Project Appraisal Financial And Economic Factors

Introduction

Huge capital projects demand sturdy and high risk investments in the acquisition, operation and maintenance. It is vital to preserve the organization’s investment and to protect it from potential financial and operational risks. This can be done through the development of a sound, realistic, and carefully structured financing plan, reflecting both the initial capital expenditures required for the acquisition of the asset, as well as the operational expenditures required for the successful operation and maintenance of the asset over its projected productive life.

It will entail crucial engagement in a systematic and comprehensive project appraisal process prior to the investment, and setting up a detailed cash-flow analysis to determine the expected returns to the organization under several conditions of uncertainty over the expected life of the project.

This course will enable participants to evaluate and perform quality appraisals of capital projects, financial management, risk management, apply the principles and methods of engineering economics, protect the investment of the organization, and cash flow analysis. It will provide advanced applications of Risk Scenario Planning to project cash flows based on three-point scenario analyses and risk impact projections.

Course Objective

At the end of this course, participants will be able to:

• Use discounted cash flow analysis to project evaluations
• Determine the project’s internal rate of return (IRR) as the basis for establishing the organization risk exposure
• Perform present and annual value calculations
• Effectively manage project cash flows and predict outcomes and challenges that need urgent interventions
• Examine and evaluate various project alternatives using tools such as IRR, NPV, EAV/C, BCR
• Perform efficient project feasibility studies and risk analysis

COURSE OUTLINE

Module 1: Principles of Economic Appraisal

• Principles of the time value of money & the discount rate
  • Compound Interest
  • Present value of money
  • The time value of money
  • Future value of money
• Compounding/discounting table
• Project Evaluation
• Basic criteria for appraisal
• Weaknesses of payback period
• Mixed stream cash flow
• Expanded mixed stream cash flow
• Discounted cash flow projection
• The timing of cash flows
• Projects with different time horizons
• Equivalent annual cost method

Module 2 – Cost of Capital, Rate of Return (IRR), and Benefit-Cost Ratio (BCR)

• Costs, benefits, and non-benefits
• Estimating the cost of capital for a project
• Estimating the benefit-cost ratio for a single project
• Cost of equity capital
• Cost of debt capital
• Weighted Average Cost of Capital (WACC)
• Incremental analysis
• Financial gearing (Structuring)
• Using IRR to analyze options with different lives
• Determining the Internal Rate of Return (IRR)
• Mutually exclusive projects
• IRR for a single project
• IRR for a single project using present worth
• IRR for a single project using annual worth

Module 3: Expected Value & Financial Project Risk Analysis

• The Risk Management Process
• Detailed Risk Prioritization and Quantification
• Expected Monetary Value Concepts
• Probabilistic Methods
• Scenario Planning
• Decisions Under Conditions of Uncertainty
• Multiple Option Decisions

Module 4 -Financial Scenario Planning – Case Study

• Cash flow projections – Tunnel Case Study
• Base Case Scenario
• Best Case Scenario
• Worst Case Scenario
• Risk profile EMV calculation before mitigation
• Evaluating risk triggers & probability
• Plotting the event probability
• Identification of risk receptors & impact
• Plotting the financial impact
• Combined EMV risk profile before mitigation
• Developing impact & probability mitigation strategies
• Re-plotting the projected risk profile after mitigation
• Examining the J-curve to derive the most economic mitigation point

Module 5 – Project Evaluation & Financial Modeling

• Incremental costs and benefits
• Working capital requirements and operating costs
• Preparing cash flow projections
• Forecasting Cash Flows
• Pessimistic and optimistic forecasts
• Handling effects inflation, uncertainty and risk
• Risk premiums
• Determining the economic life of a project
• Opportunity costs and sunk costs
• Variable inflation rates over the life of the project
• Depreciation
• Taxation & Incorporating tax in cash flow models
• Interest, insurance and tax costs

Who Should Attend?

• Program and project managers
• Project leaders & project engineers
• Cost engineers,
• Senior project control and business services professionals

Delivery Method: This will include combine lectures, discussions, group exercises, case studies and illustrations. Participants will also understand the theoretical and practical knowledge of the topic.

Venue: Dubai

Fee: $5,000

Duration: 1 week

Course Date: May 8th – 12th 2023