Project Investment Analysis

Large capital-intensive projects in all major industries require substantial – and mostly risky – investments in the acquisition, exploration, and subsequent operation and maintenance of new organizational assets.

The decision whether or not to invest in new capital projects, starts with critical decisions during the exploration phase of a new development, or the expansion of an existing field. The decision-making tools used to analyse project risk under conditions of uncertainty will help companies to determine the probability of success or loss, and will drive the decision to develop or abandon the well.

Of paramount importance therefore, is the systematic and comprehensive evaluation of potential investments, and the development of detailed cash-flow analyses to determine as accurately as possible, the expected returns to the organization under varying conditions of uncertainty over the expected productive life of the project.

This requires the development of sound, realistic, and carefully structured cash-flow projections, reflecting both the initial capital expenditures required for the acquisition of the asset, as well as the operational expenditures required for successful operation and maintenance of the asset over its anticipated productive life.

World-wide an alarming number of large capital projects fail to meet, or overrun their planned budgets, failing to realize both the financial and strategic goals of the organization – the very reason for their being undertaken in the first place – often with sizable increases in capital and operational expenditures, and with substantial financial losses to the organization. In the majority of cases, this is the inevitable consequence of failing to apply the tools and techniques of modern project decision-making, evaluation, financial planning, capital management and cash flow analysis when considering investment into new capital projects.