2. Project Development Handbook
Project Development Handbook
A structured way of developing a potential project into reality
Introduction
Developing a potential project is often an iterative process with a long
duration. Large delays compared to initial plans and large cost overruns
compared to optimistic estimates are frequently reasons for
disappointment and difficult decision-making. In our experience this is not
necessary. Although developing something new always has an iterative
character, a structured approach guarantees realistic plans and budgets
and accelerates decision-making. A requirement is that the used approach
is simple and practical and that it is commonly understood and accepted
by all people involved in the project.
This Project Development Handbook provides such an approach.
Limitations
This handbook has been developed primarily for the development of tank
terminals and related infrastructure like jetties and pipelines. It can
however also be applied to the development of other industrial asset
construction projects, e.g. processing plants, power plants or port
installations.
The described project development methodology can be applied to
projects with a capital expenditure between $ 25 and $ 250 million.
Smaller projects can do with a less rigorous approach whilst for larger
projects the described approach will not provide sufficient guarantees
that are required for the magnitude of required investments or impact on
society.
How to use this handbook
This handbook describes the first 4 phases for the development. It ends
with the main financial commitment that is to be made for the project:
the signature under the construction contracts.
The core of this handbook is a matrix of project development phases and
disciplines. The summary of this matrix is provided on the last pages of
the handbook.
The first pages of the handbook provide a description of the principles
behind the methodology. Then, for each phase, two pages provide a
detailed overview of all activities and deliverables of a phase. These pages
are face to face to provide an integral overview of that phase and can be
used as checklist to ensure that all required steps in a phase have been
taken.
Copyright
This handbook has been developed by Riverlake Consultancy SA. You are
not allowed to use this handbook without prior consultation with
Riverlake Consultancy SA.
I wish you success with the realization of your project!
Feiko Jager
4. Project Development Handbook
Phase 0: Feasibility study
‘Initiating the project’
Goal: To substantiate an idea or business opportunity
Result: Plot of land identified, basic business idea documented
Costs: 0,1 - 0,2 % of Capex
Duration: A few weeks after location is identified
Disciplines Activities Deliverables
Location Identify one or a few locations that fits the purpose of the business opportunity
well. Talk to the stakeholders (i.e. owners, authorities, neighbors) to ascertain
that they will buy-in to the business idea.
Identified location (drawing, Google Earth picture)
Commercial Describe the basic business idea and identify potential business partners and/or
customers. Quantify roughly which turnover could be generated.
Business plan (commercial part)
Economics Make a rough profitability calculation based on the turnover, cost and Capex
figures provided.
Business plan (economical part)
Finance & taxes Assess if the business idea can be financed by investigating possible funding
structures and potential financiers. Don’t forget to involve applicable tax regimes
in the equation.
Business plan (financing part)
Scope & MoC Write a first description of the functional requirements for the required facilities
and assess if the location fits these requirements. This assessment will be based
on experience figures.
Functional requirements
Permitting Identify the locally required permits and approval procedures as they will have a
large impact on the project schedule and might affect the requirements to the
facility.
Permit overview
Engineering No real engineering is required during this stage, but it will be helpful to engage
experienced engineers to guarantee accurate assumptions on especially scope,
capital expenditure (capex) and schedule.
Procurement Make a pre-selection of potential engineering companies that can provide the
conceptual engineering for the next phase. Select preferred providers, if required
by means of a tender, and prepare for a ready to sign agreement in order to
continue the project immediately when the next phase is approved.
6. Project Development Handbook
Phase 1: Concept definition
‘From rough idea to fixed concept’
Goal: Fixing the concept and ascertain that it is viable
Result: Clearly defined, viable concept
Costs: 0,2 - 0,4 % of Capex
Duration: 2-3 months
Disciplines Activities Deliverables
Location Engage in discussion with owners and authorities (typically the Port Authority) regarding
the lease or ownership of all required land (and water) for the erection of the facilities on
the main site but also for the marine facilities and underground connecting pipelines.
(option on) lease/ownership agreements for the main site
and other relevant sites like berths/jetties and pipeline
corridors.
Commercial Research the market and find potential launching customers to support the business
idea. Substantiate the business case with a well documented projection of expected
turnover for the first years of operation. Make scenarios, typically an expected one, an
optimistic and a pessimistic one, to test the robustness of the business plan.
Market report
Commercial Memorandum of Understanding with
launching customer(s)
Turnover projection with multiple scenarios
Economics Calculate the business case based on the turnover and operational cost projections and
on the Capex estimation. Test the robustness of the business case by means of scenarios.
Control regularly the expenditure against the budget for this phase and report this in the
project progress reports.
Prepare for the next costly phases by defining the administration and cost control
procedures.
Business case with multiple scenarios
Project accounting set-up
Finance & taxes Define the funding structure and engage in discussion with potential financiers and
investors. Organize the funding for the next phase as the project will start to cost serious
money during the next phase.
Define the tax structure for the project execution and future operation of the facility.
Funding structure proposal
Funding agreements for the next phase
Tax structure proposal
Scope & MoC Finalize the description of the functional requirements for the facility and start defining
the operational requirements. Review in detail at the end of the phase if the conceptual
design fits these requirements.
Functional requirements description (final version)
Operational requirements description
Permitting Make a plan that states all required activities to apply for the required permits for the
whole project.
Permitting plan
Engineering Make a conceptual design. This design typically consists of a technical description of the
facilities, a lay-out drawing, a Process Flow Diagram (PFD) of the main product pipeline
systems and a description of all required utilities.
Conceptual design consisting typically of:
Facility description
Lay-out
PFD
Utility description
8. Project Development Handbook
Phase 2: Funds & Permits
‘Committing the stakeholders’
Goal: Fix the required funding and permits
Result: Committed funding & authorized permits
Costs: 0,5 – 1,5 % of Capex
Duration: 6-18 months
Disciplines Activities Deliverables
Location Continue negotiations for all required land lease or ownership contracts. None
Commercial Continue the activities from the previous phase. None
Economics Administer the costs for this phase and control the costs against the budget for
this phase.
Regular reporting of costs against the budget for this
phase.
Finance & taxes Prepare for required funding requests by preparing and discussing a draft
investment proposal. Prepare an initial cash-flow prognosis. Discuss the
investment proposal with investors and capture the results in draft funding
agreements.
Draft investment proposal documentation
Initial cash flow projection
Draft funding agreements
Scope & MoC Finalize the operational requirements for the facility, including maintainability,
automation requirements and the requirements for office space.
Discuss and document how to handle scope changes during the next phases of
the project.
Operational requirements document
Management of Change procedure
Permitting Have the environmental impact assessment conducted (assuming that is
required). Maybe other assessments need to be done as well. Compile an
application package for the environmental permit, hand it in to the authorities
and follow-up thoroughly any questions and/or design changes that might need
response in order to obtain the permit as quickly as possible.
Environmental impact assessment report
Environmental permit application package
Environmental permit
Engineering Have a basic design made by a competent engineering firm. Have the design
thoroughly reviewed from the perspective of the other disciplines, especially on
functional and operational requirements and from the permitting perspective.
Basic design package.
Procurement Start by compiling a long-list of potential contractors that could fit the
contracting strategy as defined in the previous phase. Fathom the interest of
these contractor by sending them a Request for Information (RFI). Make a short-
list of preferred contractors based on an evaluation of the received information.
Contractor long list
RFI (Request for Information)
RFI evaluation document
Contractor short list(s)
List of long-lead items
10. Project Development Handbook
Phase 3: Tendering
‘Finding the right contractors’
Goal: Negotiating value for money construction contracts
Result: Signed construction contract(s)
Costs: 0,5 – 1 % of Capex
Duration: 3-6 months
Disciplines Activities Deliverables
Location Finalize the negotiations for all required land lease or ownership contracts in
order to secure access to the site prior to start construction.
Signed lease/ownership contracts.
Commercial Finalize the negotiations with launching customers. The contracts need to be
formalized in order to be accepted by the financiers.
Update the turnover projection based on the figures from the launching
contracts.
Signed customer contracts
Turnover projection, updated
Economics Review the construction contracts from a financial perspective. Update the
financial business case with the latest Capex budget, the commercial turnover
projection and the Operational expenditure budget.
approval of contracts, PO’s, cost control
Contractor financial evaluation document
Regular reporting of costs against the budget for
this phase.
Business case, update.
Finance & taxes Update cash flow prognosis based on offers, sign funding agreements Cash flow prognosis, updated
Funding agreements
Scope & MoC Start the Management of Change (MoC) procedure that was defined during the
previous phase.
Change request documents
Permitting Apply for construction permits with an application package that is derived from
the basic design that was made during the previous phase.
Construction permit application
Engineering Have the changes out of the MoC procedure designed and insert these changes
in the permitting and tendering processes.
Design change specifications
Procurement Write the Request for Proposal (RFP) and send it to the contractors that were
selected during the previous phase. After receiving the proposals from the
contractors, evaluate them and decide on which one to continue with. Then do
the final negotiations and sign the construction contract (s). Do not forget to
procure the long-lead items.
Request for Proposal
Tender evaluation document
Signed construction contract(s)
Long lead item specifications
12. Project Development Handbook
Summary
Disciplines: Phase 0: Feasibility study Phase 1: Concept definition Phase 2: Funds & Permits Phase 2: Funds & Permits
Location Identify the location Secure the site (lease/buy) - Sign the lease/ownership
contracts
Commercial Define the future business Research the market - Secure part of the future
turnover
Economics Estimate the turnover Calculate the business case Start controlling the costs Do a final update of the
business case
Finance & taxes Align a financing structure Engage funding partners Draft an investment
proposal
Sign the funding
agreements
Scope & Management of
change
Describe the functional
requirements
Finalize the functional
requirements
State the detailed
operational requirements
Start the management of
change procedure
Permitting Identify the required permits Make a permitting plan Assess the environmental
impact
Apply for the construction
permit
Engineering Make a first CAPEX estimate Design a technical concept Engineer a basic design Design the requested
changes
Procurement Select an engineering
provider
Agree on a contracting
strategy
Pre-qualify the
contractors
Tender the construction
contracts
Planning & progress Make an overall schedule Schedule the next phase in
detail
Start monitoring the
progress
Schedule the construction in
detail
Budget Budget the next phase in
detail
Calculate a 25% accurate
budget
Calculate a 10% accurate
budget
Finalize the budget
Project Management Write the project approach
and staff the project
Assess the project risks Bring structure in the
project
Prepare for construction
HSE - Identify the main safety
hazards
Conduct a HAZOP on the
design
Evaluate contractor safety
Insurance - - - Ensure construction
insurance
Operations Quantify the operational costs Prepare a draft organization
scheme
Review the
maintainability
Prepare for first operational
staff hire
Legal - Review the legal entity set-up Inaugurate the legal
entities
Review construction &
funding contracts
External communication - Make a PR plan Present the project Conduct external
stakeholder meetings