Every well-managed project is subject to steady control. Section 4 presented to the reader a methodology for IFRS project planning, including the Monnet methodology, and 14 basic steps in IFRS conversion. Management planning and control is a fully integrated activity.
● Planning without control is daydreaming, and
● Control cannot be exercised without fundamental planning principles.
In spite of this, a challenge I often encountered in my professional work is that many companies lack the regular progress reviewculture, and they do not appre- ciate what it takes to maintain a state-of-the-art verification environment. As projects in the financial industry, like IFRS, continue to increase in complexity,
● Verification requires technological, financial, andmanagement skills, and
● Therefore, policies, ways and means to face the challenges posed by veri- fication must be developed and implemented.
Box 6.1 A brief description of 14 steps in IFRS conversion 1. IFRS checklist completed
2. Examination of IAS 32 and IAS 39 issues 3. IFRS impact assessment and scoping
4. Understanding of differences with current accounting 5. Hedge accounting requirements
6. Determination of IFRS policies and procedures to be adopted 7. Steps in conversion and interdependencies identified
8. Links to risk management
9. Information technology work completed 10. Tax consequences evaluated
11. IFRS numbers and disclosures produced 12. Work connected to auditing completed 13. Work connected to internal control completed 14. IFRS compliant financial statements produced
A sound policy in reaching this goal is the institution of frequent design reviews.
The mission of a design review is to control the project schedule, cost, function- ality, and quality during the development cycle. The schedule is all-important because time-to-implementation is a crucial factor in product and process design; but, as we have already seen, the other factors, too, are crucial.
The project manager’s overview of the project he or she leads is, in principle, complex. Design reviews taking place at milestones make sure that supervision becomes focused, hence easier. But this must be a continuous process toward a defined objective.
Absence of an effective, comprehensive, and continuous management control results in discontinuities and loss of data which should be available for project vision. This is true of all the stages of development through which all projects transit:
● Inception
● Analysis
● Synthesis
● Implementation
● Testing.
All five are terms that have broad relevance to a project’s progress, even if dif- ferent industries use their own names for these stages. Moreover, the way to bet is that each stage will have different needs for data control than the next.
Personalization of data needs is seldom met by traditional, slow-moving, uncrit- ical stage-related procedures which are in common usage.
For instance, as far as costs are concerned, available cost data needed to make correct design decisions are usually only total cost. There are no details and no data readily adjustable to the changed parameters of the project. That’s poor management. Cost must be a major theme in design reviews, whether the project is made in-house or is partly outsourced (see also section 6).
Take quality criteria as another example. Some companies operate in a vacuum when they are verifying quality because they have not made it an explicit target in management control. Therefore, it is not subject to thorough and complete ver- ification. When this happens, the project review process is wanting.
Still another ‘must’ is the control of timetables by milestone, and within each mile- stone targets regarding advancement towards the deliverables. While practically
all projects establish timetables, the simplest being a Gantt chart invented 90 years ago, few really track progress against the planned time schedule – nor do they take corrective action to control slippages. As a result, there is plenty of delay in proj- ect completion. Moreover:
● Very few projects are able to control timetables, quality and cost at the same time.
● Yet, these factors work in synergy, and all three are most crucial to all proj- ectsat all times. Hence, they should be religiously observed.
In connection to IFRS, or any other project, companies should also specialize in design review of know-how. Automation or no automation, creative work is still done by people. Complex projects require people who have a variety of experi- ences and knowledge of multiple design and verification issues. Therefore, not only should a financial institution undertake design reviews but also:
● Devote years to developing a sound planning methodology and control tools to drive its projects, and
● Bring a high level of expertise to the technical- and cost-auditing of proj- ects, as well as possess the necessary wider range of domain expertise.
Let me add that as far as this process of design review is concerned, the necessary know-how and methodology can either be developed in-house or bought from consultancies. However, whether design reviews are done with in-house skill or are partly outsourced, senior management should have a design review culture and appropriate approach to control. An example on a methodology which I learned in the early 1960s at General Electric, and which I have been using since then very successfully, is given in Figure 6.4. It calls for:
● Major design reviews at 25%, 50%, 80%, and 90% of a project’s timetable
● These are milestones which roughly correspond to 10%, 25%, 50%, and 75% of the project’s cost.
In between the major design reviews should be verifications, or minor design reviews, preferably done weekly. ‘Every project has a risk factor associated to it,’
suggested a Royal Bank of Canada senior executive at a conference: ‘If it is late or of low quality, the decision is to kill it. Design reviews are made every two weeks, evaluating both projects and project managers.’ Weekly is a better fre- quency than bi-weekly. The policy which I follow is that:
● The major design review can kill a project, if need be.
● The objective of the minor design review is to solve problems, redirect the effort, and do away with conflict – but it can also lead to an extraordinary major design review.
It is not easy to kill an ongoing project. Major banks I have been associated with as consultant to the board have objected with the argument that having invested so much money, time, and effort in a project they want to be allowed to finish it.
It takes the patience of a saint to demonstrate that a project that started wrongly, or features slippages:
● Is notgoing to finish as planned
● Budget overruns and time delays will be a ‘sure’ thing, and
● The quality of deliverables will be substandard, far below what was origi- nally projected.
The question then is: Is it better to lose all that time and money and fall behind – or kill the project and, if it is vital like IFRS, start anew with a better project manager and much closer senior management supervision? I believe the answer is self-evident.
TIME SCALE 75%
25%
0%
100%
25% 50% 80% 90% 100%
50%
COST CURVE
8%
PERCENT OF BUDGET
Figure 6.4 The need for design reviews is present in any project, and should be followed by corrective action
Killing a project is one of the difficult but necessary decisions to be taken by the task force, provided its members participate in the major design review in form- ing their opinion. Or, the decision may be taken by an expert design reviewer who has audited the project and has full CEO support in the decision to throw the project in the waste basket.
These are two alternatives. Provided that the design review principles outlined in the foregoing paragraphs are observed, there are good reasons to adopt a pol- icy of outsourcing this top level project control. The value of critical verification done by outsourcing lies in:
● The quality of personnel of the insourcer
● The independence of opinion that person can presumably provide, and
● The speed at which critical criteria can be verified, helping the entity achieve quicker time-to-implementation and other positive results.
A basic requirement, however, is that the insourcer should be a senior person, knowledgeable in design reviews – and that the outsourcer’s top brass partici- pates at the front line of each design review. This will give added authority to the review, while the outsourcer’s management will learn from the insourcer’s veri- fication expertise. This is also important because there are some tough decisions which the insourcer cannot take on his or her own.
In conclusion, design reviews are a ‘must’. In several cases their outsourcing pro- vides expertise and focus on verification tasks and, therefore, produces better results. This means faster time to implementation and a greater emphasis on costs and quality. Design reviews are a complex issue which requires an experi- enced team of professionals committed to the verification function. But make no mistake about it: the final responsibility for results rests with the top manage- ment of the institution, not with third parties.