Faced with delays and budget overruns - which can add billions to total project costs - mining and metals companies could significantly reduce the cost of large capital projects by improving planning and addressing workforce shortages, according to Accenture research on capital projects delivery in the mining and metals industries.
The research was based on 31 interviews with mining and metals executives with responsibility for capital projects around the world. Less than a third of the respondents report staying within 25 percent of approved budgets for all projects, and 17% said they completed all projects within a 10% budget range.
The tremendous scale and complexity of mining projects - which are often multi-billion dollar investments - mean that budget overruns and delays in completion are not unusual. Among the contributing factors are infrastructure needs such as roads, ports and electrical power in less developed regions; the lack of talent and skilled workforces; and environmental and regulatory requirements in developed regions.
Reasons for delays
When asked what typically causes delays in project schedules, survey respondents cited the availability of talent (57%), new or unconsidered regulatory requirements (45%) and insufficient detail during the planning stage (42%). Metals companies tend to have fewer delays and smaller budget overruns due to the reduced size and complexity of plants as opposed to mining projects.
Accenture research estimates that metals and mining expenditures for capital projects will reach more than US$140 billion in 2012, and between US$1 trillion and US$1.5 trillion during the period from 2011 to 2025. Even with the current downturn in commodity prices, long-term demand for minerals and metals, driven by economic growth and social development throughout the world, continues to spur investment in mining and metals. With $100 - $200 billion in annual spend, the impact of project delivery overruns on individual companies and the industry as a whole is enormous.
"The potential savings and returns through effective management and delivery of a capital project investment can be huge," said Duncan Sloan, executive director for Accenture's African mining industry practice. "Keeping on budget and within planned time-lines across a portfolio of multi-year projects can save millions for a company. In today's environment strong project management can be an important competitive advantage."
Key areas for improvement
Based on the research findings, analysis and Accenture's experience working with mining and metals companies, Accenture has identified five key areas for improvement in project delivery:
- Establish strong project governance and risk management capabilities.
- Proactively manage stakeholders' increasing expectations for sustainability.
- Optimise scarce talent through portfolio management, organisational flexibility, selective outsourcing and training.
- Integrate information systems among capital project players.
- Accelerate operational readiness.
"While it is difficult to anticipate all of the changes that can arise from a multi-year project, companies can improve their project management delivery, reduce risks and boost returns on investment by looking beyond aspects of engineering and procurement. To be leading performers, companies will need to increase their focus on governance, human capital strategy, and integrating information systems with business suppliers and operations," said Sloan.