Large capital-intensive projects in all major industries require substantial – and mostly risky – investments in the acquisition, exploration, and subsequent operation and maintenance of new organizational assets.

The decision whether or not to invest in new capital projects, starts with critical decisions during the exploration phase of a new development, or the expansion of an existing field. The decision-making tools used to analyze project risk under conditions of uncertainty will help companies to determine the probability of success or loss, and will drive the decision to develop or abandon the well.

Of paramount importance therefore, is the systematic and comprehensive evaluation of potential investments, and the development of detailed cash-flow analyses to determine as accurately as possible, the expected returns to the organization under varying conditions of uncertainty over the expected productive life of the project.

This requires the development of sound, realistic, and carefully structured cash-flow projections, reflecting both the initial capital expenditures required for the acquisition of the asset, as well as the operational expenditures required for successful operation and maintenance of the asset over its anticipated productive life.

World-wide an alarming number of large capital projects fail to meet, or overrun their planned budgets, failing to realize both the financial and strategic goals of the organization – the very reason for their being undertaken in the first place – often with sizable increases in capital and operational expenditures, and with substantial financial losses to the organization. In the majority of cases, this is the inevitable consequence of failing to apply the tools and techniques of modern project decision-making, evaluation, financial planning, capital management and cash flow analysis when considering investment into new capital projects.

By the end of this programme you will be able to:

·         Understand how to manage organization’s investments in large capital-intensive projects

·         Identify how to make and understand financial decisions and be able to present these back to the stakeholder community

·         Identify how to manage the cash flow of projects and manage and appraise the financial risk mitigation strategies

·         Understand proper cash-flow and sensitivity analyses to forecast and control potential future conditions

·         Define and manage project success factors and maximize the return on the capital invested in projects

·         Understand how to define financial strategies and incorporate these into project risk mitigation strategies.

Module 1 - Fundamentals of Decision Analysis

                    ·          Introduction to PM Decision Analysis

·         What is Project Management Decision Analysis?

·         The need for systematic PM Decision Analysis

·         Risk and Uncertainty on projects

·         Identifying all possible outcomes

·         Identifying key decision-making factors

·         Measures of Project Profitability

·         Fundamental tools of engineering economics

·         Time Value of Money

·         Simple and Compound Interest

·         Interest rates

·         Future value of a present sum

·         Present value of a future sum

·         Appraisal Methods – Discounted Cash Flow Projections

·         Net Present Value Analysis (NPV)

·         Time Equivalence

·         Comparing Projects with Equal Lives

·         Comparing Projects with Unequal Lives

Module 2 - Rate of Return and the Cost of Capital

·         Rate of Return Computations (IRR)

·         Determining the Internal Rate of Return (IRR)

·         IRR for a Single Project

·         IRR for a Single Project Using Present Worth

·         IRR for a Single Project Using Annual Worth

·         Incremental Analysis

·         Mutually Exclusive Projects

·         Using IRR to Analyse Options with Different Lives

·         Cost of Capital Computations

·         Estimating the Cost of Capital for a Project

·         The Cost of Debt Capital

·         The Cost of Equity Capital

·         Weighted Average Cost of Capital (WACC)

·         Financial Gearing (Structuring)

·         Capital Asset Pricing Model (CAPM)

·         Benefit-Cost Ratio (BCR)

·         Costs, Benefits, and Non-benefits

·         Estimating the Benefit-Cost Ratio for a Single Project

·         Comparing Mutually Exclusive Projects Using Incremental Benefit-Cost Ratios

Module 3 - Cash-Flow Modelling and Project Decision Analysis

·         Financial Modelling and Project Evaluation

·         Decision and Value Tree Analysis – How to convert value to cash flow

·         Preparing Cash Flow Projections

·         Accounting Years and converting to Tax Years

·         Capital Expenditures (CAPEX)

·         Operating Expenditures (OPEX)

·         Incremental Costs and Benefits

·         Working Capital Requirements

·         Forecasting Cash Flows

·         How to Deal with Inflation

·         Opportunity Costs and Sunk Costs

·         Determining the Economic Life of a Project

·         Relevant Cash Flows over Differing Time Horizons

·         Depreciation

·         Tangible and Intangible Property

·         Straight-Line Method

·         Declining Balance Method

·         Amortization and Depletion

·         Interest, Insurance and Tax Costs

·         Taxation

·         Taxable Profit

·         Capital Allowances

·         Assessing the Terminal (Salvage) Value of a Project

·         Company Cash Flow

Module 4 - Decision Analysis: Expected Value Concept

·         Financial Project Risk Analysis

·         Overview of the Risk Management Process

·         Detailed Risk Quantification and Prioritisation

·         Probabilistic Methods

·         Expected Monetary Value Concepts

·         Risk Quantification and Expected Monetary Value

·         Scenario Planning

·         Best case scenario

·         Base case scenario

·         Worst case scenario

·         Decisions Under Conditions of Uncertainty

·         Multiple Option Decisions

·         Basic Probability Concepts

·         Fundamental Probability Concepts

·         Definition of probability

·         Observations on the workings of probability

·         Probability ‘rules’

·         Addition rules and Multiplication rules

·         Detailed Risk Quantification and Prioritisation

·         Mutually Exclusive, Independent Events

·         Non-Mutually Exclusive, Independent Events

·         Summary and Formulation of Equations

·         Expanding the Data Set

·         Probability Applications

·         Monte Carlo Analysis

·         PERT Analysis

·         Using Software to Model Decisions

Module 5 - Decision Analysis: Decision Trees, Sensitivity Analysis and Simulation

·         Decision Tree Analysis

·         Decision Tree Analysis

·         Developing Decision Trees

·         Solving Decision Trees

·         Software Tools

·         Practical Application: Sensitivity Analysis and Simulation

·         Overview

·         Simulation Process

·         Tornado Diagram

·         Defining the Variables

·         Calculating EMV

·         Detailed Example of Simulation

·         Modifying the Cash flow Model

A variety of methodologies will be used during the course that includes:

·         (30%) Based on Case Studies

·         (30%) Techniques 

·         (30%) Role Play

·         (10%) Concepts

·         Pre-test and Post-test

·         Variety of Learning Methods

·         Lectures

·         Case Studies and Self Questionaires

·         Group Work

·         Discussion

·         Presentation

This rate includes participant’s manual, Hand-Outs, buffet lunch, coffee/tea on arrival, morning & afternoon of each day.

Daily Course Timings:

    08:00 - 08:20       Morning Coffee / Tea

    08:20 - 10:00       First Session

    10:00 - 10:20       Coffee / Tea / Snacks

    10:20 - 12:20       Second Session

    12:20 - 13:30       Lunch Break & Prayer Break

    13:30 - 15:00       Last Session