Oct 24, 2012
The Deloitte Risk Advisory practice has written a paper which introduces nine principles to apply to mitigate risk relating to a major capital project.
Why is risk intelligence so important for a major capital project?
Major capital projects can significantly enhance or erode shareholder value based on how well they are executed. Considering their high impact nature, the levels of oversight, governance, risk management and assurance need to be heightened.
Due to the size of these projects, many have independent governance structures, processes and a separate chart of accounts. This often promotes a degree of separation from the direct influence of group wide standards and corporate control, resulting in uncertainty from the corporate owners as to how well these standards and controls are being applied across their project.
With millions of dollars in shareholder capital tied up in major capital projects, the competition to secure adequate skills, machinery, materials, operating licenses, contractor support and associated infrastructure has increased, thereby putting pressure on supply and yielding unique exposures.
Complex stakeholder relationships
The typical major capital project is dependent on a broad range of stakeholder groups, both internal and external to the project. Further, ownership may be split between a number of joint venture partners. Such a diverse portfolio of stakeholders normally means a diverse range of expectations need to be managed.
The sheer magnitude and complexity of these projects combined with longer construction times increases the risk profile. Some mega projects even have the potential to bankrupt their parent company.
Greater exposure to risk means a more intelligent approach is required. Such risk intelligence can be achieved through the following principles.
Download the paper . . . . Nine principles in establishing a risk intelligent major capital project
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