I often sit in on board meetings in my role and I’m encouraged that board attention to capital projects is growing. Because when capital projects go wrong, they can cause enormous collateral damage. Take stock market price, for example.
PwC research analyzed publicly traded companies that disclosed issues with capital projects. On average, materials companies lost 14% of their market capitalization (compared to their peer group) in the 90 days after the problems came to light. Utilities companies lost 10%.
Shareholders have been known to hold board members responsible for capital project problems. When companies disclose a capital project misstep, board turnover increases 40% on average compared to the previous two years.
Based on our experience with capital projects and our analysis of 47 companies that reported capital project issues, my team at PwC developed a 5-step action plan for boards. With these steps in place, boards may both reduce risks and help mitigate the damage when problems do occur.
We explore these five steps in detail in our recent report on board diligence in capital projects, where we present additional data on capital project problems. We also describe some of the early warning signs that boards can monitor.
A civil engineer by training, I am passionate about combining proven methods with new technology to solve client needs. So I’m going to add a tech component to those 5 steps from our advice to boards.
One of the discoveries of our research was just how big a difference the right approach to capital projects can make. For example, energy companies that engaged in active management of their capital projects portfolios saw on average a 10% increase in share price (relative to their peer group) in the 30 days following the disclosure of a capital-project-related issue.
While this trend may not apply across the board, we do know this: The right approach to board diligence, enhanced by technology, may increase the odds that your capital projects portfolio adds significant value to your company.