Capital budgeting decisions typically involve large and long-term commitments. No matter how detailed the forecasts and metrics that support a project initially, managers may need to revisit the decision as new risks arise in a changing environment. Exxon’s board of directors is currently reconsidering two high-stakes projects in its five-year spending plan, one in Mozambique and the other in Vietnam. It will be years before these $30 billion projects pay off, and in the meantime, both projects are exposed to serious political risks. Recall that Exxon’s board was restructured last spring when an activist investor convinced Exxon’s shareholders to replace three directors with individuals who would like to see Exxon reduce the company’s investment in fossil fuel. Although the current demand for oil and gas is high, this is likely to dissipate as public pressure to counteract climate change continues to grow and alternate energy sources emerge.
Be on the lookout for other examples of resource decisions and risk management. Be sure to cite the source of the article.
Matthews, C. M. and Glazer, E. (2021 October 20). Exxon debates abandoning some of its biggest oil and gas projects. The Wall Street Journal. Retrieved 10/21/2021 from