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AMRCO Pre Approval Audit Model
AMRCO Pre Approval Audit Model arose at
Amrco when was made an investment request from one of its departments of
the amount of 50 million dollars, having been afterwards reported at
Harvard Business Review by Robert Lambrix and by Surendra Singvhi,
treasurer and planning director respectively. The models’ aim is to
evaluate the capital investment requests before its approval,
identifying and evaluating the main assumptions underlying the
predictions to a capital investment request.
How to use the model:
The instructions to use the model are the
following:
1. Create an audit team: the audit team
should have between 3 to 5 members and include people from several
departments, such as the marketing area, project area, production area
and financial area. Should not be included people from top management
neither from the interested departments. At least, should be given 5
weeks to complete the auditing.
2. Identify and describe the main
assumptions: the team should evaluate the main assumptions of the
proposal, having in special attention its validity and its likelihood.
For that, the team should analyze the existent internal documentation
and other material that supports the predictions. Some assumption
examples that should be analyzed:
|
Area |
Assumptions |
|
Capital
Investment |
Costs
estimate
Process
viability
Capacity |
|
Market |
Served
market dimension
Positioning
Price
Competitors’ activity
Coherence
with other programs |
|
Financial |
Costs and
margins projections
Coherence
with the company’s standards and policies |
|
Strategy |
Market
penetration strategy
Suitability
to the company’s and departments’ strategy |
|
Risk and
sensibility analysis |
Investments
convenience
Results
interpretation |
3. Discuss problems: if substantial
problems are identified by the audit team, should reunite with the
authors the proposals and discuss these problems. In certain cases and
whenever it’s identified unreasonableness in the assumptions, can be
needed from the proposals authors to change these.
4. Prepare the audit report: should be
prepared a synthesis report, coordinated by the responsible for the
audit team, in which are identified the main assumptions and evaluated
its likelihood. Should also be highlighted the most significant
differences that are referent to the project.
5. Revision and Delivery: the audit team
responsible reviews the audit report with the responsible of the
department that originated the investment proposal. The report is
afterwards delivered to the deciders and the audit team is dismissed.
Translated from Portuguese
by Susana Saraiva, Portuguese-English and English-Portuguese translation
specialist. Contact: spams@sapo.pt.
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