Mining and metals report: Opportunities to improve capital productivity

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.

New data captured through a recent global study by Ernst & Young has revealed that overruns to the sanctioned budget and schedule commitments are the norm with our global megaproject sample group, showing an average budget overrun of a staggering 62 percent.

With projects of this scale, every overrun impacts:

• Total shareholder return

• ROCE

• Capital productivity

• Corporate performance

• Strategic outcomes

Overrun risks are driving an unprecedented level of scrutiny on the project, program and portfolio disciplines of cost and schedule control.

Based on their study results, EY has developed a root cause model to analyze the drivers of overruns and capital productivity impacts. Some of the findings are surprising. 

• Related content: [INFOGRAPHIC] Mining CEOs: Who Makes What?

Overruns occur despite large investments by mining and metals companies to enhance up-front engineering practices and increase delivery maturity.

EY 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-prioritized and underinvested:

• 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 realization.

In this paper, EY will:

• Explore the surprising findings of their study

• Propose a root cause model

• Examine key considerations in applying these critical enabling techniques

Download the full report on the EY website: Opportunities to enhance capital productivity - mining and metals megaprojects