PEEM

1. Module 2: Project Initiation
• Project initiation
• Feasibility reports of various types
• Project selection criteria
• Project licensing
• Basic and detailed engineering
• Guarantees, Liabilities
• Risk insurance
• Types of estimates.

3. • High risk levels do not necessarily mean that the project will not go
ahead, but rather that a higher rate of return is required
• After the first appraisal, a repetition of the work up to this point is
often needed as
its results may show that better information is needed on the
possible demand or
the conclusions of the appraisal may be disappointing and revised
ideas are needed which are more likely to meet the demand

4. • In addition, more expenditure has to be sanctioned
• Repetition of the work may also be needed because the information
used to predict the demand for the project has changed during the
time taken to complete the work
• Feasibility studies may therefore have to be repeated several times
• This may take time, but its outcome will be quite specific – “The
sanctioning or rejection of the proposed project”

5. Types of Feasibility Studies
• Technical Feasibility – Does the company have the technological
resources to undertake the project?
• Schedule Feasibility – Does the company currently have the time
resources to undertake the project? Can project be completed in the
available time?
• Economic Feasibility – Given the financial resources of the company,
is the project something that can be completed?
• Cultural Feasibility – What will be the impact on both local and
general cultures?

6. • Environmental Feasibility – What sort of environmental implications
does the feasibility study have?
• Legal/Ethical Feasibility – You need to make sure that the project
should meet all ethical and legal requirements before the project is
on the table
• Resource Feasibility – Do you have enough resources?, what facilities
will be required for the project?
• Operational Feasibility – This measures how well your company will
be able to solve problems and take advantage of opportunities that
are presented during the course
• Marketing Feasibility – Will anyone want the product once its done?
• Real Estate Feasibility – What kind of land or property is required?

7. Project Selection Criteria
• Project selection is the process of evaluating individual projects or
group of projects, and then choosing to implement some set of them
so that the objectives of the parent organization will be achieved
• Generally the organization is having access to a number of projects
• Due to constraints of resources, the organization cannot take up all
the projects at once
• A decision has to be made as to which project needs to be taken up
that will provide maximum profit and recognition

8. Methods
• Benefit Measurement Methods –
This technique is widely used in the selection of projects, which is
based on the present value of estimated cash inflow and outflow.
Cost benefits are calculated and then compared to with other
projects to make a decision
• Constrained Optimization Method –
(Mathematical Model of Project Selection) – are used for the larger
projects that require complex and comprehensive mathematical
calculations

9. Benefit Measurement Methods (Techniques Used)
• Benefit/Cost Ratio
• Economic Value Added
• Scoring Model
• Payback Period
• Net Present Value
• Internal Rate of Return (IRR)
• Opportunity Cost

10. Constrained Optimization Method (Techniques Used)
• Linear Programming
• Non-Linear Programming
• Integer Programming
• Dynamic Programming
• Multiple Objective Programming

11. Benefit / Cost Ratio
• Ratio of the present value of inflow to present value of outflow
• Project with higher ratio is selected

12. Economic Value Added
• Is a performance metric that calculates the worth creation for the
organization and defines the return on capital
• Also defined as the net profit after the deductions of taxes and the
capital expenditure
• The project with a higher EVA is selected
• It is always expressed in the numerical value and not in percentage

13. Scoring Model
• It is an objective technique where the project selection committee
lists relevant criteria, weighs them according to their importance and
their priorities and then add the weighted values
• The project with highest score is selected

14. Payback Period
• Is the ratio of cost of the project to the average annual cash in flows
• The project that has the shortest payback period is selected

15. Net Present Value
• NPV is the difference between the project’s current value of cash in
flow and the current value of cash out flow
• The NPV must always be positive
• While selecting a project, the one with the higher NPV is
recommended

16. Internal Rate of Return (IRR)
• This is the interest rate at which the NPV becomes zero
• At this interest rate, the present value of the outflow is equal to the
present value of inflow
• The project with higher IRR is selected

17. Opportunity Cost
• It is a cost that is being given up while making a choice of another
project
• The project that has the lower opportunity cost is selected

18. Project Licensing
• Refers to right for using the technology or technical know-how for the
project
• Licensing agreement would give the company/client the right to use
and transfer patented/unpatented technology

19. Basic & Detailed Engineering
• The design phase of the project consists of the following four stages:-
Conceptual Design
Basic Engineering
Front End Engineering Design
Detail Engineering

20. Conceptual Design
• It is a study phase in which ideas and possibilities are evaluated
• Output of this phase includes:-
basic process concept
a preliminary schedule
a rough cost estimate

21. • Conceptual design covers:-
Literature survey
Development of an idea from scratch
Concept development
Conceptualization of process schemes
Concept refinement
Preliminary process flow diagram
Overall heat & mass balance
Conceptual layout
Order of magnitude cost

22. Basic Engineering
• It consists of core documentation of projects
Process Flow Diagrams
Heat & Mass Balances
P & ID’s
Control
Basic Equipment Sizing
Conceptual Layout
Preliminary Plot Plan

23. Utility consumption figures
Schematic drawing of equipment on each floor
Analysis & Sizing of safety valves
Control valve hydraulics & process specifications

24. Front End Engineering Design
• It reflects all technical specific requirements and avoid any significant
changes during execution of the same
• It covers
Basis of Design
Feasibility Study
Preparation of the specifications
Mechanical data sheets of the main equipment

25. Incorporating the specific requirements of codes & standards to be
applied to the project
Standards to be applied to the project
Development of process and utility P & ID released for detail
engineering
Preparation of tender packages for the main equipment
Development of detailed plot plans and hazardous areas
Elaboration of the main piping, instrument, electrical and civil work
layout

26. Detail Engineering
• It includes the extraction of all essential information from all the basic
engineering drawings and calculations to provide the exact drawings
in detail for all production, fabrication & erection items and in turn
the detail of entire project along with the precise bill of quantities and
specifications for each of the equipment

27. • It covers
Equipment List
Process Data Sheet
Reconfirmation of the process and mechanical design of all
equipment
Detailed specifications for vendor supplied items such as pumps,
compressors etc.
Management of vendor drawings
P & ID
HAZOP
Valve List

28. Control valve data sheet
Relief valve data sheet
Detailed piping drawings, including isometrics and stress calculations
Bill of Quantities
Detailed drawings and documents related to instrumentation,
electrical facilities and civil works
Startup procedures, operating and commissioning manuals