Project development handbook rl website

Project Development Handbook
A structured way of developing a project into reality
From idea to commitment
By
Feiko Jager MSc
©Riverlake Solutions SA
Feasibility
study
Concept
definition
Funds &
Permits
Tendering Construction Commissioning
In
operation

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

©Riverlake Solutions SA Page 2
Methodology
The goal of developing a project is meeting the following pre-requisites:
 The required government permits
 The access to the required plot of land
 The financing of the required investment
 The commercial, financial, technical and operational feasibility
 The safe execution of the project
Reaching the above goals will be done in a structured manner by working
through a matrix of phases and disciplines.
Most disciplines have to be covered during each phase of the project to
guarantee that overlooking one of the disciplines is later reason to iterate
back to an earlier phase. In our experience this is one of the main reasons
for project delay. It is essential to complete a phase consciously prior to
continuing into the next phase. We rather spend one or a few weeks in
completing a phase properly then to discover later that we have to redo a
complete phase which could take months and a large amount of money.
The best way of reaching this way of developing a project is to look at
each step as a separate value creating investment and to make conscious
(investment) decisions for each individual step.
In the next pages we provide for each phase:
 Detailed activities that need to be carried out
 Clearly specified deliverables reflecting the result of the activities
Phases
 Phase 0: Feasibility study
 Phase 1: Concept definition
 Phase 2: Funds & Permits
 Phase 3: Tendering
 Phase 4: Construction
 Phase 5: Commissioning
 Phase 6: In operation
Disciplines
 Location
 Commercial
 Economics
 Finance & taxes
 Scope & management of change
 Permitting
 Engineering
 Procurement
 Planning
 Budget
 Project Management
 HSE
 Insurance
 Operations
 Legal
 External communication

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.

Planning &
progress
Make a rough schedule for the total project. At this phase it is sufficient to
estimate the duration of the phases and not of the activities within the phases.
Make a detailed schedule of the activities to be carried out during the next
phase.
 Overall project schedule (high level)
 Detailed schedule for the next phase
Budget Estimate the capex of the total project based on experience figures. This will be a
very rough estimate, typically with a 40% accuracy.
Make a detailed budget for the next phase.
 Overall project capex budget (high level)
 Detailed budget for the next phase
Project
management
Define the approach for the total project. This typically involves dividing the
project in sub-projects and the phasing of the project. Also the project
organization, both internal staff and external advisors and consultants, needs to
be defined.
Define all activities for the next phase in a detailed project plan.
Coordinate the decision-making for the approval of the next phase.
 Overall project plan
 Detailed project plan for the next phase
HSE Not applicable during this phase
Insurance Not applicable during this phase
Operations Quantify roughly what the operation of the facility would annually cost.  Operational cost estimation
Legal Not applicable during this phase
External
communication
Not applicable during this phase
This is the easiest part. Everybody with a bit of funding and some insight in the business can make plan. But out of all feasibility studies made, only 5 or 10%
make it past the next phase……….

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
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

Procurement Define the contracting strategy for the construction. This is necessary as it has a profound
impact on the required level of detail of the basic design.
Make a pre-selection of potential providers of the services required for the next phases.
Select preferred providers, if required by means of a tender, and prepare for ready to
sign agreements in order to continue the project immediately when the next phase is
approved.
 Contracting strategy
 Ready to sign agreements for:
o Engineering the basic design
o The environmental impact assessment
Planning &
progress
Track regularly the progress compared to the schedule for this phase and report this in
the project progress reports.
At the end of the phase, update the high level schedule for the overall project and make a
detailed schedule for the next phase.
 Overall project schedule (update)
 Detailed schedule for next phase
Budget Update the overall Capex budget based on an engineered estimate which is typically 25%
accurate at this stage.
Make a detailed budget for the next phase.
 Overall project Capex budget (update)
 Detailed budget phase 3
Project
management
Organize a kick-off meeting for this phase of the project with all participants in the
project. Coordinate all activities as specified in the project plan of this phase and make
regular progress reports. Identify the risks associated with the project. Define all activities
for the next phase and update the overall project plan according the results of this phase.
Finally coordinate the decision-making for the approval of the next phase.
 Regular (monthly) progress reports
 Risk assessment report with initial risk register
 Detailed project plan phase 2
 Overall project plan update
HSE Identify the main safety hazards of the project HAZID report
Operations Make a high level organization scheme and estimate the annual operational costs  High level organization scheme
 Operational cost projection
Legal Investigate the local legal framework for the proposed tax structure.
Review the legal aspects of the agreements for the next phase.
External
communication
Make a PR plan for the project and ask for engineered images of the facility.  Project PR plan
 3D images of the facility
The key to this phase is to find and secure the location, the business and the financing for the project. All three should come simultaneously in order to secure
the funding for the next phase. Without location no business, without business no financing and without financing no location…………

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
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

Planning &
progress
Monitor the progress of this phase regularly and report this to the stakeholders.
At the end of the phase, make a detailed schedule for the next phase and update
the overall project schedule accordingly.
 Regular progress report against phase 2
schedule
 Overall project schedule (update)
 Detailed schedule phase 3
Budget Update the Capex budget based on a 10% accurate engineering calculation.
Make a detailed budget for the next phase 3
 Overall project Capex budget (update)
 Detailed budget phase 3
Project
management
Make a detailed plan for the next phase and update the overall project plan
accordingly.
Manage the existing and new risks thoroughly, and keep your internal
stakeholders well informed. Staff next phase (contracting management)
 Overall project plan (update)
 Update the project risk register
 Monthly progress reports
HSE Conduct a HAZOP study on the basic design when it reaches completion.
Define the way to secure construction safety. The resulting documents will be
part of the contracts with the contractors.
 HAZOP report
 Construction safety goals, KPI’s and procedures
Operations Define the organization that will operate the terminal as this becomes necessary
for the design of the office and other personnel facilities, but also to be able to
estimate operational personnel costs.
Conduct an operability review and maintainability review on the basic design
when it reaches completion
 Operations organization chart
 Operability review report
 Maintainability review report
Legal Set-up the required local legal entities Inaugurated legal entities
External
communication
Execute the PR activities as defined in the PR plan to support especially the
permit application.
 Project web site
 Project presentation
 Leaflets etc.
The project starts costing serious money because making a good basic design and conducting an environmental impact assessment requires many
engineering and consultancy hours. A solid project approach is required, especially to stick to the time schedule………

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
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

Planning &
progress
Monitor the progress of this phase against the schedule made during the
previous phase. Make a detailed schedule for the next phase based on the
construction planning provided by the selected contractor. Update the overall
schedule accordingly. update overall schedule.
 Regular progress report against schedule phase
3
 Detailed schedule phase 4
 Overall schedule, update
Budget Update the Capex budget based on the prices provided by the selected
contractor. Do not forget to include all other costs that are required for the
upcoming phases.
 Overall project Capex budget , update
 Budget phase 4
Project
management
Make a detailed plan for the next phase and update the overall project plan
accordingly.
Manage the existing and new risks thoroughly, and keep your internal
stakeholders well informed. Staff the next phase (construction management).
 Overall project plan (update)
 Update the project risk register
 Monthly progress reports
HSE Conduct a safety evaluation of the proposals from the contractors.  Contractor safety evaluation document
Insurance Review the contractors’ CAR insurance.
Operations Define who of the future operational staff should already be hired to be in place
during construction. Define the detailed Operational expenditure (Opex) budget.
Legal Review the contract terms that will be specified in the RFP and then again of the
final construction contract.
 Legal contract review document
External
communication
Execute the PR activities as defined in the PR plan to support especially the start
of construction.
 Regular website update
 External stakeholder meetings
At the end of this phase you finally know what the project will actually cost exactly. Time has come to commit the majority of the Capex by signing
construction contracts. Thus everything has to be in place: the lease of the land, all required permits, contracts with users of the facility and last but not least
the total funding………Construction can commence!

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

Few weeksPhase 0: Feasibility study
Phase 1: Concept definition
Phase 2: Funds & Permits
Phase 3: Tendering
Phase 4: Construction
Phase 5: Commissioning
Phase 6: In operation
2-3 months
6-18 months
3-6 months
½-2 years
1-3 months
Total duration: 1,5 – 4,5 yearsSCHEDULE
Typical Time Schedule

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