Establish the commercial baseline
Start with current contract value, approved and pending changes, allowances, credits, disputed scope, and the reporting cutoff. Without a reliable revenue baseline, every margin conclusion downstream is unstable.
Reconcile cost and commitments
Separate actual cost from remaining obligations. Review open purchase orders, subcontract exposure, pending changes, labor performance, rework, procurement pressure, and the cost still required to finish.
Test the forecast
Compare remaining-cost assumptions with field conditions, production history, schedule pressure, unresolved scope, and known commercial risk. Optimism is not evidence.
Separate loss from recoverable exposure
True cost loss, uncaptured revenue, timing distortion, and forecast error require different responses. Combining them into one variance number hides the decisions management can still make.
Prioritize action
The audit should end with a short list: what is material, what the evidence supports, who owns the response, and what action still has timing or commercial leverage.