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Comment - KPMG

KPMG

Appropriate corporate governance practice is the key to identifying potential problems in capital expenditure projects in the oil and gas industry.

Modern corporate practices have been slow to come to grips with the risks of large capital expenditure projects, particularly the processes of due diligence on investment submissions and high level monitoring of project implementation.

Collection of hard data on this issue is difficult in the oil and gas sector and there remains a reluctance of companies to share horror stories.

The key drivers of success in capital expenditure projects are extensive due diligence, an integration program post-completion to drive the value realisation, and reporting on the results.

Due diligence must not only question all aspects of the proposal, but also establish performance parameters for monitoring of the project during implementation, to ensure minimal variations from the approved guidelines.

The role of project owner senior management is vital in large capital expenditure projects.

Whereas many project steering committees simply act as review groups for large capital expenditure projects, they should be involved at a strategic level and ensure decisions are made in accord with that strategy.

For large projects, between 20 and 30 per cent of the total development effort should be allocated to project management processes.

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