GM Audit Services (GMAS) Presentation: IIA F b 09 …

1 Audit Services . Auditing the management of Large Capital Projects in GM. GM Audit Services ( gmas ) presentation : IIA F. February b 09. 09, 2010. 1. Agenda 9 Large Engineering-based Capital Projects - Definition 9 Project Audit Background 9 Matrixed Project management 9 Project Audit Value Proposition / Vision / Mission / Objectives 9 Risks of Weak Project management Controls / Risk Drivers 9 Project Execution Key Enablers / Processes 9 Project Audit Plan Development Process 9 Project P j t Auditing A diti - gmas Approach A h / Example E l Risk Ri k M. Matrix t i / Key K Strategies St t i 9 Audits to Date and Control Concerns from Early Project Audits / Associated risks 9 Areas with Audit Issues from Current Audits 9 Consultative Efforts 9 Continuous Improvement 2. Definition - Large Engineering-based Capital Projects Large (Executive Committee-approved). Committee approved) engineering engineering-based based projects, typically to acquire / improve land, construct / modify buildings or other permanent structures, procure / install machinery and equipment (M&E), procure special tooling 9 Product program-driven - vehicle, powertrain 9 Facilities construction ( , engineering centers, offices).

2 9 Equipment replacement ( , press modernization / upgrades). 9 Other ( , greenfield sites). 9 Typical spend - US $100M to 1B(+). 3. Background gmas Project Audit 9 The gmas Global Project Audit program was developed and piloted in 1998 in response to a senior GM management request 9 It replaced l d th the fformer gmas S. Supplier li AAudit dit construction t ti auditdit activity ti it (concluded ( l d d 1999) where pull-based audits were conducted at the request of construction project managers 9 It was implemented p in 1999 to complement p the p process audits that were being g performed in engineering and other functions ( , change management , procurement, capital management , etc.). 9 It expanded to encompass all aspects of large engineering-based capital projects and project management using sing a holistic Audit a dit approach and the existing e isting gmas . risk-based process-focused Audit methodology 9 It recognizes that projects vary in size and complexity complexity impacted significantly g y byy the extent to which theyy entail vendor tooling, g, M&E,, M&E.)

3 Installation, facilities construction (green-field, brown-field, rearrangement), land /. land improvement, IT systems, containers, incentives, etc. 9 gmas Project Audit performs central monitoring of global capital project activity 4. Background gmas Project Audit (concluded). 9 It keeps its finger on the pulse of the capital spending execution control environment (generally post Appropriation Request (AR) approval and pre-Start of Production or equivalent). q ) dynamically y y changing g gpprocesses and sub-processes p 9 It looks vertically at specific representative projects: Recognizes the matrix project organization Synergizes S i with ith process and d other th operational ti l audits dit and d avoids id dduplication li ti 9 Puts itself in the shoes of the single point owner, accountable for the project: What am I or should I be most concerned about? 9 Adds value for both the specific project and the sponsoring organization(s) and their concurrent / future projects 9 Solves the dilemma: 1) projects are too big to see in a process Audit (s) and 2) too many process audits would be required to address risks at the lower / functional project levels (across projects).

4 9 Provides consultation reactively and proactively 5. Th Three-Dimensional Di i l Matrixed M t i d Project P j t management M t 9 Regional / Global Funding: North America, Europe, Latin America / Africa / Middle-East / Asia- Pacific (International). 9 Organizational Ownership: Global Product Development, GM Powertrain, Worldwide Facilities, Manufacturing Engineering, Service and Parts Operations, Holden, GM. do Brazil, GM India, etc. 9 Functional F ti lEExecution: ti Program management , Purchasing and Supply Chain, the Manufacturing Engineering silos, Worldwide Facilities, Finance, Product g g, IT,, Marketing, Engineering, g, HR,, etc. 6. Project Audit Value Proposition Applying effective project management and control practices optimizes the productivity of resources allocated to develop and d li deliver capital it l projects j t ffor GM. GM, th thus conserving i ththem tto h help l achieve hi other GM business objectives 7.

5 Project Audit Value Proposition (continued). 9 The Project Audit program / group maintains dedicated expertise and a globally consistent approach across all regions and involved business units to monitor how effectively large capital investment projects are executed - took several years of project-focused dedication to build expertise - auditing projects provides invaluable auditor training globally 9 The group has optimal focus between 1) Audit shops that have no project /. construction auditing capability, and 2) those that Audit on a recovery basis only (tooling, construction, etc.). 9 Project Audit promotes a one company approach globally with respect to best project management processes huge $ volumes constantly being spent by many different and highly autonomous organizations involved in project delivery 8. Project Audit Value Proposition (continued). 9 The group monitors and assesses the project execution control environment within GM through timely, ongoing coverage of dynamically changing processes and sub sub-processes processes - leverages the continuous opportunity to identify new and / or previously unidentified processes and sub-processes, globally 9 It provides input to and direction for less frequent audits of larger and higher-level processes used by functional units involved in project delivery delivery.

6 By annually looking vertically at how a few specific, representative projects are being managed in various regions, the Project Audit program supplements other gmas . audits of horizontal processes used by such functional units 9 The program purposely maintains a project-wide focus in support of project management identifies and evaluates project-specific risks (unlimited variation;. , products / technology, duration, complexity, outsourcing level, degree of in- h house skilled kill d ttrades d usage, ttypes off contracts, t t use off professional f i l Services , i funding level, number of spending areas including plant locations, degree of cross-regional / business unit involvement, joint venture operations, etc.). 9. Project Audit Value Proposition (continued). 9 The program avoids looking at the same project multiple times, unless deemed necessary (only ( l ttwice i very large l projects j t with ith extended t d d titimelines).)

7 Li ). 9 The program plans Audit work to the timeframe in the project's life cycle to add value optimally to both the specific project and the sponsoring business unit(s). 9 It provides consultation to project managers who may have varying levels of expertise with certain functional areas, processes, and sub-processes sub processes that support the project 10. Project Audit Value Proposition (continued). 9 The program recognizes and evaluates risk within the context of these highly- matrixed t i d / cross-functional f ti l project j t tteam organizations, i ti which hi h can iinvolve:: l Compliance with established, templated processes Adherence to project-developed processes intended to address unique risks i k associated i t d with ith th the project j t Communications between the various functional areas that support the team and how their processes interact Understanding U d t di off itits members'b ' iindividual di id l roles l and d responsibilities ibiliti and d th the interrelationship of their activities to the project as a whole 11.

8 Project Audit Value Proposition (continued). 9 The program recognizes the importance of lower-level processes to a specific project j t that th t might i ht nott otherwise th i beb considered id d as iimportant t td during i a stand-alone t d l process review; , lien / claim resolution, incentives management , contractor site-specific safety plans, contract management , etc. 9 Project Audit has a compliance element important to the finality of the lifecycle of a project to the extent project team organizations may be templated /. common, it can best assess compliance to such during a focused review at and through all project levels across line item owners very important as the control environment always depends upon the degree to which single-point accountability is understood, accepted and exercised by the project manager (including tone-at-the-top ) and how all processes are integrated 12. Project Audit Value Proposition (concluded).

9 9 The Project Audit program recognizes GM project teams' increasing reliance upon third-party thi d t providers id differs diff by b project, j t with ith varying i llevels l and d ttypes off risks; , Construction Managers, Architects, General and Sub-Contractors, M&E design-build suppliers, M&E consortiums, Professional Engineers, and testing agencies myriads of contract types (guaranteed max price (GMP), d i b ild Ti design-build, Time & MMaterial, t i l tturn-key, k fixed-price, fi d i etc.). t ). 9 The global scope of the group facilitates auditing across regions as projects become more global 13. Vision From conception to completion, loss opportunities and risks are recognized and effective controls are well understood and implemented consistently by all parties ti whoh participate ti i t iin th the d development l t and dddelivery li off engineering-based i i b d capital projects for GM. 14.

10 Mission To support process owners and project teams in managing the risks inherent in executing large capital projects, and to assess and report whether controls are properly l ddesigned i d and d iin place l tto effectively ff ti l mitigate iti t such h risks i k 15. Objectives 9 A. Assist i t clients li t with ith th the id identification tifi ti and d evaluation l ti off risks i k within ithi th their i llarge engineering capital projects, largely for capital execution, related to: Cost Q lit Quality Timing Safety 9 Supplement other gmas process / operational audits 9 Consult / help further continuous improvement in project management 9 Cover a representative p 2-5% of large g capital p spend;. p ; approx. pp 1-3 audits annually; cross-section of representative projects across GM. 16. Risks of Weak Project management Controls 9 Overspent p budgets g / missed deadlines 9 Inferior functionality / reliability of deliverables 9 Overpriced scope changes 9 Early exhaustion of contingency funds 9 Missed savings opportunities (time / money).