Issue in focus: Capital projects: Is your board doing enough?
A PwC analysis of 52 capital project missteps at public companies has revealed that after a public announcement of a capital project delay or shutdown, a majority of companies experience a steady decline in share price. By the three-month mark following the announcement, the decline in share price averages 15 percent. In the most severe case of the companies analyzed, one experienced an almost 90 percent decline in share price.
Large capital projects — with their multi-year timelines, changing requirements, and complex procurement issues — are inherently risky. They require diligent oversight from management and the board because of their impact on the company’s financial health. PwC research found that most major capital projects are likely to exceed their budgets by at least 50%.
Lack of board oversight can result in severe consequences. For example, in the power sector, regulators have rejected substantial portions of capital funding requests in situations where they believe management and the board could have exercised better oversight of costs, schedules, and risks.