Governance & Compliance
The term “Compliance” comes from the English verb “to comply”, which means “to fulfill”, “to satisfy”, “to perform”, “to carry out what has been imposed” with integrity, nevertheless understanding the duty of respect, to be in compliance and to enforce internal and external regulations, laws and market directives (regulation – fiscal-financial-accounting), with transparency and high ethical value, determining the activities of the business organization.
Living in an active, participatory and productive way in today’s world is and will continue to be a great challenge for all human beings who are members of a modern, increasingly complex global society.
Today the power of governments and business organizations are no longer exercised by direct and indirect force, as was known in the past. Modern management and governance techniques are applied in an induced way, so that society and individuals in organizations follow “formulated guidelines and norms”, so that social and operational behavior reaches the established goals.
National and international laws, sectoral regulations, internal norms in organizations, are effective instruments of “power” that aim to apply the “force” of determinations, in a controlling way, through guidelines that all must follow.
In this context, organizations are seeking to apply the new Management and Governance techniques, based on the international market trinity “GRC” (Acronym for: Governance, Risks and Compliance), supported by computerized instruments, where there is a growing standardization of organizations that adhere to certain control processes. In a way, it is very salable for society, because of the undeniable strengthening of internal controls in organizations, and for increasing compliance with laws, regulations and standards.
Modern organizations integrate Governance, Risk and Compliance (GRC) into a single integrated management, as shown in Figure 3. As a result, managers can achieve organizational goals by managing risk and ensuring that operations remain compliant with policies, corporate laws and regulations such as SOX, COSO, COBIT and ISO 31000.
This type of solution interconnects all key GRC elements – risks, controls, policies, laws / regulations, loss events, Key Result Indicators (KRIs), Key Performance Indicators (KPIs), problems, evaluations, action plans and audits.
This allows companies to easily visualize how each GRC element affects other elements. This approach eliminates many obstacles to implement solutions and improves the value of GRC for the entire enterprise.
Internal and external contexts
Today, companies have the challenge of facing various regulatory and business changes, whether in the internal or external context. These risks bring significant damage to reputation, losses and financial penalties.
In the external context, we can mention the cultural, social, political, legal, regulatory, financial, technological, economic and competitive environment, as well as external stakeholders.
In the internal context, we can highlight governance, organizational structure, responsibilities, policies, objectives, strategies, resources, information system, information flows, decision-making processes, internal stakeholders, organizational culture, standards, guidelines.
An Ineffective Governance Undermines the stage-Gated Process Resulting in Poor Projects Being Approved & Resources wasted.
It is a characteristic feature of the resource industry that no two orebodies – and hence no two development projects – are the same.
So these technical issues have to be addressed to a greater or lesser extent in evaluating any resource project’s development potential.
Several surveys on capital projects have shown that the success in implementing competitive projects is based on four attributes: project team, technology, VIPs and FEL.
Among them, the FEL is the crucial factor for the success of the project, used by some companies, as long as it respects the Governance.
Fundamental background for competitiveness on capital projects
Governance should be thought of as the rules and mechanisms for directing and controlling investment in capital projects.
From assessment and benchmarking of many project portfolios, it is clear that gatekeeping, as the final output of an organization’s governance process, is the key driver of overall portfolio performance.
The main purpose of the use of FEL (front-front-end-loading) is to determine whether a development opportunity makes good business sense, not just whether it is technically possible.
The FEL process must therefore demonstrate that, not only it has the technical issues been satisfactorily addressed, but also that the broader commercial, economic and social issues have been considered in the development of a comprehensive business plan, which includes an assessment of the risk-reward profile of the proposed development
FEL methodology divides the development phase into three different phases: FEL1 – Business Analysis, FEL2 – Trade off Analysis and FEL3 – Project Implementation Plan and introduces stage gates in three stages (Gate 01, Gate 02 and Gate 03). The gates work as clear transition points in which the project, after evaluated, may go to the next phase, return for better definition or canceled, according to Picture 1.
Picture 1 – Project life cycle with gates
Based on learnings from governance research, an ineffective or undermined governance process often have some (if not all) of the following symptoms:
1. The project sponsor is the ‘gatekeeper’
2. Project process is bypassed,
3. Scope is dropped (or changed) after Gate 2.
4. Deliverables and answers required to make a decision on the feasibility of an opportunity progressing are waived till the next phase
5. Deliverables are used isolated only to complete check list. This brings a false maturity level of the project and issues ahead.
6. New scenarios, premises and restrictions are not reconsidered again.
The poor track record of the industry – which indicates only half of projects meet their feasibility study expectations – demands a better approach to the feasibility study process.
A clear statistical indicator of capital effectiveness, and one of the final aspects of effective project governance,is project definition.
Organisations with weak governance will systematically approve projects with sub-optimal project definition, and in turn, pay more capital for the same scope than their peers.
This effectively means that fewer opportunities can be delivered for the same budget.
The proposed methodology is an efficient instrument for Capital Projects, in several ways:
· Provide understanding and mitigation of the risks involved;
· Gives consonance between products of the several disciplines involved in each phase;
· Allows corporate planning;
· Preserves the company’s interests;
· Brings up optimum conditions to support to the decision making process.