is the objective of a post audit of investment appraisals and decisions?
The post audit is used to obtain information necessary to enhance future forecasting and investment appraisal tools. The information is also used for standardization of an investment decision process that is reliable, effective and efficient.
For the information obtained to be useful, it must be objective.
To obtain objective information freed of biases, the post audit review should be carried out by people different from those who were part of the original decision and appraisal. It should also be carried out during the life of the project and also at the end.
It is also necessary for purposes of objectivity and cooperation, that the post audit shouldn’t have a negative undertone. It shouldn’t be used to apportion blame when a decision fails or to give selective praises when it succeeds.
How does a typical post audit look like?
A typical post audit reviews forecasting methods used. The review is meant to assess the relevance and accuracy of those methods.
Besides the review of forecasting methods, the post audit also covers the following;
- The post audit should review an unforeseen situation that occurred during the life of the project. The goal of this review should be to determine if a more thorough appraisal would have highlighted the unforeseen situation in advance.
This review may make management decide to use a feedforward to monitor and make necessary adjustments at the early stage of a project.
- Actual results for sales, costs, volume, prices and other project elements should be compared with forecast. Where the forecast was the standard cost, a variance analysis of the difference between the actual cost and the standard cost (variance) should be carried out.
Variance analysis serves as a guide to cost reduction and to effective pricing of products and services.
- The post audit should also review the decision process. The aim would be to find out if a good decision was made on the basis of the reality at the time it was made. If the decision wasn’t a good one, how could the process be improved to yield a good or better decision next time?
- The post audit should ask questions about the appropriateness and effectiveness of methods used for analysis and appraisal. Were avoidable mistakes made in the use of investment decision making techniques chosen?
- What about information used for the appraisal? Was the information accurate? The source of information should be reviewed during the post audit of investment decisions and appraisals.