project development handbook - riverlake...

Project Development Handbook

A structured way of developing a project into reality

From idea to commitment

By Feiko Jager MSc

©Riverlake Solutions SA

Feasibilitystudy

Conceptdefinition

Funds &Permits

Tendering Construction CommissioningIn

operation



A structured way of developing a potential project into reality Introduction Developing a potential project is often an iterative process with a long duration. Large delays compared to initial plans and large cost overruns compared to optimistic estimates are frequently reasons for disappointment and difficult decision-making. In our experience this is not necessary. Although developing something new always has an iterative character, a structured approach guarantees realistic plans and budgets and accelerates decision-making. A requirement is that the used approach is simple and practical and that it is commonly understood and accepted by all people involved in the project. This Project Development Handbook provides such an approach. Limitations This handbook has been developed primarily for the development of tank terminals and related infrastructure like jetties and pipelines. It can however also be applied to the development of other industrial asset construction projects, e.g. processing plants, power plants or port installations. The described project development methodology can be applied to projects with a capital expenditure between $ 25 and $ 250 million. Smaller projects can do with a less rigorous approach whilst for larger projects the described approach will not provide sufficient guarantees that are required for the magnitude of required investments or impact on society.

How to use this handbook This handbook describes the first 4 phases for the development. It ends with the main financial commitment that is to be made for the project: the signature under the construction contracts. The core of this handbook is a matrix of project development phases and disciplines. The summary of this matrix is provided on the last pages of the handbook. The first pages of the handbook provide a description of the principles behind the methodology. Then, for each phase, two pages provide a detailed overview of all activities and deliverables of a phase. These pages are face to face to provide an integral overview of that phase and can be used as checklist to ensure that all required steps in a phase have been taken. Copyright This handbook has been developed by Riverlake Consultancy SA. You are not allowed to use this handbook without prior consultation with Riverlake Consultancy SA. I wish you success with the realization of your project! Feiko Jager

©Riverlake Solutions SA Page 2

Methodology The goal of developing a project is meeting the following pre-requisites:

The required government permits

The access to the required plot of land

The financing of the required investment

The commercial, financial, technical and operational feasibility

The safe execution of the project Reaching the above goals will be done in a structured manner by working through a matrix of phases and disciplines. Most disciplines have to be covered during each phase of the project to guarantee that overlooking one of the disciplines is later reason to iterate back to an earlier phase. In our experience this is one of the main reasons for project delay. It is essential to complete a phase consciously prior to continuing into the next phase. We rather spend one or a few weeks in completing a phase properly then to discover later that we have to redo a complete phase which could take months and a large amount of money. The best way of reaching this way of developing a project is to look at each step as a separate value creating investment and to make conscious (investment) decisions for each individual step. In the next pages we provide for each phase:

Detailed activities that need to be carried out

Clearly specified deliverables reflecting the result of the activities

Phases

Phase 0: Feasibility study

Phase 1: Concept definition

Phase 2: Funds & Permits

Phase 3: Tendering

Phase 4: Construction

Phase 5: Commissioning

Phase 6: In operation Disciplines

Location

Commercial

Economics

Finance & taxes

Scope & management of change

Permitting

Engineering

Procurement

Planning

Budget

Project Management

HSE

Insurance

Operations

Legal

External communication


Phase 0: Feasibility study ‘Initiating the project’

Goal: To substantiate an idea or business opportunity Result: Plot of land identified, basic business idea documented Costs: 0,1 - 0,2 % of Capex Duration: A few weeks after location is identified

Disciplines Activities Deliverables

Location Identify one or a few locations that fits the purpose of the business opportunity well. Talk to the stakeholders (i.e. owners, authorities, neighbors) to ascertain that they will buy-in to the business idea.

Identified location (drawing, Google Earth picture)

Commercial Describe the basic business idea and identify potential business partners and/or customers. Quantify roughly which turnover could be generated.

Business plan (commercial part)

Economics Make a rough profitability calculation based on the turnover, cost and Capex figures provided.

Business plan (economical part)

Finance & taxes Assess if the business idea can be financed by investigating possible funding structures and potential financiers. Don’t forget to involve applicable tax regimes in the equation.

Business plan (financing part)

Scope & MoC Write a first description of the functional requirements for the required facilities and assess if the location fits these requirements. This assessment will be based on experience figures.

Functional requirements

Permitting Identify the locally required permits and approval procedures as they will have a large impact on the project schedule and might affect the requirements to the facility.

Permit overview

Engineering No real engineering is required during this stage, but it will be helpful to engage experienced engineers to guarantee accurate assumptions on especially scope, capital expenditure (capex) and schedule.

Procurement Make a pre-selection of potential engineering companies that can provide the conceptual engineering for the next phase. Select preferred providers, if required by means of a tender, and prepare for a ready to sign agreement in order to continue the project immediately when the next phase is approved.


Planning & progress

Make a rough schedule for the total project. At this phase it is sufficient to estimate the duration of the phases and not of the activities within the phases. Make a detailed schedule of the activities to be carried out during the next phase.

Overall project schedule (high level)

Detailed schedule for the next phase

Budget Estimate the capex of the total project based on experience figures. This will be a very rough estimate, typically with a 40% accuracy. Make a detailed budget for the next phase.

Overall project capex budget (high level)

Detailed budget for the next phase

Project management

Define the approach for the total project. This typically involves dividing the project in sub-projects and the phasing of the project. Also the project organization, both internal staff and external advisors and consultants, needs to be defined. Define all activities for the next phase in a detailed project plan. Coordinate the decision-making for the approval of the next phase.

Overall project plan

Detailed project plan for the next phase

HSE Not applicable during this phase

Insurance Not applicable during this phase

Operations Quantify roughly what the operation of the facility would annually cost. Operational cost estimation

Legal Not applicable during this phase


Not applicable during this phase

This is the easiest part. Everybody with a bit of funding and some insight in the business can make plan. But out of all feasibility studies made, only 5 or 10% make it past the next phase……….


Phase 1: Concept definition ‘From rough idea to fixed concept’

Goal: Fixing the concept and ascertain that it is viable Result: Clearly defined, viable concept Costs: 0,2 - 0,4 % of Capex Duration: 2-3 months

Disciplines Activities Deliverables Location Engage in discussion with owners and authorities (typically the Port Authority) regarding

the lease or ownership of all required land (and water) for the erection of the facilities on the main site but also for the marine facilities and underground connecting pipelines.

(option on) lease/ownership agreements for the main site and other relevant sites like berths/jetties and pipeline corridors.

Commercial Research the market and find potential launching customers to support the business idea. Substantiate the business case with a well documented projection of expected turnover for the first years of operation. Make scenarios, typically an expected one, an optimistic and a pessimistic one, to test the robustness of the business plan.

Market report

Commercial Memorandum of Understanding with launching customer(s)

Turnover projection with multiple scenarios

Economics Calculate the business case based on the turnover and operational cost projections and on the Capex estimation. Test the robustness of the business case by means of scenarios. Control regularly the expenditure against the budget for this phase and report this in the project progress reports. Prepare for the next costly phases by defining the administration and cost control procedures.

Business case with multiple scenarios

Project accounting set-up

Finance & taxes Define the funding structure and engage in discussion with potential financiers and investors. Organize the funding for the next phase as the project will start to cost serious money during the next phase. Define the tax structure for the project execution and future operation of the facility.

Funding structure proposal

Funding agreements for the next phase

Tax structure proposal

Scope & MoC Finalize the description of the functional requirements for the facility and start defining the operational requirements. Review in detail at the end of the phase if the conceptual design fits these requirements.

Functional requirements description (final version)

Operational requirements description

Permitting Make a plan that states all required activities to apply for the required permits for the whole project.

Permitting plan

Engineering Make a conceptual design. This design typically consists of a technical description of the facilities, a lay-out drawing, a Process Flow Diagram (PFD) of the main product pipeline systems and a description of all required utilities.

Conceptual design consisting typically of:

Facility description

Lay-out

PFD

Utility description


Procurement Define the contracting strategy for the construction. This is necessary as it has a profound impact on the required level of detail of the basic design. Make a pre-selection of potential providers of the services required for the next phases. Select preferred providers, if required by means of a tender, and prepare for ready to sign agreements in order to continue the project immediately when the next phase is approved.

Contracting strategy

Ready to sign agreements for: o Engineering the basic design o The environmental impact assessment

Planning & progress

Track regularly the progress compared to the schedule for this phase and report this in the project progress reports. At the end of the phase, update the high level schedule for the overall project and make a detailed schedule for the next phase.

Overall project schedule (update)

Detailed schedule for next phase

Budget Update the overall Capex budget based on an engineered estimate which is typically 25% accurate at this stage. Make a detailed budget for the next phase.

Overall project Capex budget (update)

Detailed budget phase 3

Project management

Organize a kick-off meeting for this phase of the project with all participants in the project. Coordinate all activities as specified in the project plan of this phase and make regular progress reports. Identify the risks associated with the project. Define all activities for the next phase and update the overall project plan according the results of this phase. Finally coordinate the decision-making for the approval of the next phase.

Regular (monthly) progress reports

Risk assessment report with initial risk register

Detailed project plan phase 2

Overall project plan update

HSE Identify the main safety hazards of the project HAZID report


Operations Make a high level organization scheme and estimate the annual operational costs High level organization scheme

Operational cost projection

Legal Investigate the local legal framework for the proposed tax structure. Review the legal aspects of the agreements for the next phase.


Make a PR plan for the project and ask for engineered images of the facility. Project PR plan

3D images of the facility

The key to this phase is to find and secure the location, the business and the financing for the project. All three should come simultaneously in order to secure the funding for the next phase. Without location no business, without business no financing and without financing no location…………


Phase 2: Funds & Permits ‘Committing the stakeholders’

Goal: Fix the required funding and permits Result: Committed funding & authorized permits Costs: 0,5 – 1,5 % of Capex Duration: 6-18 months


Location Continue negotiations for all required land lease or ownership contracts. None

Commercial Continue the activities from the previous phase. None

Economics Administer the costs for this phase and control the costs against the budget for this phase.

Regular reporting of costs against the budget for this phase.

Finance & taxes Prepare for required funding requests by preparing and discussing a draft investment proposal. Prepare an initial cash-flow prognosis. Discuss the investment proposal with investors and capture the results in draft funding agreements.

Draft investment proposal documentation

Initial cash flow projection

Draft funding agreements

Scope & MoC Finalize the operational requirements for the facility, including maintainability, automation requirements and the requirements for office space. Discuss and document how to handle scope changes during the next phases of the project.

Operational requirements document

Management of Change procedure

Permitting Have the environmental impact assessment conducted (assuming that is required). Maybe other assessments need to be done as well. Compile an application package for the environmental permit, hand it in to the authorities and follow-up thoroughly any questions and/or design changes that might need response in order to obtain the permit as quickly as possible.

Environmental impact assessment report

Environmental permit application package

Environmental permit

Engineering Have a basic design made by a competent engineering firm. Have the design thoroughly reviewed from the perspective of the other disciplines, especially on functional and operational requirements and from the permitting perspective.

Basic design package.

Procurement Start by compiling a long-list of potential contractors that could fit the contracting strategy as defined in the previous phase. Fathom the interest of these contractor by sending them a Request for Information (RFI). Make a short-list of preferred contractors based on an evaluation of the received information.

Contractor long list

RFI (Request for Information)

RFI evaluation document

Contractor short list(s)

List of long-lead items


Planning & progress

Monitor the progress of this phase regularly and report this to the stakeholders. At the end of the phase, make a detailed schedule for the next phase and update the overall project schedule accordingly.

Regular progress report against phase 2 schedule

Overall project schedule (update)

Detailed schedule phase 3

Budget Update the Capex budget based on a 10% accurate engineering calculation. Make a detailed budget for the next phase 3

Overall project Capex budget (update)

Detailed budget phase 3

Project management

Make a detailed plan for the next phase and update the overall project plan accordingly. Manage the existing and new risks thoroughly, and keep your internal stakeholders well informed. Staff next phase (contracting management)

Overall project plan (update)


Update the project risk register

Monthly progress reports

HSE Conduct a HAZOP study on the basic design when it reaches completion. Define the way to secure construction safety. The resulting documents will be part of the contracts with the contractors.

HAZOP report

Construction safety goals, KPI’s and procedures


Operations Define the organization that will operate the terminal as this becomes necessary for the design of the office and other personnel facilities, but also to be able to estimate operational personnel costs. Conduct an operability review and maintainability review on the basic design when it reaches completion

Operations organization chart

Operability review report

Maintainability review report

Legal Set-up the required local legal entities Inaugurated legal entities


Execute the PR activities as defined in the PR plan to support especially the permit application.

Project web site

Project presentation

Leaflets etc.

The project starts costing serious money because making a good basic design and conducting an environmental impact assessment requires many engineering and consultancy hours. A solid project approach is required, especially to stick to the time schedule………


Phase 3: Tendering ‘Finding the right contractors’

Goal: Negotiating value for money construction contracts Result: Signed construction contract(s) Costs: 0,5 – 1 % of Capex Duration: 3-6 months


Location Finalize the negotiations for all required land lease or ownership contracts in order to secure access to the site prior to start construction.

Signed lease/ownership contracts.

Commercial Finalize the negotiations with launching customers. The contracts need to be formalized in order to be accepted by the financiers. Update the turnover projection based on the figures from the launching contracts.

Signed customer contracts

Turnover projection, updated

Economics Review the construction contracts from a financial perspective. Update the financial business case with the latest Capex budget, the commercial turnover projection and the Operational expenditure budget. approval of contracts, PO’s, cost control

Contractor financial evaluation document

Regular reporting of costs against the budget for this phase.

Business case, update.

Finance & taxes Update cash flow prognosis based on offers, sign funding agreements Cash flow prognosis, updated

Funding agreements

Scope & MoC Start the Management of Change (MoC) procedure that was defined during the previous phase.

Change request documents

Permitting Apply for construction permits with an application package that is derived from the basic design that was made during the previous phase.

Construction permit application

Engineering Have the changes out of the MoC procedure designed and insert these changes in the permitting and tendering processes.

Design change specifications

Procurement Write the Request for Proposal (RFP) and send it to the contractors that were selected during the previous phase. After receiving the proposals from the contractors, evaluate them and decide on which one to continue with. Then do the final negotiations and sign the construction contract (s). Do not forget to procure the long-lead items.

Request for Proposal

Tender evaluation document

Signed construction contract(s)

Long lead item specifications


Planning & progress

Monitor the progress of this phase against the schedule made during the previous phase. Make a detailed schedule for the next phase based on the construction planning provided by the selected contractor. Update the overall schedule accordingly. update overall schedule.

Regular progress report against schedule phase 3

Detailed schedule phase 4

Overall schedule, update

Budget Update the Capex budget based on the prices provided by the selected contractor. Do not forget to include all other costs that are required for the upcoming phases.

Overall project Capex budget , update

Budget phase 4

Project management

Make a detailed plan for the next phase and update the overall project plan accordingly. Manage the existing and new risks thoroughly, and keep your internal stakeholders well informed. Staff the next phase (construction management).

Overall project plan (update)


Update the project risk register

Monthly progress reports

HSE Conduct a safety evaluation of the proposals from the contractors. Contractor safety evaluation document

Insurance Review the contractors’ CAR insurance.

Operations Define who of the future operational staff should already be hired to be in place during construction. Define the detailed Operational expenditure (Opex) budget.

Legal Review the contract terms that will be specified in the RFP and then again of the final construction contract.

Legal contract review document


Execute the PR activities as defined in the PR plan to support especially the start of construction.

Regular website update

External stakeholder meetings

At the end of this phase you finally know what the project will actually cost exactly. Time has come to commit the majority of the Capex by signing construction contracts. Thus everything has to be in place: the lease of the land, all required permits, contracts with users of the facility and last but not least the total funding………Construction can commence!


Summary

Disciplines: Phase 0: Feasibility study Phase 1: Concept definition Phase 2: Funds & Permits Phase 2: Funds & Permits

Location Identify the location Secure the site (lease/buy) - Sign the lease/ownership contracts

Commercial Define the future business Research the market - Secure part of the future turnover

Economics Estimate the turnover Calculate the business case Start controlling the costs Do a final update of the business case

Finance & taxes Align a financing structure Engage funding partners Draft an investment proposal

Sign the funding agreements

Scope & Management of change

Describe the functional requirements

Finalize the functional requirements

State the detailed operational requirements

Start the management of change procedure

Permitting Identify the required permits Make a permitting plan Assess the environmental impact

Apply for the construction permit

Engineering Make a first CAPEX estimate Design a technical concept Engineer a basic design Design the requested changes

Procurement Select an engineering provider

Agree on a contracting strategy

Pre-qualify the contractors

Tender the construction contracts

Planning & progress Make an overall schedule Schedule the next phase in detail

Start monitoring the progress

Schedule the construction in detail

Budget Budget the next phase in detail

Calculate a 25% accurate budget

Calculate a 10% accurate budget

Finalize the budget

Project Management Write the project approach and staff the project

Assess the project risks Bring structure in the project

Prepare for construction

HSE - Identify the main safety hazards

Conduct a HAZOP on the design

Evaluate contractor safety

Insurance - - - Ensure construction insurance

Operations Quantify the operational costs Prepare a draft organization scheme

Review the maintainability

Prepare for first operational staff hire

Legal - Review the legal entity set-up Inaugurate the legal entities

Review construction & funding contracts

External communication - Make a PR plan Present the project Conduct external stakeholder meetings


Few weeksPhase 0: Feasibility study

Phase 1: Concept definition

Phase 2: Funds & Permits

Phase 3: Tendering

Phase 4: Construction

Phase 5: Commissioning

Phase 6: In operation

2-3 months

6-18 months

3-6 months

½-2 years

1-3 months

Total duration: 1,5 – 4,5 yearsSCHEDULE

Typical Time Schedule

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