Project Appraisal: Identification, Policy Analysis and Selection
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Project Appraisal: Identification, Policy Analysis and Selection Course
Introduction:
Large capital projects require substantial and risky investments in the acquisition, operation, and maintenance of new organizational assets. To safeguard the organization’s investment and to protect it from potential financial and operational risks, it is vital to engage in a systematic and comprehensive project appraisal process before the investment and to develop a detailed cash-flow analysis to determine the expected returns to the organization under varying conditions of uncertainty over the expected productive life of the project.
Course Objectives:
By attending this course, delegates will learn how to:
- Apply discounted cash flow analysis to project evaluations
- Perform present an annual value calculations (NPV and EAV)
- Determine the project’s internal rate of return (IRR) as the basis for establishing the risk exposure to the organization
- Evaluate and rank various project alternatives using tools such as NPV, IRR, BCR, EAV/C
- Incorporate risk analysis into the cash flow predictions during project feasibility studies
- Consistently manage project cash flows and predict outcomes and problems that require early interventions
Who Should Attend?
The Project Appraisal: Financial & Economic Factors training course is designed for:
- program and project managers
- project leaders & project engineers
- cost engineers, and
- other senior project control and business services professionals who are responsible for or involved in securing project financing and managing cash flow on projects.
Course Outlines:
Fundamental Principles of Economic Appraisal
- Description:
Section One discusses the fundamentals of project finance and examines the impact of the time value of money on project feasibility.
- KeyTopics:
- Principles of the time value of money and the discount rate
- Compound Interest
- The time value of money
- Future value of money
- Present value of money
- Compounding/discounting table
- Project Evaluation
- Fundamental criteria for appraisal
- Mixed stream cash flow
- Expanded mixed-stream cash flow
- Weaknesses of the payback period
- Discounted cash flow projection
- The timing of cash flows
- Projects with different time horizons
- Equivalent annual cost/worth method (EAC)
Rate of Return (IRR), Benefit-Cost Ratio (BCR) and Cost of Capital
- Description:
Section Two describes the importance of the Internal Rate of Return as an indicator of the amount of financial risk that can be tolerated by the project. It also explains the principles of calculating the cost of capital for projects.
- KeyTopics:
- 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 an annual worth
- Incremental analysis
- Mutually exclusive projects
- Using IRR to analyze options with different lives
- Costs, benefits, and non-benefits
- Estimating the benefit-cost ratio for a single project
- 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)
Financial Project Risk Analysis and Expected Value
- Description:
Section Three deals with the process of risk analysis as applied to project cash flows, and explains the use of Expected Value as a means to quantify risk on projects in financial terms. Three-point scenario analyses are used to predict the most probable financial outcome of the project.
- KeyTopics:
- Overview of the Risk Management Process
- Detailed Risk Quantification and Prioritization
- 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
Financial Scenario Planning - Case Study
- Description:
Section Four provides advanced applications of Risk Scenario Planning to project cash flows based on three-point scenario analyses and risk impact projections.
- KeyTopics:
- Cash flow projections – Tunnel Case Study
- Base Case Scenario
- Best Case Scenario
- Worst Case Scenario
- Risk profile EMV calculation before mitigation
- Identification of risk triggers & Probability
- Plotting the event probability
- Identification of risk receptors & Impact
- Plotting the financial impact
- Combined EMV risk profile before mitigation
