> Business risks facing mining and metals 2012 - 2013
Business risks facing mining and metals 2012 - 2013
5 Capital project execution
Non-financial metrics are becoming increasingly important to CFOs - Strongly agree or agree
Base: All (247) ANZ (111) Asia (136)
The DNA of the CFO wheel
“The focus is shifting from a rapid increase in production capacity to careful evaluation of capital projects in an environment of heightened volatility.”Claus Jensen Oceania Advisory Partner, Ernst & Young
There is a massive pipeline of projects in 2012–2015. At the same time, there has been high delivery cost inflation and heightened macroeconomic uncertainty.
Macroeconomic uncertainty has been putting downward pressure on prices of mined commodities since 2H 2011, with mining and metals companies now reconsidering,revising and prioritizing or sequencing previously announced capital project plans to mitigate these factors.
Mining and metals companies are adapting to emerging capital project risks by:
Raising the bar on business case justification and rigor
there is a renewed focus on the integrity of data around estimated project costs and benefits to aid/improve management’s level of decision-making confidence
Prioritizing the investment pipeline to align with a changing appetite for cost and cash exposure
— as leadership teams develop customized criteria to sequence their project pipeline, prioritization considerations extend beyond return oninvestment to strategic alignment, cash flow exposure and delivery complexity
Enhancing project controls to drive standardized delivery against plan — project teams must embed the right project control disciplines to drive delivery against plan in a standardized and consistent manner
Steps mining and metals companies can take to respond to this risk:
Rigorous portfolio management and greater scrutiny around project selection, prioritization and management is vital
Operationalize knowledge management through incorporating learning, technological advancements and benchmarks into all procedures and databases
Implement an effective risk management process where there is a clear line of sight between project, portfolio and strategic risk management such that objectives are supported by appropriate tactics that address all potential project threats
Ensure project and supply chain performance is monitored and managed by aligning owner and contractor teams alike through pragmatic contracting strategies and incentive programs
Implement advanced assurance frameworks that provide independent review and oversight over project performance. This helps to proactively identify and manage challenges before they become issues
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