An Excerpt: Is poor project management a crime? The answer could be ‘yes’ now that the Sarbanes-Oxley Act makes senior executives criminally liable for misrepresenting financial information. After several corporate accounting scandals became public, Congress passed a law, referred to as the Sarbanes-Oxley Act of 2002 (SOX), which holds CEOs and CFOs of publicly traded companies criminally liable for relating fraud to shareholders. Companies are aggressively taking action to meet the requirements dictated by the Sarbanes-Oxley Act. In fact, it has been reported that nearly 77% of companies will spend more on IT, business process change, corporate governance, and/or consulting this year as a direct result of SOX compliance. 1
If your company manages projects, then financial mismanagement of those projects could leave your senior management legally exposed. Consider the many stories in the press about large projects with huge cost overruns. If this kind of cost overrun is not foreseen and anticipated in the financial forecasts of the company, the effects could seriously impact the projected profit for a given period.
The SOX goes much deeper than just the accuracy of financial projections; it touches on many areas that affect project management within an organization. To be compliant with Section 404 of the SOX - Management Assessment of Internal Controls - CEOs must establish and maintain “an adequate internal control structure and procedures for financial reporting.” Section 409 - Real Time Disclosure – mandates that companies must disclose on a rapid and current basis “material changes in the financial condition or operations of the [company], in plain English, which may include trend and qualitative information.”
As a result, companies undertaking large projects will need a process that provides detailed cost/schedule metrics for all projects with time-phased cost reporting and continually updated completion estimates. Senior management will need visibility into this project performance data at all times along with the confidence that the underlying process is sound.
What can project-based organizations do to help ensure compliancy with the Sarbanes-Oxley Act? If they do not already have a properly defined internal process for project management, then – according to Section 404 - they will need to implement one. This paper looks at how the Sarbanes-Oxley Act affects project management and why an Earned Value Management System (EVMS) – as described in the ANSI Standard – should be the basis for the internal process mandated by the act. It also considers how EVMS can provide early warning indicators, real-time project health information, and more accurate forecasting to help provide executive visibility into projects and protect future profits.
Preparing for SOX compliance may represent a substantial investment for many companies. However, the good news is that this is an excellent opportunity to improve project management, increase efficiency, and ultimately gain competitive advantage. This white paper explains how and why.
