Overruns to sanctioned budget and schedule commitments are the norm with global mega mining projects, showing an average budget overrun of a “staggering 62%”.
This is according to new data captured through a recent global study by EY which examined a sample group of projects.
The productivity of invested capital is a key issue for CEOs across the global mining sector. This focus reflects the significance and challenge of achieving predictable return on investment when delivering complex multibillion dollar asset developments.
With large-scale projects, every overrun impacts:
- Total shareholder return;
- Return on capital employed (ROCE);
- Capital productivity;
- Corporate performance;
- Strategic outcomes;
Overrun risks are driving an unprecedented level of scrutiny on the project, programme and portfolio disciplines of cost and schedule control. Overruns occur despite large investments by mining and metals companies to enhance up-front engineering practices and increase delivery maturity.
“We believe that there are overlooked opportunities to significantly enhance delivery control and have identified three critical enablers for preventing cost and schedule overruns that are often de-prioritised and underinvested,” says EY. They are:
- Flagging of emerging risks
Implementing governance, and reporting frameworks with lead indicators that reliably flag emerging risks while they can still be efficiently mitigated
- Adequate cost and time contingency
Allocating cost and time contingency across the projects’ life cycle to avoid risk-driven budget and schedule variances
- Scenario planning
Enhancing the value of contingency planning through enhanced delivery scenario planning
Complemented by a broad uplift in delivery-discipline maturity, these enablers have real potential to significantly improve capital productivity realisation.
Based on its study results, EY has developed a root cause model to analyse the drivers of overruns and capital productivity impacts.
In the report EY:
- Explores the surprising findings of our study
- Proposes a root cause model
- Examines key considerations in applying these critical enabling techniques