How can technology improve board oversight of capital projects?

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Capital projects often hit cost and schedule overruns that impact the companies undertaking them. The right kind of board diligence, enhanced by technology, may reduce the risks and mitigate the damage.

A hit to share prices and increased board turnover

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.

What boards can do 

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.

  1. Take action early. Among the steps described in our report that boards are well advised to take before greenlighting a big project, directors should examine how fast-moving technology trends may impact infrastructure designed for decades. For example, how would growth in distributed generation reduce the need for power plants?
  2. Observe first hand. That may mean hopping on a plane, donning a hardhat, and visiting the construction site. It also may mean taking advantage of advances in virtual and augmented reality to get more data more quickly. Better data, acquired and analyzed faster, may lead to expedited decisions.
  3. Adopt comprehensive project-tracking. Already, specialized software may enable boards to keep track of entire project portfolios. Soon, drones and sensors connected through the IoT will gather data from projects all over the world and use artificial intelligence to make sense of it. The result will be dashboards with live data and near-instant analysis that tracks the present status and predicts the future of any project.
  4. Hire external advisors. Boards often hire external advisors to help with everything from gauging construction progress to risk analytics. When it comes to technology, boards may need advisors to understand both a project’s nuts and bolts and broader trends. Does the board have someone who can explain how emerging technologies can disrupt long-term forecasts for a project’s ROI and change the entire industry?
  5. Rethink management compensation. A tech-enabled enterprise view of the overall capital project portfolio may help determine how best to adjust resources, including management compensation. Our report offers several ideas on how to adapt incentives programs for managers.

A stock market boost

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.

Contact us

Daryl Walcroft

Principal, US Capital Projects & Infrastructure Leader, PwC US

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