A post-audit is a process used by companies to evaluate the efficiency and effectiveness of their operations, especially in regard to major projects or decisions. This type of audit is conducted after a project has been completed or a decision has been fully implemented.
The primary purpose of a post-audit is to assess whether the project or decision achieved its intended results and was cost-effective. Post-audits can also help identify problems in the decision-making process, improve future forecasts and estimates, and hold individuals or departments accountable for their decisions.
For example, a post-audit might be conducted after a major capital investment project, such as the construction of a new plant or the launch of a new product. The audit would compare the actual results (such as actual costs and revenues) with the expected results that were estimated before the project began.
If the actual results were significantly worse than the expected results, the post-audit might prompt a company to examine its decision-making process to see where it went wrong. Did it overestimate the potential revenue? Did it underestimate the costs? Did it fail to consider important risks? By addressing these questions, the company can learn valuable lessons for the future.
Example of a Post Audit
Let’s say a company named “Tech Innovations” decides to launch a new product, the “Super Widget 3000”, in the market. The company’s project team forecasts that the project would cost $2 million for research and development, manufacturing, and marketing. They also predict that the new product will generate $3 million in revenue in its first year on the market, leading to a potential profit of $1 million.
Fast forward to a year after the product launch. Tech Innovations conducts a post-audit to review the project’s performance. The audit reveals:
- The actual costs for the project were $2.5 million, 25% higher than the initial estimate.
- The product only generated $2 million in revenue, 33% less than predicted.
Instead of making a profit of $1 million as originally forecasted, the project led to a loss of $500,000.
The management of Tech Innovations will now conduct a thorough review to understand why their predictions were so far off. They will check if their cost estimates for development and marketing were unrealistic, or if they overestimated the demand for their product. They might find that they didn’t consider the competition adequately, or maybe the product had quality issues that led to returns and negative reviews.
The post-audit, in this case, helps Tech Innovations identify where they went wrong, hold the responsible parties accountable, and learn important lessons to improve the planning and execution of future projects.