WHERE IS THE DUE DILIGENCE on these ambitious project feasibility cost estimates?
This was a timely report on the internet business news
A 60% rate of large project cost over runs reported from a after the fact due diligence review.
What executives were “watching out for the investors’ interests”?
Where was the pre-project due diligence review?
As exuberance over China “go-go” growth cools down now to more realistic levels, some formerly free wheeling mine executives are probably going to be reassigned or worse.
Likely a similar fate awaits many project rail planners.
The cited EY study below is not focused on the supporting railway projects. But this significant mining failure implies similar rail project cost over run impacts from Mongolia to South Africa and from Mali to India.
Mongolia’s rail plan execution failure out of the Gobi Desert TT fields is probably a close parallel to this report’s conclusions. Almost now a decade in only partial construction, the Mongolian project is a similar “failure to execute” on time and on budget. But here, the blames rests on government rather than executives.
MASSIVE MISS IN ESTIMATING THE TRUE PROJECT COSTS
How can so many screw up so badly?
COSTS as identified in the EY evidence were on average 60% or more over the initial predictions.
Who did the original diligence checking?
Where was the investor/banking over sight?
60% is what most of us who are economist refer to as the conceptual level accuracy of costs. That is terrible for an actual post project delivery audit..
60% is a flunking grade if judged logically.
60% suggests that there was never a serious project feasibility assessment of the market and economics.
Will this lesson learned be used by project leaders going forward now that feasibility may be even more difficult if the resources super cycle is behind us?
The report title is: ‘Opportunities to Enhance Capital Productivity’
Here are a few highlights.
1) EY found that “an average budget overrun of 62% was reported on the 108 megaprojects investigated.”
2) “The projects considered were at various stages across the investment and project delivery life-cycle.”
3) “The projects were geographically diverse and related to the development of copper, iron-ore, gold, coal, nickel and other commodities.”
4) Cumulatively, “the projects represented global investment of $367-billion.”
5) “An estimated 50% of projects were reporting schedule delays even after remedial acceleration initiatives had been applied.”
The study spokesperson at EY is its global mining and metals advisory leader Paul Mitchell.
Mine company leaders now admit to their shareholders that with the good old high growth China days behind them… … the project managers need to be much more precise with their due diligence in order to achieve the promised investment margins. There is now a lot less room for error.
The report cites that total capital expenditure for the subject projects examined “have dropped from $142-billion in 2012 to an estimated $96-billion this year”.
For more details, please go to the Mining Weekly report from an Earnst Young special study at: http://www.miningweekly.com/article/more-than-two-thirds-of-megaprojects-face-cost-overruns-ey-report-2015-05-21
How would you score the report card based on the E&Y report?
Sent from Jim’s iPad