Front-end loading (FEL)

1. Front-end loading (FEL) COSC 459_PPT1_Fall2015

2. Front-end loading (FEL), also referred to as pre-project planning (PPP), front-end engineering design (FEED), feasibility analysis, conceptual planning, programming/schematic design and early project planning, is the process for conceptual development of projects in processing industries such as upstream, petrochemical, refining and pharmaceutical. This involves developing sufficient strategic information with which owners can address risk and make decisions to commit resources in order to maximize the potential for success.[1] Front-end loading includes robust planning and design early in a project's lifecycle (i.e., the front end of a project), at a time when the ability to influence changes in design is relatively high and the cost to make those changes is relatively low. https://en.wikipedia.org/wiki/Front-end_loading [1] Construction Industry Institute (2012). "Improving Project Performance" (PDF). CII Best Practices Guide. ver. 4: page 17. [2] "PDRI: A simple tool to measure scope definition". projectauditors.com. Retrieved April 23, 2014.

3. Front-end loading typically applies to industries with highly capital intensive, long lifecycle projects (i.e., hundreds of millions or billions of dollars over several years before any revenue is produced). Though it often adds a small amount of time and cost to the early portion of a project, these costs are minor compared to the alternative of the costs and effort required to make changes at a later stage in the project. It also typically uses a stage-gate process, whereby a project must pass through formal gates at well defined milestones within the project's lifecycle before receiving funding to proceed to the next stage of work. The quality of front-end planning can be improved through the use of PDRI (Project Definition Rating Index) as a part of the stage-gate process. [2] FEL is usually followed by detailed design or detailed engineering. https://en.wikipedia.org/wiki/Front-end_loading [1] Construction Industry Institute (2012). "Improving Project Performance" (PDF). CII Best Practices Guide. ver. 4: page 17. [2] "PDRI: A simple tool to measure scope definition". projectauditors.com. Retrieved April 23, 2014.

4. FEL-1 FEL-2 FEL-3 • Material balance • Energy balance • Project charter • Preliminary equipment design • Preliminary layout • Preliminary schedule • Preliminary estimate • Purchase-ready major equipment specifications • Definitive estimate • Project execution plan • Preliminary 3-D model • Electrical equipment list • Line list Stages of FEL: It is common industry practice to divide front-end-loading activities into three stages: FEL-1, FEL-2, and FEL-3. For each stage, typical deliverables are listed given below : FEL is usually followed by detailed design or detailed engineering. https://en.wikipedia.org/wiki/Front-end_loading

5. Example: Pipeline projects

6. https://www.cairnindia.com/pipeline-constrcution-mangala-development-pipeline-project-1https://www.cairnindia.com/pipeline-constrcution-mangala-development-pipeline-project-1

7. Pipeline projects are usually completed in five stages: • Three front-end loading (FEL) stages for business planning, facility planning and project planning • Project execution stage • Start-up and operations stage. http://wiki.iploca.com/display/rtswiki/2.+Development+Phases+of+a+Pipeline+Project

8. THE ROAD TO SUCCESS covers the three FEL phases and the project execution phase. The diagram (previous slide) highlights a staged-gated project system and should be reviewed in conjunction with the minimum data requirements and activities for each FEL phase described in the following slides. It is imperative that the foundations of any project are sound: front-end loading (particularly FEL 1 and FEL 2) forms a key part in providing the necessary framework and structure for a successful project. http://wiki.iploca.com/display/rtswiki/2.+Development+Phases+of+a+Pipeline+Project

9. Business Planning FEL 1 Before starting a project, the pipeline owner/investor (the body funding the project) must prove the economic viability and need for the project i.e. will the project produce the required revenues and profit? This phase captures the reasoning behind initiating the project and can take considerable time to prepare. FEL 1 includes: Business case Strategic objectives Economic analysis Project expectations Market analysis Competitors review Environmental constraints http://wiki.iploca.com/display/rtswiki/2.1+Front-End+Loading+%28FEL%29+Phases

10. Facility Planning FEL 2 The purpose of FEL 2 facility planning (sometimes referred to as feasibility, preliminary, or pre-FEED), is to ensure the selection of an optimum solution and put some details behind the project. Here we can confirm the physical viability and anticipated cost of a project before any unnecessary time and energy is wasted. This stage of the plan can take from 2-6 months depending on project complexity. FEL 2 facility planning includes the review of: Environmental and social issues Routing Pipeline dimensions (OD, WT, length) In-line facilities (pumps/compressor stations) Regulatory and governmental requirements Preliminary schedules Led by the owner, developer or an appointed and experienced engineering contractor, these issues are performed by a joint team and should include a range of technical, engineering, environmental, social and legal specialists. The level of cost estimate at this point is typically +/-30%. http://wiki.iploca.com/display/rtswiki/2.1+Front-End+Loading+%28FEL%29+Phases

11. Project Planning FEL 3 Project planning or the front-end engineering design (FEED) phase looks to develop the approved selected solution by narrowing the cost estimate to +/-15% and achieving a higher level of development schedule. At this point any project showstoppers would have been identified as part of the environmental and social impact assessment process and suitable mitigation measures agreed with the relevant stakeholders (as part of the project consent). It is only when consent has been granted that project sanction takes place and particularly since it is then possible to place material orders for long lead items (LLIs) at this stage so as to meet the development schedule. Project planning could take from 6-12 months depending on the complexity of project and the environment through which it is routed. If the pipeline has not managed to avoid sensitive environments, timescales for the FEL process can be extended by many months whilst detailed ecological or cultural studies are performed. http://wiki.iploca.com/display/rtswiki/2.1+Front-End+Loading+%28FEL%29+Phases

12. Project Planning FEL 3 (Continued) In comparison with plant projects, the cost of FEL developments for a pipeline project are typically lower, except for possibly international cross-border pipelines or complex systems such as high temperature pipelines (design temperature > 70ºC), high pressure pipelines (design pressure > 200 bars), or fast track projects. However, whilst the cost of the development activity is lower, it is still significant and often underestimated. Pipeline project facility planning (FEL 2) for example can range from one third to three quarters of the activity associated with plant developments. However, the time taken can in certain circumstances be longer. http://wiki.iploca.com/display/rtswiki/2.1+Front-End+Loading+%28FEL%29+Phases

13. Some of the key considerations that need to be defined during the three FEL phases include: http://wiki.iploca.com/display/rtswiki/2.1+Front-End+Loading+%28FEL%29+Phases

14. The diagrams (Fig.1) illustrate the fact that the front-end loading phases of the project are where the owners/investors have the most influence and impact on the project with the least cost and expenditures. Key decisions left to later in project lifecycle come with a penalty of high cost, with little influence to change the outcome. Fig. 1 indicates that at the early phases of the FEL process whilst expenditure is low, big decisions are made. “Where will the pipeline go? Will we build a pipeline or use ships?” The ability to influence the form of the project is high. It is thus essential at this stage that the investor and the engineer work closely and consider the value added outcomes of all potential solutions. For this to be effective, experience is essential. Fig. 1 – Influence and expenditure profiles over time http://wiki.iploca.com/display/rtswiki/2.1+Front-End+Loading+%28FEL%29+Phases

15. Contingency Progression Per Project Phase http://wiki.iploca.com/display/rtswiki/2.1+Front-End+Loading+%28FEL%29+Phases

16. As with most standard estimating methods, the early stages of the project are called “screening estimates” or “conceptual estimates”. In these early stages of the project things remain undefined and a large contingency is required to cover the expected but unknown aspects of the design. In pipeline terms the knowledge of soils and land issues as well as an optimized system design has not been completed. The routing is based on maps or images and the sizing based on norms and simplistic assessments. The project estimate “baseline” at this stage is therefore made up of the estimated price and an almost equal level of contingency. At this stage of the project this is not a real problem for the investor as he is looking to provide data that provides him with comparisons with other potential developments and to see if his expected returns can be realized. http://wiki.iploca.com/display/rtswiki/2.1+Front-End+Loading+%28FEL%29+Phases

17. It should be realized that contingency is part of the estimate and is not discretionary or padding: it will be spent. Addition of arbitrary contingency to cover the estimate shortfalls is thus not a tenable solution. What remains a problem at the early stages of development is the project risk and how this will impact planning and quality or certainty of the baseline. Contingency should not be confused with design allowances or development or with management reserves. http://wiki.iploca.com/display/rtswiki/2.1+Front-End+Loading+%28FEL%29+Phases

18. As the project leaves FEL2 the feasibility has been tested the routing information has been improved and the sizing of the system has been scoped and understood. The level of unknowns is lower and the contingency can be reduced. Throughout the stages of the project the knowledge and certainty improve until the developer is confident enough to sanction the full expenditure. It can be seen that if the work is performed well the out-turn cost or “baseline cost” of the project remains the same and contingency and unknowns are exchanged for certainty and knowledge. We are reducing project risk and becoming more confident of the baseline estimate http://wiki.iploca.com/display/rtswiki/2.1+Front-End+Loading+%28FEL%29+Phases

19. Fig. 3 Reduction of project risks during the FEL and execution phases Figure 3 illustrates that during the FEL phases the reduction of project risks is the most effective. It also shows how the total process of FEL and execution fits together. Of course even at project handover some operational residual risk still exists although if the process has been followed correctly this should be minimized. http://wiki.iploca.com/display/rtswiki/2.2+Key+points+to+address+during+FEL

20. web links http://www.threehouses.com/frontendloading.htm

21. The Project and Project Management A project may be defined as a one-time deliberate effort to achieve a set of clearly predefined objectives. The project activities are divided into three well-defined parts (see the Figure on the next page): — Front End Loading (FEL). — Engineer, Procure, Construct (EPC) — Startup Reference: Planning, Estimating, and Control of Chemical Construction Projects, Second Edition, Pablo F. Navarrete and William C. Cole, CRC Press, ISBN 978-0824705169, 2001.

22. Usually 85-90% of the costs are incurred during the EPC part of the project. But the quality, cost, and schedule is determined during the front-end-loading Front-End-Loading. Reference: Planning, Estimating, and Control of Chemical Construction Projects, Second Edition, Pablo F. Navarrete and William C. Cole, CRC Press, ISBN 978-0824705169, 2001.

23. For a large project, Project Manager must be: — A thinker — An organizer — A delegator — Able to maintain perspective. For a small project, Project Manager must be: — Versatile. — Flexible. — A doer. — Someone with a can-do attitude. Both must be: — Proactive. — Decision makers. — Able to get along with people. — Someone with a good feel for cost! PROJECT MANAGERS CANNOT ACHIEVE FULL POTENTIALWITHOUT A GOOD SENSE FOR COST. Reference: Planning, Estimating, and Control of Chemical Construction Projects, Second Edition, Pablo F. Navarrete and William C. Cole, CRC Press, ISBN 978-0824705169, 2001.

24. Front End Loading Business Planning/Project Development Projects are initiated at the management level either to take advantage of a business opportunity or to comply with a mandatory government regulation, usually concerning environmental protection. The initial work is done under the direct responsibility of the Venture Manager: — Market studies. — Process/Site selection. — Project economics. — Risk analysis. — Process design. The Project Manager usually joins the project during the project development stage and supports the Venture Manager by providing: — Order of magnitude and preliminary cost estimates. — Initial plan of action. — Execution plan and master schedule. Reference: Planning, Estimating, and Control of Chemical Construction Projects, Second Edition, Pablo F. Navarrete and William C. Cole, CRC Press, ISBN 978-0824705169, 2001.

25. Initial Involvement/Plan of Action — Promptly after being assigned to the project, the Project Manager must contact the Venture Manager to review the project scope and objectives and determine whether further scoping is required. — This meeting should be documented with a memo confirming the Project Manager's understanding of the scope and objectives. — The Project Manager must then prepare and publish, as soon as possible, an initial plan of action. This plan of action must address all the activities required for the preparation and approval of an AFE (authorization for expenditures) and assign execution responsibilities within the organization. The plan of action must also address the feasibility of the desired schedule and, when necessary, sound the alarm and propose remedial alternate solutions. Reference: Planning, Estimating, and Control of Chemical Construction Projects, Second Edition, Pablo F. Navarrete and William C. Cole, CRC Press, ISBN 978-0824705169, 2001.

26. Process Design (Phase 0/Phase 1) — A process design package is the detailed definition of the proposed facility and must be completed before the detailed engineering activities can start and proceed effectively. — Although the actual process design is done by others, the Project Manager must participate actively, providing project engineering and cost input to insure a cost-effective design. Reference: Planning, Estimating, and Control of Chemical Construction Projects, Second Edition, Pablo F. Navarrete and William C. Cole, CRC Press, ISBN 978-0824705169, 2001.

27. Estimating — Estimates for large projects are normally prepared by staff estimators or a contractor. However, the Project Manager must be capable of at least spot-checking them and ascertaining that sufficient information is provided to prepare realistic execution plans. — On small projects, the Project Manager is frequently required to prepare estimates and is expected to be capable of doing so. — The semi-detailed estimating system and related procedures presented in this book will allow project managers to prepare reasonably accurate estimates very quickly and confirm the validity of estimates prepared by others even quicker. Reference: Planning, Estimating, and Control of Chemical Construction Projects, Second Edition, Pablo F. Navarrete and William C. Cole, CRC Press, ISBN 978-0824705169, 2001.

28. Project Execution Plan/Master Project Schedule One of the most important project management activities is the preparation of realistic execution plans. Project execution plans can, and should, be prepared for any type of estimate: conceptual, preliminary, and definitive. It is the Project Manager's responsibility to prepare them. A thorough execution plan must address: — Engineering, equipment delivery, and construction schedule. — Interdependence of key activities. — Contracting strategy. — Assignment of responsibilities. — Home office and field staffing (average and peak). — Base progress curves. Reference: Planning, Estimating, and Control of Chemical Construction Projects, Second Edition, Pablo F. Navarrete and William C. Cole, CRC Press, ISBN 978-0824705169, 2001.

29. Engineer, Procure, Contract (EPC) Contractor Selection — Contractor selection is probably the activity that has the most lasting effect on project execution. A poor design or a bad estimate can always be revised and if caught in time, the effect minimized. Changing a contractor after the work has started is a very difficult proposition that always has a negative impact on project cost and schedule. — The prime responsibility of contracting falls upon the Project Manager who must live with the contractor and make it perform. Reference: Planning, Estimating, and Control of Chemical Construction Projects, Second Edition, Pablo F. Navarrete and William C. Cole, CRC Press, ISBN 978-0824705169, 2001.

30. Detailed Engineering Detailed engineering in a small project is a mixed bag and could be executed by a combination of the following: — Plant engineers — Staff engineers — Small local engineering firms. — Large engineering firms. When engineering firms are retained, the scope of their work must be limited to clear defined design work. In all cases, the Project Manager must coordinate and monitor the activities of all groups and generally provide the management usually provided by a general contractor. Reference: Planning, Estimating, and Control of Chemical Construction Projects, Second Edition, Pablo F. Navarrete and William C. Cole, CRC Press, ISBN 978-0824705169, 2001.

31. Procurement Procurement in a small project is usually a joint effort between Corporate Engineering Department (CED) and the plant's purchasing department. Normally, the Project Manager, with help from CED specialists, as required, writes the requisitions, and the plant writes the purchase orders. Either one can provide Expediting and inspections. However, it is up to the Project Manager to keep up with delivery schedules and take the necessary action to correct slippages. Reference: Planning, Estimating, and Control of Chemical Construction Projects, Second Edition, Pablo F. Navarrete and William C. Cole, CRC Press, ISBN 978-0824705169, 2001.

32. Construction Management The Owner directly performs this activity in small projects. The Project Manager is also expected to be the Construction Manager. Frequently, the work is delegated to another engineer or to a member of the plant staff, but the overall responsibility remains with the Project Manager. The Construction Manager is expected at a minimum to: — Organize and supervise all fieldwork. — Coordinate the interface between the various contractors. — Coordinate construction with plant activities: 1. Control change orders. 2. Enforce plant rules and regulations. Reference: Planning, Estimating, and Control of Chemical Construction Projects, Second Edition, Pablo F. Navarrete and William C. Cole, CRC Press, ISBN 978-0824705169, 2001.

33. Project Control PROJECT CONTROL IS A CONTINUUM AND IS EXERCISED THROUGH THE EFFECTIVE EXECUTION OF ALL PROJECT ACTIVITIES. — The Project Manager is expected to identify and correct cost and schedule variations and make accurate forecasts of both, and to keep management informed on a timely basis. — In a major project, the Project Manager's activities are usually limited to monitoring and spot-checking the general contractor's reports. — On a small project, the Project Manager must establish and implement control procedures to monitor work progress with minimum effort and reasonable accuracy. Reference: Planning, Estimating, and Control of Chemical Construction Projects, Second Edition, Pablo F. Navarrete and William C. Cole, CRC Press, ISBN 978-0824705169, 2001.

34. Contract Administration The Project Manager’s concern is not only the physical conduct of the work, but also the implementation of all contractual conditions, especially those asserting the owner’s right of approval and control of the purse strings. Communications Keeping management well informed avoids unpleasant surprises and allows it to exercise overall project control. It is essential that the Project Manager report accurately, factually, and promptly all problems, errors, significant cost variations, and potential problems. Reference: Planning, Estimating, and Control of Chemical Construction Projects, Second Edition, Pablo F. Navarrete and William C. Cole, CRC Press, ISBN 978-0824705169, 2001.

35. Regulations Compliance — The ever-increasing concerns about safety and environmental protection have resulted a very stringent government, federal, and state regulations to control the design, construction and operation of chemical plants. Failure to comply with them result in sever penalties. — It is up to Venture and Project Managers to be aware of all applicable regulations and insure that they are complied with. In certain cases the law makes them personally responsible and liable for accidents or damages resulting fro noncompliance. Reference: Planning, Estimating, and Control of Chemical Construction Projects, Second Edition, Pablo F. Navarrete and William C. Cole, CRC Press, ISBN 978-0824705169, 2001.

36. Startup The project is not finished until the new facilities are demonstrated at design conditions. This takes an intense effort led by the Manufacturing Manager, engineers, operators, and other craftsmen. The rest of the project team are waiting in the wings to assist the Startup team in correcting any deficiencies that must be addressed before the project is considered complete. Reference: Planning, Estimating, and Control of Chemical Construction Projects, Second Edition, Pablo F. Navarrete and William C. Cole, CRC Press, ISBN 978-0824705169, 2001.

37. Integrated Team/Venture Manager Responsibility of the integrated team include: Provide a clear definition of the project scope. Identify all reasonable alternatives to meet the scope. Selection of the best alternative to meet the scope. Development (or oversight) of an adequate Front End Loading (FEL) package. Oversight of the prime contractor to ensure the timely and cost-effective execution of the design, procurement, construction, and startup. Representing the various stakeholders during the project execution. Reference: Planning, Estimating, and Control of Chemical Construction Projects, Second Edition, Pablo F. Navarrete and William C. Cole, CRC Press, ISBN 978-0824705169, 2001.

38. The Integrated team will be formed as early in the project sequence as possible. Membership will include but is not limited to the following full-time members: • Venture Manager. • Project Manager. • Technical Manager. • Manufacturing Manager. Front-End loading Reference: Planning, Estimating, and Control of Chemical Construction Projects, Second Edition, Pablo F. Navarrete and William C. Cole, CRC Press, ISBN 978-0824705169, 2001.

39. The front end loading has three phases: business planning, preliminary engineering (Facilities Design), and project planning. • As a project develops, business planning is where the options are selected. • • The preliminary engineering phase is where the options are designed and costed. Financial analysis is conducted and the options are recycled to business planning in an iterative fashion. • • Project planning is conducted when the final option is selected. More detail on this activity is provided in the next chapter, "Selecting the Right Project." Reference: Planning, Estimating, and Control of Chemical Construction Projects, Second Edition, Pablo F. Navarrete and William C. Cole, CRC Press, ISBN 978-0824705169, 2001.

40. Who's in Charge One of the most important criteria of the integrated team is that each member bring functional competence to the project. Because no single person usually has the necessary qualifications to adequately represent all the stakeholders, a team required with the Venture Manager administratively in charge of the entire project from conception through startup. However, as a project progresses though tilt, phases, each of the permanent members will take a lead role in his/her skill area. • The Venture Manager, as the business representative to the team, is the leader during the business analysis portion of the FEL. • Since the preliminary engineering phase is principally process engineering, the Technical Manager is the lead during this phase. • Project planning is the venue of the Project Manager, who continues to take the lead during the EPC phase. • Once construction is complete, the Manufacturing Manager takes the lead during the startup phase. • During each phase additional personnel (functions) may come on board the project to ensure proper execution. These added functions will be dependent on the project itself and the complexity of each functional requirement. Reference: Planning, Estimating, and Control of Chemical Construction Projects, Second Edition, Pablo F. Navarrete and William C. Cole, CRC Press, ISBN 978-0824705169, 2001.

41. Primary Functional Responsibilities: • Venture Manager has overall responsibility for the business success of the project. Overall leader from conception through startup. • Project Manager has overall responsibility for Detailed Engineering Procurement, and Construction. The Venture Manager and Project Manager are the two key managers in every successful capital construct project. • Technical Manager has overall responsibility for process design and process safety. In projects involving new products, may represent the R&D or Process Development departments. • Manufacturing Manager has overall responsibility for operability of the project. Specifically takes a leadership role in layouts, safety, and startup, The Manufacturing Manager is the site representative to the integrated team and ensures that the key plant functions are involved at appropriate times in the project. These functions include environmental, production, maintenance, purchasing, shipping and receiving, etc., depending on the areas addressed by the project. Reference: Planning, Estimating, and Control of Chemical Construction Projects, Second Edition, Pablo F. Navarrete and William C. Cole, CRC Press, ISBN 978-0824705169, 2001.

42. Project Goals/Choosing the right project DOING THE RIGHT PROJECT CAN BE FAR MORE IMPORTANT THAN DOING A PROJECT RIGHT. Reference: Planning, Estimating, and Control of Chemical Construction Projects, Second Edition, Pablo F. Navarrete and William C. Cole, CRC Press, ISBN 978-0824705169, 2001.

43. Project Goals • It is important to remember that in the commercial world there are only two reasons to execute a capital construction project: • • To add to the company profit. • • To maintain the current profit. • Examples: • Profit adding: • • Increase capacity of a sold-out plant. • • Add a new product. • • Improve production efficiency, i.e., yields, energy, etc. • Profit maintaining: • Replace a worn-out reactor. • Meet a governmental consent order. • Comply with an OSHA regulation. Reference: Planning, Estimating, and Control of Chemical Construction Projects, Second Edition, Pablo F. Navarrete and William C. Cole, CRC Press, ISBN 978-0824705169, 2001.

44. Setting the Scope When the project team assembles, the first order of business should be to put in writing the project objectives. Why are we doing this project? This should be stated in the most basic terms. Example The objective is to improve the quality of product Q from its current state of 90% purity to an improved state of 99% purity. This will permit selling of the improved product Q to a new customer. If we do this, the new customer will buy 10M pounds per year. This is a new business and will improve our profit by $5M per year less the incremental operating costs. How will we know the project is a success? By traditional methods, a project is considered successful if it is built on time, is in the money, and technically works. This method of analyzing project success is one of the reasons returns on projects are so low. With this method, we have not measured how well we have achieved the scope. For the example project the measure of success should be: • How much product did the customer buy? • How much incremental profit did the company make with improved product Q? The success of a capital project now rests on the entire business team not just the project execution team. Notice, the objectives have not said anything yet about how the improvement in quality will be accomplished. The project goal is to improve profits through quality improvement. Making sure the integrated team understands this difference is critical. The goals should be stated in the most basic terms. Reference: Planning, Estimating, and Control of Chemical Construction Projects, Second Edition, Pablo F. Navarrete and William C. Cole, CRC Press, ISBN 978-0824705169, 2001.

45. Identifying the Alternatives • When defining each alternative, make sure the project risks tare specified. These will include but may not be limited to: • Technical risks • Equipment risk • Schedule risk • Cost risk • Market risk • REMEMBER, ONE OF THE ALTERNATIVES TO ANY PROJECT IS TO NOTHING. Reference: Planning, Estimating, and Control of Chemical Construction Projects, Second Edition, Pablo F. Navarrete and William C. Cole, CRC Press, ISBN 978-0824705169, 2001.

46. Choosing the Best Alternative • The most common way to examine whether or not any project should be done is usually accomplished through economic analysis. • Economic Analysis: • Internal Rate of Return (IRR) • Net Present Value (NPV) • Payback Reference: Planning, Estimating, and Control of Chemical Construction Projects, Second Edition, Pablo F. Navarrete and William C. Cole, CRC Press, ISBN 978-0824705169, 2001.

47. Internal Rate of Return (IRR) • This is a measure of how much improvement in cash flow results from the investment (project cost) as measured by a percent return. • This is roughly equivalent to the interest rate that an investment would earn if invested in a bank or in bonds. • A company usually has a measurement called a hurdle rate that defines the minimum acceptable rate that a "profit-adding" project must have before it is approved for expenditure. • In many companies, this rate is the rate it could obtain funds from a bank plus the rate of inflation. Others calculate it from its strategic plan needs. Reference: Planning, Estimating, and Control of Chemical Construction Projects, Second Edition, Pablo F. Navarrete and William C. Cole, CRC Press, ISBN 978-0824705169, 2001.

48. Net Present Value (NPV) • Whereas IRR measures rate of return, i.e., interest rate, NPV is a calculation of the size of the return in total dollars as measured at today's economics. • This calculation involves a number of operation and requires knowledge about length of the project, when investment is to take place, when returns will start, the assumed inflation rate, and the reinvestment rate (how much return can be assumed for cash inflow). • Projects that have high NPV's can usually support taking more risk. • Projects with low NPV's may still be attractive, but should not have significant risk associated with them. Reference: Planning, Estimating, and Control of Chemical Construction Projects, Second Edition, Pablo F. Navarrete and William C. Cole, CRC Press, ISBN 978-0824705169, 2001.

49. Payback: • This is a measure of how quickly the investment will be paid back. This is a time measurement. • Some companies have hurdle times that dictate that a project must be paid back in a certain number of months before it will be approved. • This is often done to overcome the "hockey stick" curves where returns are so far out that meeting them is very questionable. Reference: Planning, Estimating, and Control of Chemical Construction Projects, Second Edition, Pablo F. Navarrete and William C. Cole, CRC Press, ISBN 978-0824705169, 2001.

50. REGULATORY COMPLIANCE All projects, no matter where in the world they are executed, come under some type of regulatory control. Even in the more advanced parts of the regulations are changing on a routine basis. It is important that the impacts of these regulations are planned for project stages. MEETING THE REGULATIONS AND COOPERATING WITH THE REGULATORY AUTHORITIES ARE REQUIREMENTS FOR ALL PROJECTS. Reference: Planning, Estimating, and Control of Chemical Construction Projects, Second Edition, Pablo F. Navarrete and William C. Cole, CRC Press, ISBN 978-0824705169, 2001.