Is Poor Project Management a Crime?

Is poor project management a crime? The answer could be ‘yes’, due to the Sarbanes-Oxley Act. After several corporate accounting scandals became public, Congress passed a law, referred to as the Sarbanes-Oxley Act of 2002 (SOX), which holds CEO’s and CFO’s of publicly traded companies criminally liable for relating fraud to shareholders. Companies are taking aggressive actions to meet the requirements dictated by the Sarbanes-Oxley Act. It has been reported nearly 77% of companies will spend more on IT, business process change, corporate governance, and consulting this year as a direct result of SOX compliance.

Legal accountability for poor project management does not rest alone on the shoulders of CEO’s and CFO’s; project managers may also find themselves’ liable. Financial mismanagement of your company’s projects may leave your project managers and senior management legally exposed. If a cost overrun is not foreseen and anticipated in financial forecasts for your company, the effects may seriously impact the project profit for a given period. Over the past several years, many stories have run in the media regarding projects with significant overruns. The need for companies with long-term or high-budget projects to re-evaluate the way they measure projects’ performance and how they report it to their shareholders is greater today than it has ever been.

What can project-based organizations do to help ensure compliance with the Sarbanes-Oxley Act? If you do not already have a properly defined internal process for project management, then - according to Section 404 of the Sarbanes-Oxley Act - you will need to implement one.

By examining the relationship between the SOX and earned value management, as well as statistical forecasting and reporting software, there may be ways to protect your organization from criminal litigation.

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.

Ruthanne Schulte, PMP
Product Manager, Welcom