15 Oct 2013

Risk Management Best Practice 5a – Monitoring for Organization-Wide Performance Risk Associated with Large Capital Projects

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StrategyDriven Risk Management Best Practice ArticleLarge capital projects represent a significant investment on the part of an organization and can therefore impact, either positively or negatively, the company’s financial position, if not its viability. Consequently, executive and manager attention and financial support may be disproportionately applied to the capital project(s), particularly in the event of overruns, at the detriment of problem resolution at the organization’s other operating assets.

Companies engaged in a large capital project(s) at one or more of its facilities often experience declining performance at their other facilities. This performance decline results from management's preoccupation with the large capital project(s) and inattention to the needs of operational assets/units. Common operational manifestations of this management distraction include:

  • Top performing personnel are frequently transferred from the better performing operational units to the large capital project(s)
  • Funding for the large capital project(s) tends to be favored over the operations and maintenance (O&M) budgets at the operating units; holding stagnant or reducing the operating, maintenance, and staffing budgets at the organization’s other facilities
  • Top performing personnel at operating units frequently request a transfer to the large capital project(s) because of the project’s importance and a sense of company pride
  • Oversight organization budgets and staffing are seldom adjusted for the increased number of assessment activities associated with the large capital project(s); resulting in a diversion of resources and diminished oversight for the other operating assets (see StrategyDriven article, Risk Management Warning Flag - Unadjusted Resourcing of Risk Monitoring Activities)
  • Operating unit managers faced with significant issues at times fail to observe and/or react to these issues or defer action in deference to the large capital project(s), typically resulting in adverse operational consequences

Deliberate monitoring for the signs of management distraction, resource diversion, and performance decline by an independent oversight group is often the most effective method of detecting this challenge. While periodic assessments provide in-depth insight as to whether management distraction exists, these evaluations are commonly performed on an annual, biannual, or less frequent basis - too infrequent to effectively prevent this type of performance decline. Therefore, ongoing performance monitoring for the onset of management distraction as associated with large capital projects should be performed by internal oversight groups.

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About the Author

Nathan Ives, StrategyDriven Principal is a StrategyDriven Principal and Host of the StrategyDriven Podcast. For over twenty years, he has served as trusted advisor to executives and managers at dozens of Fortune 500 and smaller companies in the areas of management effectiveness, organizational development, and process improvement. To read Nathan's complete biography, click here.

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