The board of directors plays a key role in setting and overseeing an organization’s strategy, including the planning and execution of key capital projects. Too often boards discover too late that these capital projects are behind schedule, over-budget, or under-performing, posing potentially significant risk to the organization’s strategy and shareholder value.
But overseeing a company’s capital project development activities can be a significant challenge for directors, who may feel that they do not have the requisite expertise or the relevant information to make the right decisions. PwC introduces a six-step Capital Project Oversight Framework to help boards with effective capital projects oversight.
A PwC survey found that 75% of companies experienced an average share price decrease of 12% within 90 days of reporting a significant negative capital project event – such as a project delay, cost overrun, or operability challenge.
The following capital development activities typically require board involvement.
“In many respects, the board represents the final line of defense against under-delivering a capital project’s intended value to stakeholders.”
To effectively oversee the capital project risk management process, board members need to ask management to provide relevant planning information and progress updates; then use that knowledge to identify project level risks, the probability of a negative event occurring, the estimated impact if it does occur, and potential mitigation strategies.