Global capital project spending has returned to pre-recession levels
A.T. Kearney (www.atkearney.com) released a report, “ExCap II: Top-Level Thinking on Capital Projects,” a study of best practices in managing capital projects across their entire life cycles. Although capital spending has recovered since the 2008-2009 recession to $11 - $12 trillion annually, there are significant challenges for managers across the globe that pose major risks to large capital project economics.
Many of the pre-recession capital project issues are returning including resource scarcity, cost management, and underleveraged project portfolios. The study found that 23 percent of capital projects do not meet the required financial return threshold.
The ExCap II study found inconsistencies in three areas:
- Resource availability. Although the world faces high levels of unemployment (+8 percent in the U.S. and + 11 percent in Europe), there is a significant lack of engineering and project management talent available to capital project managers.
- Capital availability. Although poor project discipline results in budget overruns of 5 to10 percent, capital project managers consider capital availability a major constraint.
- Leadership’s understanding of capex issues. An overwhelming majority of senior managers believe they have the right capex organization, processes and performance levels, yet project performance is often poor.