## **Learning Outcomes**

After reading this article, you will be able to explain the importance of robust investment governance frameworks and post-audit processes for managing long-term value. You will understand the structures, roles, and procedures for investment committees and post-implementation reviews, describe how to align governance with strategy, and evaluate effective control, monitoring, and reporting mechanisms that reduce risk and improve strategic decision-making.

## **ACCA Advanced Financial Management (AFM) Syllabus**

For ACCA Advanced Financial Management (AFM), you are required to understand the significance of investment governance and post-audit as part of value creation and control. In particular, revision should focus on:

- The role of investment governance systems in strategic financial management
- Functions and composition of investment (capital allocation) committees
- The process and benefits of post-implementation reviews (post-audits)
- How governance frameworks, audit, and review procedures support long-term value maximisation
- Mechanisms for monitoring, control, and reporting on capital investment projects
- The relationship between investment governance, risk management, and organisational objectives

## **Test Your Knowledge**

_Attempt these questions before reading this article. If you find some difficult or cannot remember the answers, remember to look more closely at that area during your revision._

1. Which of the following is NOT a primary function of an investment (capital expenditure) committee?
   a) Approving investment proposals above a certain threshold
   b) Conducting post-implementation reviews for completed projects
   c) Monitoring project outcomes against initial forecasts
   d) Managing all routine operational purchases

2. True or false? A post-audit (post-implementation review) should identify not only financial variances, but also lessons for future project appraisal and management.

3. Briefly explain how investment governance frameworks contribute to risk management.

4. List two main objectives of a post-implementation review for a major capital project.

## **Introduction**

Strong investment governance and systematic post-audit processes are essential for managing long-term organisational value. These mechanisms provide oversight, control, and continuous learning, ensuring capital is allocated efficiently and risks are properly monitored. By embedding rigorous approval, monitoring, and review practices, companies can make better strategic decisions, avoid costly errors, and maximise shareholder value.

> **Key Term: investment governance**
> The system of structures, processes, and controls an organisation uses to approve, oversee, and monitor capital investments, ensuring alignment with strategy and risk appetite.

## **INVESTMENT GOVERNANCE FRAMEWORKS**

Effective investment governance ensures that capital allocation supports strategic objectives and risk constraints. Typical frameworks centre on:

- Clear policies for evaluating and authorising investments
- Defined approval hierarchies based on project size and risk
- Committees (such as investment or capital allocation committees) with responsibility for assessing, sanctioning, and monitoring large projects

Strong governance means investment decisions are consistent, transparent, and support long-term aims.

> **Key Term: investment committee**
> A group of senior managers, often including finance, operations, and strategy representatives, responsible for evaluating significant investment proposals, ensuring alignment with strategy and risk policy, and overseeing capital allocation.
>
> **Key Term: capital rationing**
> A situation where an organisation imposes limits on its total investment budget, resulting in the need to prioritise among competing projects to maximise overall value.

Decision-making authority for investments should reflect a project's scale, risk, and strategic relevance. Smaller routine expenditures are typically approved by line managers, while material or risky projects require committee or board-level approval.

### Roles and Responsibilities Within Governance

- Define and approve investment policies and limits
- Assign project risk categories and required documentation
- Oversee due diligence and challenge assumptions in proposals
- Ensure controls for monitoring and reporting are in place
- Review post-investment performance data for accountability

### **Worked Example 1.1**

**A listed company has policy that all projects over \$2m require investment committee approval. A proposal for a \$5m new factory is submitted, including a business case and financial appraisal. The committee notices the NPV calculation ignores exchange rate risks.**

> **Answer:**
> The investment committee should challenge the business case, requesting revised cash flow forecasts that address exchange rate risk. This review process exemplifies robust investment governance by ensuring project evaluation is comprehensive and considers all material risks before funds are committed.

## **MONITORING AND CONTROL OF CAPITAL PROJECTS**

After projects are approved, strong governance dictates clear processes for monitoring progress, budgets, and emerging risks. Effective monitoring helps identify potential issues early, allowing corrective action and protecting shareholder interests.

Controls typically include:

- Scheduled project reporting (timelines, costs, outcomes)
- Variance analysis against the original business case
- Escalation mechanisms for material deviations in cost, timetable, or performance
- Ongoing review of risks and, if necessary, reassessment of the business case

Timely and accurate reporting enables management and committees to evaluate if investments continue to be justified or require adjustments.

> **Key Term: project controls**
> Procedures and systems established to monitor, measure, and manage the progress, cost, quality, and risks of a capital investment throughout its life cycle, ensuring objectives are achieved.

## **POST-IMPLEMENTATION REVIEW (POST-AUDIT)**

A post-implementation review (post-audit) is a formal assessment of a completed investment to compare actual outcomes to the forecasts used at approval. This process supports continual improvement in decision-making and accountability.

> **Key Term: post-audit (post-implementation review)**
> A structured evaluation conducted after an investment project is completed, comparing actual results with predicted outcomes, analysing variances, and extracting lessons to improve future project appraisal and management.
>
> **Key Term: control loop**
> The cycle of setting targets, measuring progress, comparing actual results to expectations, and taking corrective action to improve future performance or processes.

A good post-audit:

- Assesses financial performance (e.g., NPV, IRR) against original forecasts
- Reviews non-financial outcomes such as operational, ESG, and strategic objectives
- Identifies the causes of deviations (positive and negative)
- Draws lessons for improving project appraisal, risk assessment, and management processes
- Provides accountability—managers involved in major projects are held responsible for delivery

**Key objectives:**

- Accountability for investment decisions
- Organisational learning—reducing mistakes or over-optimism in future appraisals

### **Worked Example 1.2**

**A company’s \$10m IT upgrade project forecasts payback within 3 years and annual savings of \$3m. After 2 years, actual savings are only \$1m per year and costs have risen by 25%. The post-audit identifies poor stakeholder engagement and underestimation of implementation complexity as root causes.**

> **Answer:**
> The post-audit provides clear feedback: The initial appraisal underestimated risk and complexity. Actions to improve include strengthening pre-project due diligence, involving all stakeholders earlier, and updating risk assessment procedures. The review also highlights the importance of adjusting future appraisals for optimism bias.

### **Exam Warning**

> Post-implementation reviews should not seek to assign individual blame, but focus on root causes and organisational learning. Treating post-audits as punitive can discourage honest reporting and risk escalation in future projects.

### **Revision Tip**

> Always relate post-audit findings back to future improvements in investment appraisal, risk management, and controls. Use specific examples when discussing benefits in your revision or the exam.

## **Summary**

Investment governance and post-audit play a central role in protecting shareholder value. A structured governance framework, clear roles for investment committees, and post-implementation reviews ensure capital is allocated efficiently, risks are managed, and lessons are fed forward to strengthen future decision-making. Effective reporting and feedback mechanisms underpin long-term value creation and accountability.

## **Key Point Checklist**

_This article has covered the following key knowledge points:_

- Explain the purpose and structure of investment governance frameworks
- Describe the role and responsibilities of investment committees
- Identify control, monitoring, and reporting processes for capital projects
- Define and explain post-audit (post-implementation review) procedures
- Discuss how post-audits support learning and improvement in future project appraisal and management
- Relate investment governance and audit to long-term shareholder value and risk reduction

## **Key Terms and Concepts**

- investment governance
- investment committee
- capital rationing
- project controls
- post-audit (post-implementation review)
- control loop

Managing for long-term value - Investment governance and post-audit