A rigorous governance framework guides capital

project owners in effective decision making and lays

the groundwork for project success.

Successful capital
project delivery
The art and science of
effective governance

www.pwc.com/us/capitalprojects
2 | Successful capital project delivery: The art and science of effective governance
Introduction

Multiple trends have coalesced to Achieve good governance and

make it more important than ever for transparency right from the start
companies that initiate capital projects Organizations that are initiating
to set up effective governance of those capital projects face multiple impera-
projects. Good governance generally tives — whether they are taking on
has five defining characteristics: a single, reasonably sized project; a
handful of small and medium-size proj-
• Clear project definition, including ects; a portfolio of diverse projects; or
cost and schedule estimates and one “megaproject” (i.e., a project that
anticipated project scope exceeds $1 billion). To set the stage
for success, companies need to build
• A clear line of sight into project a viable business case for each project,
performance — particularly in terms secure financing in a tight credit mar-
of cost, schedule, and quality — at ket, and meet aggressive development
every stage in a project’s life cycle schedules under rigid budget limita-
tions and more. Also, the emergence
• Internal accountability for achieve- of powerful megatrends is presenting
ment of project goals both new opportunities (for capital
infrastructure investment) and chal-
• Effective contracting strategies lenges (such as pressure on supplies
of natural resources). These mega-
• Rigorous communication and trends include exploding population
reporting growth, a shift in the global balance
of economic power from developed

PricewaterhouseCoopers LLP | 3
 “Project owners who implement robust governance practices that
meet the demands of the capital project delivery process are most
likely to achieve their cost, schedule, and quality goals.”
—Daryl Walcroft, US Capital Projects & Infrastructure Leader

to developing countries, accelerating Many organizations are skilled in PwC uses an integrated capital proj-
urbanization, climate change, and enterprise risk management and other ect governance framework to per-
technological breakthroughs. Many processes that focus on their core busi- form readiness assessments on the
of these megatrends affect decisions ness. But the tools used to guide a bot- processes and controls required for
about what kinds of capital infrastruc- tom-line-focused enterprise may not effective capital project execution.
ture projects a company will decide to easily transfer to managing deadline- In a recent sample of capital project
invest in, as well as where to invest. driven, technically complex capital readiness assessments, we analyzed
programs. In our experience advising 20 capital projects across a range of
To manage the opportunities and meet on the planning and execution of capi- industries to identify more than 600
the imperatives presented by emerging tal projects across multiple industries, issues that companies encounter when
global megatrends, capital project own- project owners who implement robust they embark on a capital project. We
ers can benefit by establishing a rigor- governance practices that are specifi- also identified the recommendations
ous governance framework that guides cally designed to meet the demands of provided to get the project back on
effective decision making and lays the the capital project delivery process are track. Our analysis revealed that
groundwork for project success. the ones most likely to achieve their projects tend to display a lack of pre-
cost, schedule, and performance and paredness (or maturity) across eight
quality goals. project elements. Figure 1 shows the
percentage of findings (and associated

Figure 1: A large proportion of our findings during capital project governance reviews
revealed a lack of planning by the project execution team

Documentation
Tool
Data
20
Process
People/skill
Planning

15

10

Organizational Cost Scope and Procurement and Issue and risk Communication, Schedule Quality
design and HR management change control contract management reporting and management management
management management regulatory

Source: PwC analysis

4 | Successful capital project delivery: The art and science of effective governance
 “It doesn’t work when people are trying to do the work and figure
out the schedule and fill in the resource gaps along the way.
Better to have your core team in place before moving forward.”
—Daryl Walcroft, US Capital Projects & Infrastructure Leader

improvement recommendations) by framework used to plan and deliver all

project element. Within each element, commercial and technical aspects of a
the findings are further broken out by project. It involves:
six “impact areas” critical to effective
megaproject execution. Figure 2 also • Creating an efficient project organi-
illustrates how good planning, com- zation with clear lines of responsi-
pared to the execution process, impacts bility and defined roles
each project element and contributes to
the overall success of a capital project. • Developing policies and procedures
These results suggest that in all areas, to guide consistent performance
lack of planning, preparation and expe- across the organization
rience can affect processes a project
team uses to execute the project. • Implementing systems for collecting
project execution data and report-
What is governance, exactly, in the ing key performance indicators
context of a capital project? In its most
fundamental form, capital project • Deploying mechanisms that identify
governance is the collective business and mitigate performance risk.

Figure 2: Across the eight elements of our capital project governance reviews,
20–35% of our findings revealed a lack of planning and process maturity

Planning
35% Process

30%

25%

20%

15%

10%

5%

0%

Organizational Cost Scope and Procurement Issue and risk Communication, Schedule Quality
design and HR management change control and contract management reporting and management management
management management regulatory

Source: PwC analysis

PricewaterhouseCoopers LLP | 5
 Insights from experience

Observations about the importance of governance and transparency

in managing successful capital projects

Q: What new forces have made it more Q: Would you say that transparency
important for companies to establish a encompasses the other four keys to
sound governance framework for their effective governance?
capital projects?
A: Definitely. It’s all about providing
A: A lot of projects that were previously accurate and timely information on a
put on hold are now being started project that supports effective deci-
up again. Companies are trying to sion making. So almost everything
deliver a portfolio of projects, not just relates to that. For example, establish-
Daryl Walcroft
one. In the face of increased demand ing the right contracts and managing
PwC US Capital Projects &
and greater constraints on resources, them effectively is critical. But even
Infrastructure Leader
companies are having difficulty finding if you’ve got the best contract in the
enough talent to deliver these large world, it can’t deliver unless you have
programs. There’s also more scrutiny transparency.
into and more attention from the
C-suite on capital efficiency — whether
they’re getting adequate returns on Q: Why is it so hard for companies to
their capital investments. establish transparency?
A: For big companies that have three
or four megaprojects in the works at
Q: Of the five keys to an effective gover-
the same time, going into each of those
nance framework, which do you see as
projects and getting a solid under-
most critical?
standing of how they’re doing is a huge
A: Transparency comes to mind undertaking. The company has to rely
because it covers so much — people, heavily on the many people who can
processes, technology. For instance, to directly see what’s happening “on the
get accurate reporting that supports ground” with a project, and it’s not
transparency, you need the right tech- necessarily easy for them to tell the
nology infrastructure and people who truth as they see it. When you layer
know how to use the technology as that onto the data and reporting chal-
well as perform the processes required lenges, it gets even more difficult.
to gather and analyze data on projects
at every stage in their lifecycle.

6 | Successful capital project delivery: The art and science of effective governance
Q: When you talk about transparency, Q: What do you see companies doing to Q: What would you say is the most
do you mean with external stakehold- get better at capital project governance? important advice you’ve shared with
ers as well as internally within the your clients?
A: Many are establishing central-
organization?
ized program management offices A: I think it would have to be that
A: Absolutely. With a public company, as well as standardizing their capital successfully delivering capital projects
external stakeholders need to know delivery processes, controls, training, requires having the right people in
when issues arise on a project in order and technology. Centralizing drives the right jobs, with the right level of
to know that they can trust the infor- the standards, compliance controls, commitment and buy-in from senior
mation they’re getting. and so forth throughout the organiza- leadership.
tion, and that helps create a culture
of accountability.
Q: Are some companies better at some
of the five keys to effective governances
than they are at others? Q: Are these approaches right for 
all companies?
A: In our work with very large, com-
plex organizations, we’ve seen that A: No. The right kind of governance
there can be pockets of great gover- structure will depend on the nature of
nance in an organization and pockets a company’s business and its capital
of very poor governance. A company investment rhythm. For example, a
may have a partial governance frame- company that’s in a service business
work in place, such as a strong internal and that’s planning to build a major
project audit process that supports new headquarters facility as its only
compliance, but may be weak in other megaproject doesn’t need a full-fledged
areas. Finding an organization that central program management office,
does all of it well is rare. compared to one that’s regularly build-
ing things like power plants, transmis-
sion lines, ports, or rail systems. It’s not
a one-size-fits-all approach to setting up
your governance system. In fact, even
in the big clients we work with, they’ll
have different levels of governance for
different levels of capital spend.

PricewaterhouseCoopers LLP | 7
 A case in point

A large utility company sets the stage for transforming its capital project processes and controls

The business challenge How PwC helped While the quick wins were an improve-
A large US utility company with opera- PwC began with a program assessment ment over what the company already
tions in several states had decided where we identified gaps in the com- had in place, they would not be suffi-
to undertake a multibillion-dollar pany’s project control environment, cient to support successful delivery of a
program to replace the cast iron and such as inconsistencies with industry 20-year pipeline replacement program.
ductile iron pipelines in their gas standards and non-compliance with its For that, the company needed to define
distribution system throughout a major own internal policies and procedures. and implement a new future-state
city. The company’s regulator had We then made recommendations for operating model that would identify
approved an accelerated cost recovery closing such gaps. the changes the company would need
mechanism to support the high level to make in the next 12–18 months.
of capital investment for this and other We defined a capital project trans-
projects in its jurisdiction. formation effort called the Project Toward that end, PwC worked with
Excellence Initiative, which focused executives to define roles and allocate
While the new regulatory environment on identifying and addressing issues responsibilities (to internal personnel,
allowed near real-time rate recovery, it that the regulator’s audit would likely contracted personnel, and consul-
also allowed the regulators to perform uncover. Through this initiative, we tants, as well as to the parent company
management audits of companies helped the company secure a number and subsidiary leadership). To reflect
involved in subject programs. The of “quick wins” to make improvements these changes, we created a new
company asked PwC to conduct an in project controls, processes, and organization chart and a new RACI
assessment before the regulator’s audit procedures that couldn’t wait—such as (Responsible, Accountable, Consulted,
to identify opportunities for improve- creating a new quality control speci- Informed) matrix that clarified deci-
ment and make recommendations for fication, developing a white paper on sion-making roles for each of the 300+
creating a project control environment safety management, reprogramming tasks necessary to deliver the pipeline
that would position the company to the company’s cost model, crafting replacement program.
successfully manage its capital spend a new template for project delivery
and proactively implement improve- schedules, and clarifying material han-
ment opportunities before the regula- dling roles and responsibilities.
tor audit began.

8 | Successful capital project delivery: The art and science of effective governance
Finally, we explored with executives PwC then identified a series of ini- The impact
the capital project management office tiatives the company would need to Any company seeking to expand its
(CPMO) model the parent company undertake to build its selected future- capital spend by an order of magnitude
may want to adopt. (See “Capital state operating model. Some initiatives cannot succeed simply by doing more
project excellence: An enterprise- were process-focused (such as improv- of what it typically does. Instead, it
wide, transformational approach to ing cost management and quality con- must fundamentally alter its capital
successful project delivery” for details trol). Others were people-focused (for project delivery processes, controls,
on the CPMO model). The company instance, ensuring that the right people and systems. The quick wins and
began moving towards a hybrid CPMO with the right skills were in the right operating model changes that came
model that would allow the parent jobs). Still others were technology- with the Project Excellence Initiative
company to assume an oversight role focused (for example, putting needed that PwC developed helped this util-
and shift execution responsibility to information systems in place). At the ity company lay a foundation for the
the subsidiary: The subsidiary would time of this publication, PwC was organizational transformation it would
be responsible for delivering the working with the company to translate have to make to successfully manage
pipeline replacement program as it all the initiatives into actionable sub- the pipeline replacement program.
had the deepest understanding of the projects and to assign responsibilities
local regulatory environment and the and deadlines for each subproject. Equally important, these changes
unique local challenges that program enabled the company to answer ques-
managers would face; meanwhile, tions from the regulator when it came in
the parent company maintained the to conduct its audit. The company was
process maturity and ability to improve able to demonstrate to the regulator that
systems across the enterprise that it had a plan, was executing that plan,
would support this and other capital and therefore had an excellent chance
programs within their portfolio. of delivering the program successfully.

PricewaterhouseCoopers LLP | 9
10 | Successful capital project delivery: The art and science of effective governance
Five keys to an effective
governance framework

Whatever the size of your company How can companies boost the odds
and your capital projects, project that their capital projects will deliver
governance matters — even if primary the intended value? Establishing the
responsibility for project delivery is right governance framework is an
delegated to a third party. Although excellent start. We recommend the
some capital project owners are following practices.
sharpening their focus on improving
governance structures, many proj-
ects still have difficulty delivering on Clearly define the project
cost, schedule, or quality commit- Poorly defined projects almost always
ments. Reasons for such difficulties result in a suboptimal end product,
may include the lack of a clear proj- regardless of how well the project is
ect definition or transparency into executed. Yet when a project owner
project delivery phases, insufficient has a good execution track record or
internal accountability for project is under intense pressure to bring a
performance, and poorly defined new facility online, he or she may be
contracting strategies. tempted to start work before the proj-
ect is fully defined.

PricewaterhouseCoopers LLP | 11
 Spotlight on megaprojects

In a PwC analysis of 47 megaprojects (those exceeding More than 75% of capital projects experience budget
$1 billion) around the world — in areas ranging from rail- overruns. And more than half experience budget
ways, road construction, and nuclear power plants to oil overruns in excess of 50% .
and gas infrastructure, utilities, and airports — 76 percent of
30
the projects exceeded their budget by at least 25 percent. As
much as 52 percent went over budget by at least 50 percent. 24% 24%
25
The average cost overrun of all projects in the study was 19%

Percentage of projects
88 percent. 20
15%
As for the projects themselves:
15 12%
10
• In the six nuclear plants in the study, the average cost 6%
overrun was 157 percent. 5

• For an energy project budgeted at $4 billion, the final 0

forecast reached $12 billion. Under budget 1–25 25–50 51–75 76–100 101+
Percentage of cost overrun
• A €3 billion turnkey power project experienced a three-
year delay that led to litigation where the project owner
sought €2.4 billion in damages. Source: PwC, Correcting the Course of Capital Projects, October 2013

Resist this temptation — and take time management leaders.1 One vice presi-
upfront to define the technical compo- dent of project management and con-
nents and commercial objectives of the struction at an energy company noted
project before jumping into the work. that the most significant hurdle he saw
For example, specify the level of design to keeping complex projects within
and performance detail required budget was determining how to esti-
before a project can progress to the mate such a project in the first place.
next stage. Ensure that your cost and
schedule estimates make sense, define In our experience, the success of a
the project scope in explicit terms, and project is as closely tied to thorough
set reasonable expectations. project definition as it is to execution
quality. Without sufficient definition,
Indeed, poor estimates during proj- post-contract changes will likely prolif-
ect planning counts among the larg- erate, introducing further complexities
est contributors to project failure, into project delivery.
according to a global survey of project

12 | Successful capital project delivery: The art and science of effective governance
 Client mini-case

Implementing and supporting a statewide advanced gas and electrical meter system

Client issue Action Impact

A large public utility faced a multibil- In its role as independent project With the support of the PwC team, the
lion dollar capital program involv- advisor, PwC provided the client with client has effectively navigated the sig-
ing the procurement, installation, three primary functions: advising the nificant challenges created by the new,
and ongoing maintenance of new, project management office and senior advanced IT, mass meter deployment,
advanced gas and electric meters company management; conducting and customer outreach and education
across its large, diverse service ter- macrolevel reviews of the project plan, efforts. Additionally, this transforma-
ritory. The project encompassed the control environment, and associated tional project has led to new roles for
acquisition and deployment of several risks; and preparing the utility to company employees and has required
million meters and the design, devel- embrace the changes in technology, broad changes in the business pro-
opment, and implementation of the IT functionality, and operations. PwC cesses for numerous departments.
systems and communication networks facilitated communication within the
needed to support the advanced meter- client company. And by building strong
ing infrastructure. relationships with the different busi-
ness units, PwC was able to identify
potential risk and process improve-
ment areas.

PricewaterhouseCoopers LLP | 13
 Corruption pressure points

Transparency International, the global anticorruption nongovernmental

organization, consistently reports that the $3 trillion global construction
industry counts among the most corrupt in the world economy. Corruption
in big capital and infrastructure projects may take such forms as bribes,
kickbacks, substitution of inferior materials, poor workmanship, and theft.
Though most large-scale capital projects are unique, there are common
stages where corruption pressure points emerge. Companies can guard
against corruption by using risk assessments combined with a tailored set
of preventive and detective controls.

“Whereas poor project performance was maybe tolerated

to a degree pre-global financial crisis, there’s now much
more scrutiny of projects as they start to exhibit any signs
of performance issues.”
— Neil Broadhead, PwC EMEA Capital Projects and Infrastructure Partner

Foster transparency in project the activities involved in execution:

performance design, procurement and contracting,
The processes required to deliver a construction, cost/schedule tracking
capital project typically cut across busi- and forecasting, change manage-
ness functions, organizations, business ment, commissioning/startup, project
units, and sometimes geographies. turnover, and contract closeout. By
An effective governance framework applying sound governance principles
addresses these complexities and is put that support transparency from the
in place early in the project lifecycle. start, organizations can boost the odds
of avoiding costly course corrections
The activities undertaken at the during execution.
front end of capital project develop-
ment — business planning, project Integrated tools and technology can
definition, budgeting and financing, help support such transparency. The
regulatory approvals, and develop- right set of tools and technologies,
ment of project delivery strategy — can thoughtfully integrated with other
benefit from the structure, account- corporate performance management
ability, and control that come from the tools, can give project stakeholders vis-
deployment of a governance frame- ibility into every stage of a project and
work. Such a framework is equally can bring disparate data together and
important as a project moves through ensure consistency and accuracy across
data types.

14 | Successful capital project delivery: The art and science of effective governance
Establish internal accountability Figure 3: Capital project organization framework
A good governance framework enables
project owners to identify the neces-
sary control tools and procedures to
effectively manage project risks and t H
Cos ment mana R
define who is responsible for imple- nage gem
ma en
menting them. Because large capital t
projects often have multiple stakehold-

t
ers, it is crucial to assign, define, and

en

m
PMO

na e

an
m
ma Tim

Iss emen
communicate all players’ roles and

ge

ag
ue
responsibilities. Clarity on this front
Independent Steering
helps companies avoid redundant

t
risk analysis committee
control functions or gaps in important
management tasks among various Capital

c o n tr a c ts
urement
groups within the organization. i n s p e c ti o Project
Q u a lit y

Proc
To further establish internal account- Internal SOX team

and
n

audit
ability, companies should build a
skilled project team comprising people Operational
with the expertise required to plan,
re g

compliance

r t i tio n
Bu to
ul

n
organize, manage, and execute the i

ca
ng
ry ess
si
a

un
e n an m po
project. For some companies, a central- v ir d m
Co n d r
e
on a
ized project management organization m ent S c op e an d
(CPMO) can help (Figure 3). A CPMO’s c h a n g e c o n t ro l
core responsibilities include:

• Developing standardized processes, PwC’s capital project organization framework defines the key project stakeholders across the
procedures, tools, and methodolo- enterprise and defines their roles and responsibilities in relation to various project considerations
over the project lifecycle.
gies for managing and monitoring
projects

• Defining project management over-

sight and support needs

• Recommending and assisting with A CPMO’s role, responsibilities, and

implementation of specific project structure may vary depending on an
management processes, procedures, organization’s needs and the nature
and tools for individual projects of its capital projects. For instance, a
CPMO might take the form of an assur-
• Providing project management and ance provider. It may provide a capital
contract administrative support project portfolio management function.
through advice or through dedi- Or it might be directly involved in and
cated or shared staff responsible for project execution.

PricewaterhouseCoopers LLP | 15
 Board oversight: A key role in successful capital project delivery

Boards of directors can help provide an additional layer of Directors can also take time to get to know each capital
accountability for capital project management. For exam- project; for instance, by taking onsite tours and spending
ple, they can stay involved from pre-concept to start-up, time with the project team. In addition, they can assess the
asking questions such as “How does this project align with associated risks, including determining whether the organi-
the organization’s overall strategy?” and “What clear ben- zation has built in budget and timeline contingencies; step
efits will it deliver?” They can evaluate resources between in if and when a project veers off track by reassessing all
the project approval and start-up phases, assessing the contracts and, if necessary, suspending or terminating the
project management team’s track record and determining project; and conduct a thorough debrief upon completion of
whether the right governance framework is in place. They a project, including assessing return on investment and les-
can stay alert for early warning signs of trouble, such as sons learned that can be applied to future projects.2
inaccurate estimates, cash constraints, and design errors
leading to rework.

“A capital project is rarely derailed by a single problem; it

usually takes a series of issues along the way—among the
owners, designers, and building contractors.”
— Daryl Walcroft, US Capital Projects & Infrastructure Leader

Craft effective Once owners select a delivery strategy,

contracting strategies they need to shift focus to the clarity
Capital project owners typically and structure of the contractual frame-
appoint contractors to design and work as a whole and assess related
deliver their projects, and many risk. Many owners include a variety of
contract out the project’s day-to-day performance incentives and disincen-
construction management. Numerous tives in their agreements to motivate
owners also assume that once the contractors to perform more efficiently.
contracts are in place, the project Incentive-based contracting can pro-
will run itself, so they leave complete vide benefits if the organization runs
responsibility for project execution scenario analyses to understand the
to their contractors. potential financial impact and confirms
that application of the incentive is
This can be dangerous. From the outset consistent with performance achieved.
of project planning, owners must give Good governance helps ensure that
careful consideration to their contract- incentives connect directly to valid
ing and project delivery strategies. corporate objectives and drives out
Their project delivery strategy should any elements that do not. In addition,
take into account the level of in-house contract terms should carefully articu-
resources that they have available to late the contractor’s responsibilities to
monitor and direct performance. It must establish, maintain, and report defined
also account for the unique risks that performance metrics and specify the
each project presents in areas including owner’s rights to access and audit the
project design and technical challenges. underlying project information.

16 | Successful capital project delivery: The art and science of effective governance
 Client mini-case

Keeping systems, controls, and risks in check

Client issue Action Impact

A major US utility was finalizing plans The client engaged PwC to conduct PwC’s capital projects governance
to construct new multibillion-dollar a preliminary readiness review of the framework helped the client assess
power plants. Working in a highly organization. Based on the results whether existing processes and struc-
regulated environment, the client of the review, the firm’s role was tures provided a prudent, transparent,
recognized the importance of strong expanded to support overall gover- and auditable record of management’s
control processes to manage these nance of plant construction and ongo- actions and decisions throughout the
projects. The client requested a gover- ing cost-recovery efforts. course of each massive construction
nance readiness review to determine project.
whether its systems and controls The PwC team then worked with the
could support projects of this magni- utility to set up the control environ-
tude and complexity. ment, and helped its leaders build a
risk- and issue-management system,
develop a master schedule of proj-
ect work, and establish a reporting
framework for communicating project
metrics to management and regulators.

PricewaterhouseCoopers LLP | 17
 “At the heart of most projects that are in litigation is disagreement
about the cost and impact of change orders from the owner. If
a contractor signed up to a fixed price and a fixed completion
date, but you continue to throw additional scope and changes at
him, obviously he’s going to be able to renegotiate the price and
completion date.”
— Anthony Caletka, PwC US Capital Projects & Infrastructure Principal

Establish rigorous communication To effectively communicate about

and reporting processes and report on the status of projects,
A lack of defined performance metrics, organizations need common sources
and untimely or infrequent commu- of information and a standard set of
nication between project owners and key performance indicators that align
contractors, can raise project costs with project and corporate goals.
and cause delays. Contract documents Companies also can benefit from
should clearly define expectations reducing the turnaround time for gen-
regarding the nature, frequency, and eration of project status reports. Once
level of detail to be included in prog- reports are developed, members of
ress reports to the owner. This helps the project team and leadership team
owners have access to real-time and need to discuss them and agree on
complete information regarding the next steps. In addition, project status
status of the project’s performance reports across the company should
so they can make meaningful project report the same type of information
decisions from beginning to end. in the same format and from the same
databases. Such standardization helps
For example, owners need to be aware managers know how to interpret what
of evolving risks on the project so they they’re seeing in the reports and sum-
can take the actions needed to mitigate marize their analyses at a business unit
such risks. Similarly, they need current or corporate level.3
and complete information on poten-
tial and pending changes to the work
so they can make appropriate deci-
sions regarding the scope of work and
related commercial issues.

18 | Successful capital project delivery: The art and science of effective governance
 Client mini-case

Injecting new life into a company’s processes

Client issue Action Impact

A global energy company needed to The PwC team helped establish a more The energy company reduced turn-
apply more rigor to managing “turn- systematic and cost-focused approach around costs by 10 percent and real-
around” projects such as the main- to ordering parts and other compo- ized a marked improvement in its
tenance of its production facilities to nents and designed a methodology turnaround projects. Additionally, the
prevent missed deadlines and balloon- to establish and structure supplier company realized a 17 percent gain
ing budgets. Though the company contracts. The team also implemented in its scheduled compliance during
often worked on several turnarounds a bottom-up approach to budget plan- the next turnaround cycle. Extra work
at once and had documented its ning for turnaround projects. In the order fulfillment times were slashed
processes meticulously, it rarely fol- area of performance management, the from five days to one, and simplifying
lowed those processes. As a result, the work completed by the PwC engage- paper-based job packages eliminated
company missed critical maintenance ment team gave the client greater unnecessary paperwork and resulted
milestones, which caused cost overruns visibility into how specific processes, in several million dollars of associated
and delays across the project lifecycle. contractors, and systems are working cost reduction.
and where improvements are needed.

PricewaterhouseCoopers LLP | 19
20 | Successful capital project delivery: The art and science of effective governance
Taking the first steps

We suggest taking the following steps PwC has also developed a capital
to begin building an effective capital project procedural framework (see
project governance framework in your Figure 5) that defines typical project
organization. considerations by project element
across the project lifecycle. In reviewing
their current governance framework,
1. Evaluate your current managers should focus on organization,
governance framework procurement and contract management,
Businesses that successfully execute scope and change management, cost
capital projects are supported by an management, schedule management,
experienced governance and control business systems and technology, risk
management team. Members of the and issue management, communication
team understand the stages of a capital and reporting, quality management,
project — business case, design, pro- and safety management.
cure, build, and operate. They are also
aware of the significant risks that exist Through our experience working on
in all phases of project delivery, such complex capital projects across indus-
as scope growth and corruption in the tries, we have compiled a catalog of
procurement process (see Figure 4). typical risks in each of these catego-
ries. We have also developed related
mitigation strategies that should be
considered as part of a comprehensive
governance and control framework.

PricewaterhouseCoopers LLP | 21
 Figure 4: Capital project delivery maturity scale

Element Level 1 Level 2 Level 3 Level 4 Level 5

Capital Project Ad Hoc Defined Managed Integrated Sustained

Governance and Processes are recognized Processes may be formally Project management Processes are integrated Processes are utilized
Controls by team members but defined and encouraged by processes are standardized with corporate policy and to accurately measure
definition is lacking and management, but their use and repeatable.Focus is on enforced by management. project performance
understanding may be is not enforced.Processes the project management Data is available to allow and efficiency on a real
inconsistent between team are inconsistently applied organization rather than for proactive action and time basis.Processes
members.There are no by team members. on specific projects or data driven decision are in place to improve
standards of accountability Adaptive actions are individuals.Project reporting making. Key lessons project performance.
and activities are done on informally identified but is available at a detailed learned documented. Management’s focus is on
an ad hoc basis without impact analysis. and summarized level continuous improvement.
Monitoring capabilities of for those outside of the
project performance by project.
those outside of the project
is limited.

Source: PwC

Figure 5: Capital project procedural framework

Major capital project teams should review all aspects of the control environment. Using PwC’s capital project procedural framework illustrated, the project is separated
into a number of elements.

Project lifecycle
Planning Design Execution Testing Turn-over Ops/Maint

1. Organization Project resource plan, organization, roles Mobilize and Demobilization Operations staff Ongoing req.’s/skills
framework and responsibilities manage labor planning review
2. Procurement Contract strategy Contractor Contractor selection Contract compliance Trouble-shoot and Vendor qualification
and contract qualification and and negotiation review punch list and selection
management evaluation
3. Scope Project objectives and Detailed project Change control Owner acceptance Asset change
and change scope definition design and management
Project elements

management scope freeze

4. Cost/financial Project estimate Project cost baseline Cost control Final payment/ Ops & Maint.
management retention release budgeting
5. Schedule Project schedule Project schedule Schedule management Completion checklist Ongoing Maint.
management requirements baseline schedule
6. Systems Project systems Implement project System support and maintenance Transition to enterprise asset management
and tools strategy systems
7. Risk and issue Risk and issue mgmt. Risk and issue tracking and resolution Confirm issue Ongoing issue
management planning resolution management
8. Communication Assess stakeholder Project status and Project performance Asset performance Project close-out Operations and fin.
and reporting requirements regulatory filings reporting
9. Quality Quality plan Specs. compliance Quality assurance and control Transition as-built specifications to operations
management criteria
10. Safety Safety plan Safety training Safety trend tracking and incident Commissioning Operation safety
management program investigations interface plan program

Source: PwC

22 | Successful capital project delivery: The art and science of effective governance
2. Review your information 3. Revisit past projects
systems Look back at capital projects that met
Determine whether your information expectations and those that did not.
systems — from enterprise resource Review contracts and other project
planning (ERP) and enterprise risk documents, and talk with the people
management (ERM) programs to who delivered the project. Identify
document-management and financial best practices to apply to future proj-
reporting platforms — can deliver the ects, and determine what areas need
data you need with the right amount of improvement the next time around.
detail and level of integration to man- This approach can help you build on
age a major capital project. Accurate project successes and prevent repeats
and reliable status information is of past difficulties.
critical for effective and active man-
agement of projects. Companies must One key to capital project success is a
gather and analyze the large volumes strong commitment to and early focus
of data that are generated as projects on establishing a robust governance
move through their lifecycle, including framework for managing capital expen-
cost estimates, actual spending, prog- ditures. Ultimately, project owners must
ress toward milestones, and real-time carefully define roles and responsi-
updates regarding risks and issues to bilities of all stakeholders; monitor the
be addressed. Consider whether your project’s performance from beginning
information systems can accommodate to end; identify and mitigate risks as
these needs, and make any improve- they arise; and ensure that management
ments necessary to ensure that they do. has the accurate, complete, and timely
information it needs to make informed
technical and commercial decisions
throughout the project’s lifecycle.

Pressure to complete projects within tight parameters

will only grow. By establishing an effective governance
framework, your company can improve the odds that
each capital project will produce the long-term value you
envisioned when the project was conceived.

PricewaterhouseCoopers LLP | 23
 Insights from experience

Observations on capital project strategy

Q: Where do you see companies struggling such risks, they should start by ana-
most in managing large capital programs? lyzing the three sets of main drivers
that affect a capital program’s charac-
A: Many companies predetermine or
teristics—and then use the resulting
limit their available contracting strate-
insights to create a process and control
gies based on a perceived “leading
environment tailored to those drivers
practice” process and control environ-
(see figure below).
ment. However, these leading prac-
tices don’t always consider the unique
Jason Brown The first set of drivers relates to the
aspects of the project under consider-
PwC US Capital Projects & project itself: What are the business
ation, which impact the risk environ-
Infrastructure Director objectives? Which of the cost, sched-
ment (and ability to allocate those
ule, and operability objectives will
risks). Once the project starts, many
be prioritized? How mature is the
companies experience risks they didn’t
design and is new technology being
anticipate or prepare for. To mitigate

Our view of the risk and control environment

Different project, owner, and market drivers define a capital project’s risks, which are allocated to
project participants

Time to market, design Risk Risk Contract Control

Project maturity, interference with environment allocation strategy environment
drivers existing operations, ROI • Schedule • Mitigation • Organization • Project
requirements • Cost capability (EPC/M, governance
• Quality • Accountability Multi-Prime, • Project
• Production considerations Alliance) management
Internal project delivery
Owner capabilities, risk tolerance,
and reliability • Tradeoffs • Pricing processes
drivers • Resource arrangement • Contract
public relations availability (Cost plus, compliance
lump sum,
Contractor and skilled hybrid)
Market labor shortages, supply • Award options
chain capacity, regulatory (competitive,
drivers negotiated)
environment

Owners should consider a control environment designed to mitigate the residual risks from their
risk allocation plan and not transferred though the contract strategy.

Source: PwC

24 | Successful capital project delivery: The art and science of effective governance
contemplated? Will there be interfer- Q: What should a company do with its Q: So is this upfront analysis ultimately
ence concerns with ongoing operations assessment of these three kinds of drivers? worth the time and effort?
or the local community? Answers to
A: Insights into how all these drivers A: Absolutely. Processes and controls
these questions will inform the project
come together help a company define are tools used to achieve project goals
plan, including considerations such as
its risk environment. From there, com- and objectives, but unless you take the
whether the design and construction
panies can make risk-allocation deci- time to understand those unique char-
can be fast-tracked, whether specified
sions—determining which risks they’re acteristics, you run the risk of misalign-
technology decisions necessarily limit
willing and able to retain and which ing your objectives and your control
competition, and how well-developed
they want to transfer. That, in turn, environment. I recently spoke with
the estimate needs to be in advance of
should guide their contracting strategy an executive of a European company
project approval.
and their approach to establishing the doing business in the United States.
right process and control environment. His company was building a replica
The second set of drivers relates to the
of a project they had built in other
owners of the project. Things to consider
Sometimes, a company will have to global markets. But through conversa-
include the owner’s capability to deliver
make tradeoffs. For example, if a com- tion, he realized the delivery strategy
the intended program, their experience
pany prefers EPC4 lump-sum contracts they had successfully used in the past
with the kinds of activities that will be
but the market’s overheated, they may would need to be tailored to the local
involved, their familiarity with the local
have to pay a premium to get vendors construction market in the U.S. Gulf
market and vendors and business prac-
to accept that pricing arrangement— Coast. Even though this sort of analysis
tices, and their risk tolerance.
or hold off launching the project takes time, it’s well worth it because
until contractors are willing to accept it improves the chances of successful
The third set of drivers relates to the
lump-sum pricing arrangements again project delivery.
market and involves issues such as
without those premiums.
resource availability, overall levels of
market capacity, and the regulatory
environment to which the project will
be subject. Depending on vendor back-
logs, they may be unwilling to accept
certain pricing arrangements or other
risks. If contractors are very busy, an
owner may find it hard to persuade
contractors to accept lump-sum pric-
ing; however, they may be more open
to that option in a slow market.

PricewaterhouseCoopers LLP | 25
 Client mini-case

Implementing a capital project governance framework

Client issue Action Impact

When a large utility was set to trans- Using the PwC Capital Project With a clear, organized approach, the
form a power station from natural gas Governance Framework, which utility was able to take a strategic view
to clean coal, it already faced stiff chal- touches on cost and time tracking, of decisions throughout the suspen-
lenges including tight emission-reduc- communication, risk evaluation, and sion and termination of the project.
tion regulations. But when plummeting reporting, the PwC team advised Also, the PwC team helped the client
gas prices brought the multibillion dol- management on how to prioritize its mitigate termination costs and develop
lar “repowering” project to a halt, the decision making. PwC also provided an incentive program to reduce the
utility faced a much larger hurdle: how the client with a detailed framework to cost exposure of phasing out subcon-
to terminate the project midstream. document the contract suspension and tractors. It also conducted a detailed
termination period, providing a clear analysis and presentation of the incen-
and concise audit trail that could be tive program to help both sides come to
used in regulatory proceedings. a mutually beneficial solution.

26 | Successful capital project delivery: The art and science of effective governance
Endnotes

1. Insights and Trends, PwC, 2012.

2. Capital projects: Is your board doing enough?, PwC, November 2013.
3. Capital project management transformation: A standardized enterprise-wide approach to project
delivery can help companies achieve execution excellence, PwC, 2014.
4. A contract type wherein a single vendor provides Engineering, Procurement, and Construction services

Related publications
For more on this and related topics, visit www.pwc.com/us/capitalprojects for all publications in this series, including:

Establishing a capital project procedural framework astering the five keys to execution excellence to Integrating dynamic capital project technology
increases the odds that a company’s portfolio of improve capital project delivery and maximi e the with back-end enterprise tools enables free ow
projects delivers intended outcomes. value of the capital projects portfolio. of accurate data for better decision making.

Managing capital Capital project excellence Capital project technology

projects through controls, An enterprise-wide, Leveraging the right tools and
processes and proced res transformational approach to systems for successful project delivery
Toward increased project successful project delivery
transparency and accountability

www.pwc.com/us/capitalprojects www.pwc.com/us/capitalprojects www.pwc.com/us/capitalprojects

Managing capital Capital project excellence: Capital project technology:

projects through controls, An enterprise-wide, transfor- Leveraging the right tools and
processes, and procedures: mational approach to success- systems for successful project
Toward increased project trans- ful project delivery delivery
parency and accountability

PricewaterhouseCoopers LLP | 27
www.pwc.com/us/capitalprojects

To have a deeper conversation about how this subject may affect your
business, please contact:

Daryl Walcroft
Tel+ 1 415 498 6512
daryl.walcroft@pwc.com

Anthony Caletka
Tel+ 1 347 574-2285
anthony.caletka@pwc.com

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