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How to Respond WhenOpportunity Knocks

By Will Witt Page 1 of 95 3/24/2011

How to

Respondwhen

OpportunityKnocks

Risk comes from not knowing what you are doing

Warren Buffet

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IntroductionThis book is divided into three Sections

Section 1

Section 1 provides an overview of the Shorace Process and can be read on itsown without reference to Sections 2

Section 2

Section 2 is an E-book on how to use the Software Provara in the Analysis of theOptions. It can be ignored initially when the reader is trying to absorb theShorace concept. There is a lot of information in Section 2 on the selection andevaluation of the Options that will be of great value to the reader even if thesoftware itself is not purchased.

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Introduction ..............................................................................................8Section 1 ..................................................................................................9Introduction ..............................................................................................9

Background............................................................................................9Use of the E-book..................................................................................10Applicability of the E-book ......................................................................10

Scope of the E-book ..............................................................................11Claims and Representations.................................................................... 11Liability................................................................................................12

Section 1..................................................................................................13Chapter 1: ................................................................................................ 13How Shorace Works .................................................................................13Chapter 1 - Shorace Overview ...................................................................14

Terminology .........................................................................................14The SHORACE Process ...........................................................................15Definitions............................................................................................16

The Project Shell ................................................................................16Optionology .......................................................................................16Refinery ............................................................................................ 17Accordancy........................................................................................ 17Execution ..........................................................................................18Comparison with Historic Terminology ................................................... 19

The Project Shell ...................................................................................20Definition ..........................................................................................20Why us the word Shell?.....................................................................20Why is the Shell document so important?............................................... 20What should you call the process?.........................................................20What can trigger the need for a project? ................................................ 21What does the word "success" mean in the context of the project executionprocess?............................................................................................21How should the whole process work?.....................................................21Project Bible ......................................................................................22Shell changes.....................................................................................22

The SHORACE Matrix ............................................................................. 22What is it? .........................................................................................22The project approval process................................................................23Project planning .................................................................................23Your own matrix name ........................................................................ 23

Chapter 2 the Project Shell .....................................................................26Work scope summary ............................................................................26

Shell implementation philosophy...........................................................26Clarify the objectives .............................................................................26

Briefing meeting................................................................................. 26The first workshop / stakeholder conference...........................................27

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What is a stakeholder? ........................................................................ 27What sort of issues can be considered as bone fide objectives...................28Workshop conclusions ......................................................................... 28

Define the criteria for strategic fit and test against the criteria ..................... 28What is strategic fit? ...........................................................................28Verify the business need......................................................................28Identify the core competencies available to undertake the project .............29Undertake SWOT analysis ....................................................................29Identify any regulatory or environmental issues......................................29Identify who will operate the facility ......................................................29Undertake strategic risk review............................................................. 29

Gather the existing data available............................................................29Preliminary project assessment:..............................................................30

Define the assumptions .......................................................................30Identify the uncertainties..................................................................... 30Strategic Risk Assessment ...................................................................30Capex and Opex models ...................................................................... 31Source of total project funding .............................................................31

Identify internal and external stakeholders and prepare outline inquiry /communication plan...............................................................................31Define the option evaluation metrics ........................................................31Prepare project shell document ...............................................................32

Identify the project team, AP, cost and source of funding for Optionology...32Project team for Optionology................................................................32Optionology Authorization Panel ...........................................................32Cost of Optionology ............................................................................32Source of funding for Optionology.........................................................32

Summary of Optionology Work scope.......................................................32Chapter 3: .............................................................................................. 33Optionology ............................................................................................33Chapter 3 Optionology ...........................................................................34

Work Scope.......................................................................................... 34Summary ..........................................................................................34Optionology implementation philosophy................................................. 34

Develop the option evaluation metrics ......................................................34Identify the distinct options and test for strategic fit...................................35

The Identification process ....................................................................35The ground rules for the choice of options..............................................35Test for strategic fit ............................................................................35

Identify key value drivers and their weighting ...........................................36Set risk criteria to ensure Risk Management consistency.............................37Risk register ......................................................................................37

Develop each option that passes strategic fit tests .....................................37Evaluation criteria...............................................................................37Preliminary execution plans..................................................................37

Stakeholder inquiry / communication plan.................................................38Identify stakeholders .......................................................................... 38Deploy inquiry / communication plan.....................................................38Test the options via the inquiry / communication plan..............................38

Evaluate and select the preferred option using VM and RM techniques ..........38Evaluate the metric criteria ..................................................................38Select the preferred option ..................................................................39

Identify the Source of Project Funds......................................................39

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Identify the project team, AP, cost and source of funding for Refinery andAccordancy...........................................................................................39

Project team for Refinery.....................................................................39AP for Refinery...................................................................................39Cost of Refinery and Accordancy...........................................................39Source of funding ...............................................................................39

Summary of Optionology work scope .......................................................39Chapter 4: .............................................................................................. 41Chapter 4 Refinery ................................................................................42

Work Scope.......................................................................................... 42Follow AP instructions in finalising the definition of the selected option.......... 42

Land acquisition .................................................................................42Planning authorities and consents .........................................................42Detailed project scope......................................................................... 42Infrastructure works ........................................................................... 43Operational parameters....................................................................... 43

Prepare draft contracts for surveys soil investigation etc .............................43Site investigation and topographical survey............................................43Other specialist studies .......................................................................43

Finalise and place contracts for the Refinery surveys and studies by consultantsand supervise their execution..................................................................44

Contract documentation. ..................................................................... 44What do you want?.............................................................................44How do you want it done?....................................................................44What are the benefits that you will gain? ............................................... 44Can they do it?...................................................................................45

Supervise the surveys and special studies.................................................45Test the preferred option using the survey and study data........................45Prepare more detailed project schedule .................................................... 45

Undertake value engineering studies ........................................................45Undertake risk reviews to reduce risk.......................................................45Confirm project funding source................................................................45

Chapter 5: .............................................................................................. 46Accordancy .............................................................................................46Chapter 5 Accordancy ............................................................................47

Work Scope.......................................................................................... 47Prepare and submit planning and any other applications for consent / approval..........................................................................................................47Prepare the Project Execution Plan...........................................................47Undertake Value Engineering Studies .......................................................47Undertake Risk Reviews .........................................................................47Continue the deployment of the communication plan..................................48Project Funding.....................................................................................48

Chapter 6: .............................................................................................. 49Value and Risk Management......................................................................49Chapter 6 - Value and Risk Management .....................................................50

Introduction .........................................................................................50Definition of a successful project .............................................................50Value management................................................................................50Risk management .................................................................................51Summary............................................................................................. 51

During detailed design the absolute values become even more important andmore advanced techniques may need to be used but the principles willremain exactly the same. ....................................................................51

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Chapter 7: .............................................................................................. 52Project Execution.....................................................................................52Chapter 7 Go Ahead and Execution .......................................................53

Work Scope Summary............................................................................ 53Check that all aspects of the project comply with the Shell..........................53Deploy the final stage of the communication plan.......................................53Prepare final ROI calculations..................................................................53Undertake Design and Cost Review..........................................................53Undertake Construction Review ...............................................................53

Section 2 ................................................................................................54Section 2 ................................................................................................55Chapter 8 ............................................................................................... 55Introduction to NPV..................................................................................55

The purpose of the E-book...................................................................55About Provara....................................................................................55

Background..........................................................................................55Economic and Financial Assessments........................................................56

License to use Provara ........................................................................ 57Identification of the Options ...................................................................... 59

What is an Option? ................................................................................59What are the Option differentiators? ........................................................59Projects with several components............................................................60How do you actually develop the Options? ................................................ 60

In an established business ...................................................................60Other circumstances ...........................................................................61

Glossary of terms.....................................................................................62Introduction .........................................................................................62Discounting ..........................................................................................62Net Present Value..................................................................................63

What is NPV? .....................................................................................63How does inflation effect NPV ...............................................................63How does Company taxation effect NPV.................................................63How do you use the results of the Provara output?..................................64

Internal Rate of Return ..........................................................................64Chapter 9: .............................................................................................. 65Capital Cost ............................................................................................65The Assessment of Capital Cost..................................................................66

Introduction .........................................................................................66Advanced economies...........................................................................66Fast developing economies ..................................................................66Backward economies and very remote projects.......................................66The Approximate Approach to Cost Estimation........................................67

Probability assessment...........................................................................68The input to Provara ...........................................................................68Worked example of probability assessment ............................................69

Chapter 10: ............................................................................................71Project Income ........................................................................................71The assessment of project income..............................................................72Chapter 11: ............................................................................................73Operating Costs .......................................................................................73The assessment of Operating Cost..............................................................74

The difference between Direct Costs and Indirect Costs ..............................74

A garage ...........................................................................................74A hotel..............................................................................................74

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Why are the differences so important?...................................................75Direct and indirect cost probabilities......................................................... 75

Sensitivity analysis...................................................................................76Just ignore the probabilities for the Capital, Income and Operating costs andProvara will calculate the NPV for the median case as well as the Optimistic andPessimistic.............................................................................................. 76Chapter 12: ............................................................................................77Value Management...................................................................................77Value Management...................................................................................78

Introduction .........................................................................................78Role in Construction...............................................................................78

The benefits.......................................................................................78How is best value achieved? ...................................................................78Understanding Value..............................................................................78

The three value factors........................................................................78Utility Value .......................................................................................79Exchange Value.................................................................................. 79Esteem Value..................................................................................... 79Hard and Soft Values ..........................................................................79Value Management using Provara .........................................................80

Risk assessment techniques ...................................................................... 82Introduction .........................................................................................82

Eliminate (Terminate) show-stoppers and biggest risks............................82Reduce (Treat) risks ...........................................................................82Insure or Transfer risks .......................................................................83Contain (Tolerate) the risk within the contingency reserve........................ 83

Chapter 14: ............................................................................................84Study and Survey Costs............................................................................84How to assess the cost of studies and surveys.............................................. 85

By the use of specialists......................................................................... 85What do you do if there are no local specialists..........................................85

Chapter 15: ............................................................................................86Provara in Action .....................................................................................86How to use the Provara Options Analysis Tool .............................................. 87

How and When to use Provara.................................................................87What are Scenarios and Sub-scenarios ..................................................87Concept development.......................................................................... 87Analysis of the Options........................................................................ 88The Development of the Project Plan .....................................................88

Definition of the Options.........................................................................89Appendices .............................................................................................91Appendix A ............................................................................................. 92

Cost Estimate accuracy and related fee costs ............................................92Appendix B ............................................................................................. 93

Project Classification Tool ....................................................................... 93Appendix C ............................................................................................. 94

Risk Assessment Tables ......................................................................... 94Likelihood..........................................................................................94Impact.............................................................................................. 94

Appendix D ............................................................................................. 95Value benchmarking ..............................................................................95

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Introduction

As a general rule the most successful man inlife is the man who has the best information.

Benjamin Disraeli (1804 1881)

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Section 1

Introduction

Background

Will Witt is one of the most experienced and widely practiced Civil Engineers inthe World.

He was one of the very successful graduates produced by the Sheffield UniversityFaculty of Civil Engineering run by the famous Professor Bill Eastwood in the late

1960s.

His rigorous and enthusiastic approach to engineering was taken up by the manystudents that became very well known engineers such as Professor Les Clarkwho became the President of the Institution of Structural Engineers

Will got a good honours degree and went straight out on site to see how thingswere really built. After 2 years he was put in charge of a $25.0m (current value)project a lot of responsibility for a 23 year old!

After 5 years in muddy boots it was time to see what design was about and hebecame a Member of the Institution of Civil Engineers (MICE) and also passed thedifficult Institution of Structural Engineers Entrance Exam. He was a Chartered

Engineer twice over!

In 1978 he helped Bob West start up Robert West Consulting a firm still inbusiness now.

In 1985 he set up a contracting firm called Pentacon. Projects included theinfrastructure for the new town of Chafford Hundred at West Thurrock in Essex.Feasibility studies, master planning and construction of roads, drains, utilityservices, railway station, schools and shops, were carried out to develop oldquarries into a thriving town of 12000 people.

Pentacon built offices, warehouses and factory units for developer, retailer andmanufacturing clients. It ceased trading in September 1990 during the severe

credit squeeze. Will had given personal guarantees to banks and was madepersonally bankrupt in 1992.

Lack of engineering work forced Will into building house extensions by hand forseveral years.

Eventually, engineering picked up again and Will became a consultant to KellogBrown and Root in 1995. For 12 years he was involved with some of the biggestprojects in the world like the Darwin-Alice Springs railway, Tengiz oil field,Kashagan oil-field in the Caspian, Sahkalin Island project for Shell and manyother very large projects. He was always involved in the master planning andfeasibility study stages because of his wide experience, analytical ability,enthusiasm and ability to think Outside of the Box

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In 2004 he moved to France and set up Bluepools with his oldest son Luke.Bluepools has now built about nearly 100 swimming pools and is on course tobecome one of the biggest swimming pool installers in France and the UK. He alsofound the time to set up a pool building operation in Nevada and Arizona with aUS partner who is resident in Las Vegas.

He still helps companies carry out feasibility studies on major projects and hascontinued to work as a hands-on engineer for particular clients but has found thetime to write this E-book so that project developers everywhere can benefit fromhis experience.

So Will knows everything just about everything there is to know aboutengineering and construction projects and setting up new businesses involvingconstruction and has written this book for the benefit of anyone that reallywants to know how to do a Feasibility Study on a Major Project.

Use of the E-book

It is a sad fact that most new businesses fail and that many existing businessesfail or are taken over after a project has gone sour. Most of the projects thatcause such failures are fundamentally sound and fail or do not progress becauseof mistakes that are made during the early project development process.

The objective of the E-book is to help get new engineering and constructionprojects that are required to solve problems or take advantage of an opportunityup and running.

Shorace is a system and is not mandatory. I recommend that you read the entireE-book and then consider how you might implement the principles of the processwithin your own organisation.

It is possible that you will need to tune the process to suit the requirements ofyour own business. Many firms are set up on a departmental basis and it is inthose businesses that SHORACE may prove to be most beneficial.

The most important thing is to mould the principles involved to your particularbusiness style and type of work and not to let the particulars get in your way.

And please remember the two fundamental facts about systems.

A system is a p rocess o f rea l is ing a speci f i c ob j ect ive based on

under tak ing a ser ies o f log ica l ac t ions in a log ica l sequence.A system a l low s inexper ienced peop le to p red ic tab ly ach ieve a speci f i c ob jec t i ve .

Applicability of the E-book

The E-book has been written expressly to help people who are new to feasibilitystudies or people with previous experience of them that want to improve theirtechniques.

The E-book is mainly geared towards engineering and construction but the author

has applied exactly the same principles in business development feasibilitystudies.

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The E-book has been written for large complex projects. However the principlesare very simple and can also be applied to the smaller engineering andconstruction projects of any shape and size. In simple projects many of the WorkItems in each Step can just be ignored when they are obviously inappropriate.

Many people have read the book and have said that

I do not need to follow a complicated process like this Well I know that arewrong - unless you undertake each Step in sequence your project is likely to gosour.

The methodology of the process is that there are 5 distinct steps or stages ofproject development be fo re Detailed Design even commences. At the end ofeach Step there should a milestone where the real decision makers are involved.

It is very important to remember that the project development process should bedecision driven and not led by the activities involved. There are three important

underlying objectives that must be constantly born in mind;

The identification and optimization of the value of the project drivers The execution of just the work required to support a defined decision

making process Continuous alignment of all the involved parties

This E-book has been designed to help the project owner and developer and hasbeen written on that basis.

The project owner may be an industrial concern, a property developer, a privateindividual or part of local or central government. The project owner may also bethe project developer. He is referred to as the Project Sponsor in this E-book.

One real ly im por t an t i ssue is tha t t here is a steep increase in the cost o f each o f t he 4 s teps .

So if a total show stopper emerges during any of the Steps it is important to stopthe project then and there and perhaps reconsider the previously agreedobjectives.

Scope of the E-book

This E-book concentrates on the Shell, Optionology and Refinery but the sectionson Accordancy and Execution are included for the sake of clarity although there

are hundreds of publications available that deal with these aspects in more detail.

You are probably unfamiliar with these terms and they are explained in Chapter-1.

Claims and Representations

Every effort has been made to accurately represent this informational productand its potential. There is no guarantee that you will earn any money using thetechniques and ideas from this product or that your projects will be improved bythem. Examples in this product are not to be interpreted as a promise or

guarantee of success or earnings. The level of success in attaining the resultsclaimed in our materials depends on the time you devote to the program, ideasand techniques mentioned your finances, knowledge and various skills. Because

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these factors differ according to each individual, Piexe cannot guarantee yoursuccess or income level. nor that it is responsible for any of your actions.

Liability

The materials in this site are provided "as is" and without warranties of any kindeither expressed or implied. Piexe disclaims all warranties, implied or expressed,including, but not limited to, implied warranties of merchantability for a particularpurpose. Piexe does not warrant that the functions contained in this site'smaterial will be error free, that errors will be corrected, or that this site or theserver that makes it available are free of viruses or other harmful things. Piexedoes not warrant or make any representations regarding the use or the results ofthe use of the information and material in this E-book in terms of theircorrectness, accuracy, reliability, or otherwise. You assume the entire cost of allnecessary servicing, repair or correction. Under no circumstances, including, butnot limited to, negligence, shall Piexe be liable for any special or consequentialdamages that result from the use of, or the inability to use, the materials in thisE-book, even if Piexe has been advised of the possibility of such damages.Applicable law may not allow the limitation or exclusion of liability or incidental orconsequential damages, so the above limitation or exclusion may not apply toyou. Facts and information in this E-book are believed to be accurate at the timethey were placed in it. Changes may be made at any time without prior notice. Alldata provided in this E-book is to be used for informational purposes only. Theinformation contained in this E-book and pages within, is not intended to providespecific legal, financial or tax advice, or any other advice, whatsoever, for anyindividual or company and should not be relied upon in that regard. The services

described in this E-book are only offered in jurisdictions where they may belegally offered.

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Section 1

Chapter 1:How Shorace

Works

It would be naive to think that the problemsplaguing mankind today can be solved withmeans and methods which were applied orseemed to work in the past. . .

Mikhail Gorbachev, (1988)

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Chapter 1 - Shorace Overview

Terminology

Shorace is an acronym for the following steps that are carried out in chronologicalorder;

1. Shell

2. Optionology

3. Refinery

4. Accordancy

5. Execution

Shell, Optionology, Refinery and Accordancy are new terms that I use to describethe different early steps in Project Development. I make no excuse for making upthe word Optionology. It is the most important part of the Project Appraisalprocess and there is no English word that has the meaning that I have given to it.

This E-book concentrates on the Shell, Optionology and Refinery but the sectionson Accordancy and Execution are included for the sake of clarity.

I have used the word Shell to describe the first Step of the Shorace systemquite deliberately because it indicates something that is hard and unyielding and there is a very powerful reason for this.

In the past terms like Project frame and most popularly Project Charter havebeen used to describe the initial project stage. And the normal approach has beento guess what this document should say because We dont know much about theproject so it doesnt matter if we get it wrong because we can always change it inthe future. Consequently the document is often put in a drawer and forgotten.

THI S ATTI TUDE AND APPROACH I S ONE OF THE FUND AMENTAL REASONSW HY PROJECTS GO W RONG!

The Shell should be written and redrafted endlessly until every Project Sponsorthat has any responsibility for the Project can sign off on it. Then it shouldbecome the Project Bible against which every future document is measured. Ifthe new document does not comply then it should be changed.

If the issue is so fundamental that the project cannot continue then it should bepaused until the Shell document is revised and re-approved. If the ProjectSponsors cannot agree on the change the project should be cancelled.

You will probably have heard of Value Management and Risk Assessment but maynot be sure exactly what is entailed in undertaking these types of analysis. Thereis a Chapter on each of these concepts and they may be ignored at this stageduring your first reading of this E-book, because the techniques can be easilyapplied later when your project is underway.

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The SHORACE Process

STEP Content Process

SH SHELL

Project manager and histeam are impartial

Opportunity statementStrategic fit statementGather existing dataStatement of assumptionsStatement of uncertaintiesDefine the optionsValues and trade-offsCapex and Opex

Identify stakeholdersStrategic risk review

Why are w e doing

th is?

What exac t ly a re we

going to do?

Is i t someth ing w e

should be doing?

O OPTIONOLOGY

Project team istechnically challengedand intrigued.

Consultants are onlyused for tasks such assurveys, technicalreports and cost advice.

Finalise option evaluation metricsIdentify the real optionsIdentify value driversSet risk criteriaDevelop each doable optionTest the optionsDeploy communication planSelect preferred option and develop scopeand outline specification documentation

What is t he best

w ay o f do ing i t?

Can w e e l im ina te

every ma jor r isk?

Wi l l it do w ha t w e

w a n t ?

R REFINEMENT

Project team is now theproject champion anddevelops the preferredoption to meet all theproject sponsorsrequirements.

Technical consultantsare now required

Finalise the scope of the selected OptionUndertake the required surveys andinvestigationsPrepare the concept design to match theproject sponsors requirements regardingfeatures and performance parameters.Prepare costs estimates and schedules inorder to calculate the Return on Investmentetc

Final ise t he

proposal and

develop the answ ers

to every query and

possib le ob jec t ion

AC ACCORDANCY

Project team appointsthe consultants and getsall the stakeholdersbehind the project

Major input fromtechnical consultantsrequired

Preliminary engineering design

Prepare detailed project execution planUndertake Value EngineeringUndertake Risk ReviewContinue with communication planSubmit consent applications

Get everyone

involved to agree

w i th and back t he

pro jec t

E EXECUTION

Full agreement isconfirmed and the

project sponsor commitsthe business to the

Final commitment of resourcesThe project is placed in the project executionprocess where detailed design and

construction proceeds on a conventionalbasis

Final Go No by t he

Project Sponsor

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project

Definitions

The Project Shell

The Project Shell document should include:

1. A brief statement outlining the business opportunity or a problem thatneeds to be resolved.

2. A Statement demonstrating strategic fit or business need

3. A Statement of the assumptions and uncertainties

4. A preliminary assessment of the options that might be considered (not anexhaustive list at this stage)

5. The qualitative values and the trade-offs between capital costs (Capex)and operating costs (Opex) that need to be taken into account

6. Strategic Risk Review

7. Preliminary Capex and Opex figures

During this stage the work is concentrated on the acquisition of background data

and the identification of show-stoppers,

The Shell must be coherent and its purpose is to define the objectives of theproject and demonstrate how the project is allied with the strategic businessstrategy of the Project Sponsor.

It should be a short document and never cover more than 5 / 6 sheets of paperand should include the Shorace Matrix (Outline project development plan).

Optionology

A new word that I have made up to describe this project stage that concentrates

on identifying all the possible development options or alternatives and willinclude;

1. Development of quantitative option evaluation metrics

2. Identification of all the distinct options and testing for strategic fit

3. Identification of the key value drivers and their weighting

4. Setting of risk criteria to ensure RM consistency

5. Development of each option that passes the strategic fit test along withpreliminary execution plans

6. Confirmation of stakeholder identity and the deployment of an initialinquiry / communication plan

7. Testing of the options via the inquiry / communication plan

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8. Evaluation and selection of preferred option using Value Management andRisk Management techniques and the evaluation metrics

It is always preferable to restrict the choice to one option but in some projects itwill be found that the cost and construction schedule is so dominant that the finalchoice may have to be deferred into the Refinery and occasionally into theAccordance S

tage.

Refinery

I have given another meaning given to an old word. As the name suggests thisstage concentrates on improving and identifying more refined project details andwould include;

1. The identification of any land that needs to be acquired and the cost ofacquisition and obtaining consent for access for testing

2. The preparation of a detailed project scope

3. The identification of any infrastructure works that are required

4. Confirmation of all the operational parameters

5. The preparation and letting of contracts for surveys, soil investigation andany special studies such as market surveys.

6. Supervision of the surveys and special studies and acceptance of thereports and results.

7. The assessment of the results of the surveys and studies and the testingof the preferred option including consideration of staged construction tooptimise the ROI.

8. The preparation of a detailed project schedule

9. Undertaking Value Engineering Studies

10.Undertaking Risk Management Studies

It is the Value and Risk Management in this step that reduces the likelihood ofthose late changes that can cost so much during construction.

Accordancy

This is another new word that emphasizes the importance of communicating theprojects aims and objectives to all the parties that could affect the projectoutcome. The title of this stage or step may be puzzling to many of you who aremore experienced in the execution of feasibility studies. Accordancy is a veryappropriate name because it is at this stage that the detailed project executionplan is prepared and published and everyone who has any influence or interest inthe project must be brought on side to back it or the project is fine tuned totake account of any valid objections.

The detailed project execution plan should include;

1.The work plan and work breakdown

2.The detailed construction schedule

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3.The contracting plan

4.The tender documents

5.Detailed Capex, Opex and other costs

6.Risk assessment and mitigation plan

This stage will also include all the applications for consent to both local, regionaland national government in accordance with the local rules and regulations aswell as the project Communication Plan that deals with project Public Relations.

Execution

This will include the detailed design, construction, commissioning and operation

etc that has largely been ignored in this book because there are thousands ofbook, reports and publications that deal with it in great detail.

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Comparison with Historic Terminology

Readers will find the following Table useful. It also illustrates how confusing theold terminology is especially as many people move about between theconstruction, investment and oil and gas industries.

Step /Stage

SHORACETerminology

ConstructionTerminology

InvestmentTerminology

Oil and GasTerminology

1 Shell Charter Appraisal Feasibility

2 Optionology Pre-feasibility Appraisal Concept

3 Refinery Feasibility InvestmentPlanning

Front EndEngineeringDevelopment(FEED)

4 Accordancy Project Plan Asset Creation Detailed Design

5 Execution Detailed designandconstruction

Asset Creationand Operation

Construction andOperation

You will find that no two engineers actually agree on the names in the table, let

alone what should be undertaken during each stage. The main differencesbetween SHORACE and the traditional approaches are as follows

The SHORACE process is decision driven whereas the traditionalapproaches are activity driven

The SHORACE process covers different ground during each stage whereasthe traditional approach does the same thing but in ever increasing detail

The SHORACE process requires a clear go no go decision at the end eachstage, whereas traditionally the go no go decision is made at the end ofRefinery

The SHORACE terminology is clear and unambiguous whereas thevagueness of the old terminology leads to constant debate and confusionas to what should be included in each stage

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The Project Shell

Definition

For ease of reference I have copied the definition of the Shell here again and it is;

1. A brief statement outlining the business opportunity or a problem thatneeds to be resolved.

2. A Statement demonstrating strategic fit or business need

3. A Statement of the assumptions and uncertainties

4. A preliminary assessment of the options that might be considered (not anexhaustive list at this stage)

5. The qualitative values and the trade-offs between capital costs (Capex)and operating costs (Opex) that need to be taken into account

6. Strategic Risk Review

7. Preliminary Capex and Opex figures

Why us the word Shell?

The word "Shell" is the name that I give to the primary document that will governthe whole feasibility study process. It has also been called the "Frame" or the"Project Charter".

I prefer the word Shell because it implies that it is hard and unyielding - and thisis exactly what the document should be - a hard and unchangeable "Bible" thatthe project must comply with. If it becomes a soft changeable document subjectto the whims of senior management the project will quickly becomeunmanageable.

Why is the Shell document so important?

The Shell is particularly important because it is the lack of a document of thisstature that is most commonly neglected and where the seeds of dramatic projectfailure are sown.

The Golden Rule of the Shorace Process is that the following Step cannot becommenced until the Project Sponsor (or his delegate) has signed off on theprevious step and sanctioned the expenditure on the next one. In practice theShell should never be signed off lightly as in good practice it immediatelybecomes the Project Bible to which all future decisions will be referred.

What should you call the process?

It is important that you give the process a name so that in the course of time itbecomes "branded" as your firms approach to project inception and execution.Your consultants will learn to live with it over time and they may even eventuallyacknowledge that it is effective.

They will never like it because it reduces their control over the end product and

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their ability to pad the documents out with "boiler plate" text.

For the uninitiated "boiler plate" text is standard text that is just inserted from old

documents and not expressly written for the project.

I call the process SHORACE but I expect that others will develop their ownterminology.

What can trigger the need for a project?

These might include:-

A change in the regulations that govern business operations

A new product or service or market or business opportunity

Capacity change

Operational change

Accident or environmental disaster

Human resource problems

What does the word "success" mean in the context of the projectexecution process?

Before we go any further let's look at what I believe the word success means in

this context - it is quite simple and there are two options:

I f t h e p ro ject i s v iab le the bes t va lue op t i on and m e thod o f execu t i on a re chosen to ensu re a m ax im um Re tu rn on t he I n v e s t m e n t

I f t h e p ro jec t i s no t v iab le the p ro jec t i s te rm ina ted as ea r l y as possib le i n the p r o jec t i n i t i a t i on and execu t i on p rocess

You will all know that there are many projects that were executed when theyshould not have been and many more that should have been more successfulthan they were.

One of the objectives of this E-book is to help project developers ensure that

their projects fall firmly into one of the above two categories.

How should the whole process work?

At the end of every Step the project team will undertake a presentation to anAuthorization Panel (AP) based on the deliverables specified in the SHORACEMatrix (described below).

One common arrangement is for the Authorization Panel to consist of SeniorManagement and for the Project Work to be undertaken by Line Managersassisted by Consultants or just by Consultants. The Authorization Panel Chairmanmay either be directly responsible for the budget required for the project or beresponsible for reporting on the budget to the Directors or to highermanagement.

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Most defective projects will be abandoned during the Shell Authorization Panelpresentation.

However some will make it through to the Optionology Authorization Panel. Suchprojects are always the ones that cause the most difficult go no/go decisions.

Don't forget that one of the main purposes of the process is to weed out theprojects that do not work.

The most important thing about the Shell is that it must have a clear purposethat is easy to understand.

" I f t h e co n ce p t i s d i f f i cu l t t o e xp l ai n t h e n yo u d o n ' t u n d e r st a n d w h a t t h e r ea l p r o b l em o r o p p or t u n i t y i s" . The early project assessment process and the drafting of the Shell document canbe a highly iterative process in complex projects.

When you start to draft the Shell you will realise that there are gaping holes inthe early project assessment work that needs to be looked at again. When youhave plugged these holes more appear as you redraft the Shell over and overagain.

I have personally spent weeks trying to forge a single shell document of a fewpages into a simple coherent document but it was a very complex project!

Project Bible

Once the Shell has been approved by the Authorization Panel (AP) it will becomethe "Project Bible" throughout the life of the project and every project decisionmust be made in accordance with its stipulations and provisions.

Shell changes

The Shell must be written with great care at a time when all the overridingproject issues are fresh in the minds of the project team and so ideally the Shell:-

Should never need to be changed

A change requirement will indicate that the Shell project team - Got it wrong

So if the project is in trouble unless the Shell is changed, any revision must beconsidered with great care to ensure that coherency is maintained.

It should then be taken back to and approved by the AP from the previous Step.

The SHORACE Matrix

What is it?

The term project planning can be very confusing because there are two differentaspects of it that are very frequently confused. I have seen plenty of instanceswhen activities from each aspect have even been put into the same schedule!

I call them the project approval process and project planning they are bothinterdependent but they must be kept as two separate processes.

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The project approval process

This is the process whereby a project is approved by the organisation that is theultimate benefactor of the project and will in most circumstances provide thepersonnel and chairperson of the Authorization Panel (where approval meansproject go-ahead)

The SHORACE Matr ix m aps ou t t he p ro j ect approv a l p rocess th a t i s p repared dur ing t he She l l s tep , and is updated in subsequent s t eps asdesc r ibed be low.

The Matrix maps out the whole project and gives reasonable time frames for eachstep. The detailed schedules for the subsequent steps are part of the deliverablefrom each previous step.

On the following page I have provided the basic format of the SHORACE Matrix in

a simple tabular basis. It can be set up in MS Word in a few minutes and so youdo not need to buy expensive templates.

My format and the explanatory notes in this E-book will allow you to populate andtailor the table to meet the requirements of every project that you undertake.

During the Shell step the matrix is populated with:

The work scope for the Shell and Optionology Stages

The deliverables for the Shell and Optionology Stages

The Project team for the Shell and Optionology Stage

Authorization Panel personnel for the Shell and Optionology Stages

The dates for the Shell and Optionology Stage Authorization Panelmeetings.

During Optionology the original matrix is updated and the rest of the matrix ispopulated for Refinery, Accordancy and Execution.

During Refinery the matrix is updated for Accordancy and Execution and so on.

Project planning

Do not confuse the SHORACE Matrix with detailed project planning tools like

Microsoft Project and other software tools that are used. These should incorporatemilestone dates from the SHORACE Matrix but these tools are used to schedulethe design, consent and construction process (where consent refers to local /regional / central government approval).

Your own matrix name

I am sure that you as you improve and develop your own procedures you willchoose your own name for it as part of the branding and consolidation of theprocess into your own organisation.

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The SHORACE Matri x

Step Shell

Shell(Desk study)

Optionology

Optionology(Desk study)

Refinery

Refinery andsurveys

Accordance

Accordancyand projectexecution plan

Execution

Go no go andExecution

Step workscopesummary

Clarify the project objectives

Define the criteria forstrategic fit and test

Gather the existing data

Preliminary projectassessment

Define the assumptionsIdentify the uncertaintiesStrategic risk

assessment

Capex - Opex modelsPossible funding sources

Identify internal and externalstakeholders and preparedraft inquiry /communication plan

Define the option evaluationmetrics

Prepare project shelldocument

Identify the project team,review board, cost andschedule for Optionology

Develop the optionevaluation metrics

Identify all the distinctoptions and test for strategicfit

Identify the key value driversand their weighting

Set risk criteria to ensure RM

consistency

Develop each option thatpasses the strategic fit testalong with preliminaryexecution plans

Confirm stakeholder identityand deploy completed inquiry/ communication plan

Test the options via theinquiry / communication plan

Evaluate and selectpreferred option using VMand RM techniques and the

evaluation metrics

Identify source of funding

Identify the project team,review board, cost andschedule for Refinery andAccordancy

Follow the AP instructionsin finalising the scope ofthe selected optionincluding:-

Land acquisitionDetailed project scopeInfrastructure worksOperational

parameters

Prepare draft contracts forsurveys, soil investigation,etc.

Finalise and placecontracts for the Refinerysurveys and specialstudies.

Supervise the surveys andspecial studies.

Take the results of thesurveys and studies andtest the preferred optionincluding consideration of

staged construction tooptimise the ROI.

Confirm source of funding

Prepare more detailedproject schedule based onthe preferred option

Prepare and submitplanning and any otherapplications for consent /approval

Undertake valueengineering studies

Undertake risk reviews toreduce risk

Prepare detailed executionplan including:

The work plan andwork breakdown

The detailedconstruction schedule

The contracting planThe tender documentsDetailed Capex, Opex

and other costs

Risk assessment andmitigation plan

Finalise funding contracts

Continue the deploymentof the communication plan

Check that all aspects of theproject comply with theShell.

Deploy the final stage of thecommunication plan.

Prepare final ROIcalculations includingestimates of the figuresrequired to demonstrate

that corporate investmentobjectives are being met.

Undertake Value and RiskManagement Review

Stepdeliverables

1). Project shell2). Project planning matrix3). Presentation of allrelevant date to the AP

1). Responses to inquiry /communication plan2). Report on the options andrecommendations2). Presentation of allrelevant date to the AP

1). Updated planningmatrix inc detailedAccordance schedule2). Presentation of allrelevant date to the APincluding surveys and

special study reports

1) The detailed projectexecution plan2). Report on theengagement with thestakeholders

Final Report on projectviability andrecommendations on projectgo - no/go.

Project team

AuthorizationPanel(By name and inc.ext. consultants)

AP has 3 choices:Proceed to OptionologyRe-do Step1Abandon the project

AP has 3 choices:Proceed to RefineryRe-do OptionologyAbandon the project

AP has 3 choices:Proceed to AccordanceRe-do RefineryAbandon the project

AP has 2 choices:Proceed to ExecutionRe-do Accordance

The final go or no-godecision

Review date

Study cost

NotesIn most circumstances consultants will not be involved with Shell. The matrix then provides both power andflexibility. For instance at the end of Shell the Shell document can be used to get funding and then be issued

to consultants as the Terms of Reference for Optionology and the deliverables from Optionology can be thebasis of the Terms of Reference for Refinery.

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Chapter 2:

The Project

Shell

We must avoid here two complementary errors:on the one hand that the world has a unique,intrinsic, pre-existing structure awaiting our grasp;and on the other hand that the world is in utterchaos. The first error is that of the student whomarvelled at how the astronomers could find outthe true names of distant constellations. Thesecond error is that of the Lewis Carroll's Walruswho grouped shoes with ships and sealing wax,and cabbages with kings...

R. Abel, Man is the Measure, New York: Free Press, 1976

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Chapter 2 the Project Shell

Work scope summary

1. Clarify the objectives the opportunity statement

2. Define the criteria for business fit and test against the criteria:

What is strategic fit?

Verify the business need

Identify the core competencies available to undertake the project

Undertake SWOT analysis

Identify any regulatory or environmental issues

Identify who will operate the facility

Undertake strategic risk study

3. Gather the existing data available

4. Preliminary assessment:

Define the assumptions

Identify the uncertainties

Preliminary Risk

Assessment

Capex and Opex spreadsheets

5. Identify internal and external stakeholders and prepare outline inquiry /communication plan

6. Define the option evaluation metrics

7. Prepare the Shell document

8. Identify the project team, AP, cost and source of funding for Optionology

Shell implementation philosophy

The timescale for Shell should be kept as short as is possible consistent with therequirement that sufficient work is done to allow the Shell AP to sanction theimplementation of Optionology.

Clarify the objectives

Briefing meeting

At the outset the project will probably be quite vague in concept and structure.

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The first thing to do is to clarify what the project objectives are at a strategicbriefing meeting involving client representatives and key stakeholders.

The agenda could include:-

Clarification of the underlying business need

The options that have been considered and the initial views on these

Identification of the strategic risks

The assumptions and uncertainties

Sources of finance and order of cost envisaged

Preliminary identification of the stakeholders

Format for the first workshop

The first workshop / stakeholder conference

After the briefing meeting the project team should prepare a workshop brief thatshould at least include:-

An agenda

A list of participants and their interest

The minutes of the briefing meeting

The scope of the issues to be examined and the desired output

Briefing documentation and background data

There are all kinds of ways of running workshops that will depend on the cultureof the organisation.

In my experience this kind of workshop is likely to involve senior managers whointensely dislike debating trivial issues. In this case a great deal of analysis andpreparation needs to be in place before the workshop so that the gathering canconcentrate on processing it.

Whatever format the workshop takes it should generate a large volume of datathat will take time to process and summarise into a clear set of projectobjectives.

What is a stakeholder?

A stakeholder is anyone who has or may have a direct or indirect interest in theproject for whatever reason.

The identity of the internal stakeholders will be obvious to anyone who has beenin the promoting firm for any length of time if they are not obvious then theproject promoter should seek the opinion of his immediate superior.

External stakeholders might be the land owner, riparian owners, planningauthority, local newspaper etc

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What sort of issues can be considered as bone fide objectives

The removal of a problem, bottom line profit, greater efficiency, reduction ofbusiness risk, removal of long term obligations, capital growth, reduction in rentaloutgoings, accommodation for increased staffing levels, etc etc

Workshop conclusions

The conclusions from the first workshop / stakeholder conference should beboiled down into minutes with the following headings:-

The primary objective(s)

Any secondary objectives

Nice to haves

Preliminary assumptions

Preliminary uncertainties

Any other special or unusual project characteristics

Define the criteria for strategic fit and test against the criteria

After the objectives have been clarified they need to be tested against thestrategy of the sponsoring business or organisation.

What is strategic fit?

Answer - The extent to which the activities of an organisation are complementedby a new activity in such a way as to contribute to competitive advantage.

Many organisations will already have internal ground rules that govern the type ofnew activity or business that the organisation can undertake and these willobviously have a primary role in decisions regarding strategic fit.

Environmental concerns, national and local political considerations, ethicalconsiderations are all areas where strategic fit may influence whether the

proposed project is viable.

Beware - if you do not do this testing your whole project may be shot down by asenior executive or a stakeholder after you have invested a lot of time andresources into the project.

Verify the business need

When someone has realised that there is a need for some kind of change the firstthing to do is to verify that a building or construction project is the best way todeliver the benefit. This will involve considering all the other options that areavailable and testing them against the overall strategy.

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Identify the core competencies available to undertake the project

This may not be easy because of the conflicting demands of senior managers.

They will want their own line managers involved but at the same time will notrelease them from any day to day responsibilities to help with the project. Makeno mistake you must maximise the input from everyone in the organisation thathas core experience or knowledge that will enhance the body of knowledge thatthe project must develop if it is to be successful.

The following approach will probably make the most productive use of linemanagers time:-

Co-opt them as part-time team members

Have a series of meetings with each line manager that are basically

question and answer sessions

Prepare a draft Project Shell and circulate it to the managers involvedasking them to indicate how they can help

This process will probably help you to set up the Project Team for Steps 1,2 and3.

Undertake SWOT analysis

The acronym for Strengths, Weaknesses, Opportunities and Threats and normallyundertaken in brain-storming sessions that will help get the internal stakeholders

behind the project.

Identify any regulatory or environmental issues

Data on this may be available from internal line management.

Identify who will operate the facility

This may be a political can of worms that may need to be parked at an earlystage of a project. However if there are stakeholder issues involved they will haveto be dealt with.

Undertake strategic risk review

At this stage the project team needs to examine the risks that could affect thebusiness in the long term particularly the project effect on growth, continuationand even survival as well as the actual risk involved in the project itself dealt within the Preliminary Project Assessment.

Gather the existing data available

This can be delegated - instruct someone to gather together every piece ofinformation from every source available and then file and index it. This is the

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start of the project body of knowledge.

Preliminary project assessment:

Define the assumptions

Sometimes these are called Givens - I prefer the term Assumptions but theterms are totally interchangeable. They will form the bedrock scope requirementsof the project and should be continuously challenged throughout the entire Shellprocess.

They might include:-

The operational capacity of the proposed facility

The location and / or site availability

The project schedule requirements

Local Infrastructure capacity

Environmental standards

Local / regional / national planning requirements

Operational criteria

Etc

The project team must satisfy themselves that the assumptions are a rock solidbasis on which to proceed. If they are not certain then the Assumptions must beclassed as Uncertainties see below

In many organizations these requirements are set in place by senior managementand not challenged does this sound familiar to you?

I t i s o f fundam en ta l impo r tance tha t du r ing She l l t hey can be cha l l enged by any m ember o f t he p ro jec t team, i n te rna l s takeho lde rs o r the AP

After the Shell is approved by the Shell AP it should only be challenged in rarecircumstances probably after some fundamental change in the economic orenvironmental conditions.

Identify the uncertainties

The uncertainties may be items that cannot be made assumptions by the projectteam during Shell but can be verified as facts during further study in Optionology.

Many of the uncertainties will also feature in the Risk Management process as theproject proceeds.

Strategic Risk Assessment

This part of the Risk Assessment study should also identify a project strategy for

managing the project risks.

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Capex and Opex models

These will be preliminary spreadsheets that test whether the project looksreasonably viable or not.

Remember that you only need to fix an order of cost at this stage and that inbadly managed projects scope creep is the major cause of cost overruns - Soplace all the emphasis on the scope and do not worry too much about scheduleand cost. It is very important to make sure that the scope differentiates betweenthe essentials and the nice to haves as this reduces the potential for scopecreep.

Normally reference to the Shell will quickly show whether an item is In scope ornot.

Source of total project funding

This may be known or unknown especially if the purpose of the study is tosecure funding.

Identify internal and external stakeholders and prepare outlineinquiry / communication plan

The internal stakeholders should not be difficult to identify.

The external stakeholders will be more difficult but their identity will be exposedby others as the project moves through the planning application andenvironmental impact stages.

The outline inquiry / communication plan should take account of the requirementto continuously identify new stakeholders throughout the project process and themeasures to be put in place to bring them on board

Define the option evaluation metrics

This is where things can start to get difficult. First of all you need to think aboutthe nature of the project.

If the project is designed to solve a business problem it may be appropriate touse a "just get over the bar" approach. In other words if you can put ticks in thebox for each measurement criteria then the option that provides the best value ortrade-off as measured by NPV will be the option to select.

The problem with this is that it can allow the executives on the AP to prevaricateif they have personal hobby horses to ride or other prejudices.

If the project is mainly designed to increase bottom line profits then anotherapproach may be needed whereby the metrics are heavily weighted towardsprofit and risk.

In general it will always be preferable to use a quantitative approach to all themetrics by the assignation of a scale of numerical values of say 1 to 10 toqualitative items as is commonly done in risk analysis. But the metrics should beweighted. Please refer to the Value Benchmarking tool in the Appendix of this E-

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book.

Prepare project shell document

This is described above in our introduction to the Shorace process

Identify the project team, AP, cost and source of funding forOptionology

This will all be part of the presentation to the Shell Authorization Panel

Project team for Optionology

The maintenance of continuity is always preferable.

Optionology Authorization Panel

This should consist of a Chairman and several others depending on the size andimportance of the project. It may often be preferable to choose the Senior LineManager that will be responsible for the operation of the project. However theremay be many reasons why this is not appropriate in your particular project.Remember that the Project Manager may need to sound out the Chairman fromtime to time and so he must be reasonably accessible.

Cost of Optionology

This can be set out in a simple spreadsheet.

Source of funding for Optionology

This may be left for the AP to decide

Summary of Optionology Work scope

The essence of the Optionology work scope is that the project is fleshed out inenough depth to know whether to proceed to Optionology or not.

You will note that all the important elements of the project are brought forward tothe same level of detail and that this level should be sufficient to either abandonthe project or move to Optionology.

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Chapter 3:

Optionology

We must dare to think "unthinkable"thoughts. We must learn to explore all theoptions and possibilities that confront us in acomplex and rapidly changing world. Wemust learn to welcome and not to fear thevoices of dissent. We must dare to thinkabout "unthinkable things" because whenthings become unthinkable, thinking stopsand action becomes mindless

J. W illiam Fulbright (1905 - ), March 27, 1964

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Chapter 3 Optionology

Work Scope

Summary

1. Develop the option evaluation metrics

2. Identify all the distinct options and test for strategic fit

3. Identify the key value drivers and their weighting

4. Set risk criteria to ensure RM consistency

5. Develop each option that passes the strategic fit test along with preliminaryexecution plans

6. Confirm stakeholder identity and deploy completed inquiry / communicationplan

7. Test the options via the inquiry / communication plan

8. Evaluate and select preferred option using VM and RM techniques and theevaluation metrics

9. Identify the project team, review board, cost and schedule for Refinery andAccordancy

Optionology implementation philosophy

This is the step where the most important project decisions are made and so it isunwise to impose a time scale that may reduce the quality of the study work.

If the project is for manufacturing or production it is better if the work is carriedout by an in-house project manager because a large proportion of it will involveinternal communication. If consultants have to be used hire them for theOptionology period and sit them down at a desk within your organizations office.

Develop the option evaluation metrics

This will be an iterative process that goes instep with the identification of theoptions as described below. You will probably not be able to finalise the metriccriteria until all the options have been identified and tested against them.

Typical metrics might include Capex, Cost per Unit, Capacity etc

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Identify the distinct options and test for strategic fit

The Identification process

It is a highly iterative process in that every time an option is identified it ispossible that further research will be required by:-

Acquiring advice from internal experts

Hiring consultants for specific tasks

Electronic and library searches for papers etc

Don't forget you must archive and index all the data for both audit purposes andfor reference in later project stages.

Make no m is take th i s i s a co re fea tu re o f t he Va lue Managem en t p r ocess and you m us t l eave no stone un t u rned in th e i den t i f i cat i on o f a l l p rac t i cab le op t i ons and t he e l im ina t i on o f eve ry one tha t you can on the bas is o f sol id coheren t log ic .

The ground rules for the choice of optionsThese are:-

1) They must be practicable and so expert advice may be needed to ensure

viability2) Internal stakeholders must be involved in their identification

3) Out of the box thinking processes should be used to maximise creativity

4) They must fit the Shell requirements

5) Each option must provide real benefit(s) to the business or its customers

6) Potential options that require more research should not be ignored

7) Each option must be significantly different and not variations on a theme

8) Consider hybrid options based on the best features of identified options

The key to successful identification of options is too make sure that you haveresearched every aspect of the project and have identified all the areas wheredata is lacking or where you are uncertain as to what significance the data has.This will lead you into the areas of research where further reading may bring outnew ideas.

In complex projects it is quite likely that further research or investigation isrequired before the options can be finalised.

Test for strategic fit

After option selection you must test for strategic fit by reference back to the Shell

and reconsideration of the criteria for business fit in the light of the options thatare now on the table. They may still be applicable or they may seem to

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unnecessarily rule out a viable option and need revision but remember that arevision of the Shell is a major issue showing that the Shell work was faulty.

The actual test for strategic fit is probably best carried out on a tabular basis withvalues between 1 and 10 assigned to each of the variables. The tests mightinclude consideration of:-

Use of proven or unproven technology

Branding and Marketing

Method of finance and taxation

Legal issues

Environmental issues

Local and national political issues

Labour and union issues

etc

Identify key value drivers and their weighting

This might include such functions as:-

Cost per square metre of the facility

Construction period

Production capacity

Cost per unit produced

Maintenance costs

Useful life

Employee comfort and satisfaction

External image

Environmental impact

Third party constraints

Health and Safety during construction and operation

When the important drivers are identified they can be weighted on a percentagebasis so that the total of the weights = 100.

Benchmark figures for best in class performance can then be applied to eachvalue driver so that a Maximum Value Index (MVI) figure is identified. Benchmarkfigures can be obtained from published data from industry associations, Internetforums, trade magazines, financial analysts etc.

The value drivers for each option can then be assessed by the project team andthe score compared with the MVI. Each option can then be considered forimprovement by focusing on the value drivers where the deficit between

performance and the MVI is greatest.

There is a worked example in the free Value Benchmarking E-book that came free

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with this E-book.

Set risk criteria to ensure Risk Management consistency

If the options that have passed the strategic risk test are considered at aworkshop of the project team and selected stakeholders it will be quite easy todevelop a list of the risks for each option and then add them together to form amaster list of risks together with a joint opinion of the likelihood and impact usingthe tables provided in the risk tables that came as a free offer with this E-book.

Further desk study may well throw up other risks that need to be added to theregister.

The risk register might then look something like this:-

Risk register

Risk Likelihood Impact

Planning consent denied Low Very high

Capital cost overrun high low

Lack of skilled operators high medium

Raw material shortages low high

Power cuts very low very high

New competitor in market medium low

Legislation change low medium

Each option should then be assessed against the register of risks.

Develop each option that passes strategic fit tests

Evaluation criteria

Each option now needs to be developed in sufficient detail to enable thepreparation of the date required for evaluation.

This will probably may require some engineering design, preparation of sketchplans and cost estimating that may require additional expertise to be brought intothe project.

Preliminary execution plans

A preliminary execution plan will also need to be drawn up for each option andthis should include:-

Scope of the option identifying the primary elements

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Land acquisition and local / regional / central government planningapplication strategy

Sketch plans showing all the primary characteristics

Outline work plan and work breakdown

Design and construction schedule

Contract strategy

Capex, Opex and IRR (or NPV)

Stakeholder inquiry / communication plan

Identify stakeholders

The project now should be sufficiently advanced for the identity of all the mostimportant stakeholders to be confirmed.

The most important external stakeholders will be the authorities in control of theconsent processes. This element of Optionology should include the acquisition ofall the application documentation and knowledge of how the entire applicationand consent process works.

Deploy inquiry / communication plan

The inquiry / communication plan documents should now be completedincorporating the scope definition and sketch plans of all the options and sent outto all the stakeholders.

Formal applications for consent should not be submitted and so thecommunication plan during Optionology will just include an informal notice of theproject planning that is being carried out.

Test the options via the inquiry / communication plan

Tabulate the responses to the communication plan documents and thensummarise them under the headings:-

Comprehension did the stakeholders understand the proposals?

Attitude warm, hostile, apathetic?

Changes were there any useful ideas for improvement

Effect - on the choice of option

Evaluate and select the preferred option using VM and RMtechniques

Evaluate the metric criteria

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How to Respond Whe

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