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Risk Management Best Practice 5a – Monitoring for Organization-Wide Performance Risk Associated with Large Capital Projects
Large 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.
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Every organization is challenged by risks manifest through its many different day-to-day operations. To help monitor and manage these risks, most organizations employ groups providing performance and compliance risk assurance so that significantly adverse consequences are avoided. These groups typically carry out their function through the conduct of periodic, in-depth assessments of those areas representing the highest risk to the company. Such assessments are both costly and time consuming; their accuracy rapidly diminishing with the passage of time since the assessment’s performance.
After seeing the devastation from the Texas fertilizer plant and Louisiana chemical plant explosions, StrategyDriven wanted to help industrial and utility leaders better identify, mitigate, and control their operational risks to prevent similar accidents from occurring at their facilities.
Major projects typically add significant operational, financial, reputational, and regulatory risk to an organization’s overall risk profile. This project risk may by itself exceed the normal level of organizational risk leaders are accustomed to dealing with. Consequently, these strategic projects demand the implementation of risk identification, monitoring, mitigation, and control activities. These risk management activities, however, are often unaccounted for in the project’s budget and instead draw resources away from the organization’s other risk management efforts; diminishing the business’s overall ability to effectively manage its other risks.
All organizations face a host of risks incurred during the conduct of day-to-day business operations and stakeholder interactions. These risks challenge executives and managers in so far as they can have consequentially negative impacts on the organization’s ongoing sustainability from an operational, financial, reputational, and regulatory perspective.
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