Hello again

I have received a few Emails recently asking about Quantitative and Qualitative Analysis. There is clearly a lot of confusion about these two terms and so I thought you might be interested in my comments on them.

First of all when do you use them?

Quantitative analysis is the process that we are all familiar with where a model of some aspect of the project is developed based on measured and calculated quantities - the models can be engineering, statistical or financial - but they all involve real numbers that are calculated with reasonably well known limits of accuracy - such as Return on Investment, annual productive capacity etc.

Qualitative analysis is only undertaken when it is impossible to measure or assess a characteristic by a numerical yardstick such as cost, interest rate, capacity, speed, weight, power etc.So when for instance Risk Analysis is being undertaken in a feasibility study workshop and hard number are not available, we have to rely on the basis of relativity to make an assessment. This can be done on the basis of relative terms like remote, unlikely, possible, probable, likely, very likely or certain as is used in risk analysis when you are comparing various issues on a subjective basis. Sometimes numbers on a scale of 1 to 10 are given to these variables - but it is still a Qualitative Analysis.

Qualitative analysis is a very useful technique but it does have a very significant drawback that often makes the conclusions useless or even result in project disaster.What is this fundamental problem? - well it all stems from the fact that inexperienced people can understand the analysis and believe quite sincerely that they can contribute to the process. In fact what they invariably contribute is a view that is prejudiced by their background, current job, company politics and personal whim. So because it is subjective, qualitative analysis is only worthwhile when it is carried out by experienced dispassionate experts in the subject.

Coming back to risk analysis - if the probability of the risk can be assessed by a qualified actuary or expert in the field involved then the Risk Analysis can be done on a Quantitative basis.However because judgement still has to be involved there is doubt whether this approach is justified because it takes a massive amount of calculation to assess the risk and the accuracy will still be in doubt.

So when should use the different techniques?

Broadly - “If Quantitative Analysis can be undertaken with confidence in the numbers at reasonable cost then this approach should always be used”

But - “If there are subjective issues involved the Quantitative Analysis should be backed up by a Qualitative Analysis that must be undertaken by Experts if it is to be of any use”

There are techniques that can confirm or question the findings from Qualitative Analysis. These include for instance, market surveys where the saleability of a product is being assessed, model testing where there are so many variables that numerical analysis in impossible etc

So when you have to resort to Qualitative Analysis you should always try to devise some sort of real trial or test that will back up your findings.

Hi again

The surveys and special studies referred to in the title of this post are intended to refer to any investigative activity that requires expenditure on specialist equipment or machinery, specific professional skills such as surveyors, geologist, engineers etc and any data base gathering activities that relate to a construction site, new type of process etc.

All such activities have one thing in common - they cost a lot!

You will often find that if you ask consultants to carry out studies, the first thing they will do is tell you that this survey or that survey is required before they can do any more work. You will be told “We cannot consider these alternatives unless these surveys are carried out”

To be frank this is nearly allways “B……t”

For a start Google maps and satellite imagery now cover most of the planet. These are accurate in scale and can be used for the evaluation of options in most circumstances. Of course the use of such maps will need to be supplemented by site visits and photography to get a better feel for detail, relative levels etc etc.

There is also a massive amount of data available from local sources such as geological survey services, museums, photographic records, water company records etc. This can all be obtained either on the Internet or through visits to local and national government offices, and the bodies that run locally supplied services.

If you require machinery or equipment most suppliers are delighted to give free information and advice to potential future customers.

I have carried out option selection studies using such data on projects all over the planet. It is always available if you look hard enough - no matter what sort of feasibility study you are carrying out.
You might ask what is the harm in getting these surveys done earlier as this will consolidate confidence in the project?

The reason that it does not work is that:-
“The selection of the preferred alternative then allows the surveys to be focussed on the exact data required to allow accurate costing to be developed in Step 4″

Survey focus in this context refers to intensifying the number of survey points, sample points, boreholes etc in the exact areas that will increase the accuracy of the cost estimating process. This is highly technical and must be carried out by a highly qualified professional - no matter what the topic is.
I have been involved in loads of projects where the money available for such investigative work has been blown early in the project so that when you get to the stage where the investigative work is essential to allow the calculation of accurate costings - there is no money left.

There is one very important caveat to all this. In some circumstances you may need to carry out reconnaissance studies to enable the alternatives to be identified because you cannot show that a particular alternative is “doable” without such a study.

In these circumstances restrict the study scope just to that required to ensure that the alternative is doable. Do not make the mistake “While they are on site why don’t we do more”? - this will just waste money for the reasons described above.

So to summarise:-

“Identify the preferred alternative by following the Step 1 and Step 2 processes and then carry out the surveys and data gathering required to prove that your project is viable in Step 3″

Regards

Will Witt

Hello again

This is another interesting question.

I have seen hundreds of requests for proposals (RFP’s) in my working life as a consulting engineer and very few of these even mentioned the identification of alternatives.

There are several reasons for this including:-

• The author of the RFP has a fixed idea of How the objective should be achieved
• The study work by the consultant is focussed on better definition of the objective because the Project Shell has been badly written
• The study is commencing at Step 3 and neither Step 1 or Step 2 have been undertaken
• The study is just a device to justify a decision that has already been made

The RFP’s also often include highly detailed requirements in respect of certain tasks and ignore others that are obviously more important.

So how do you avoid these mistakes if you are writing the RFP?

The answer is very simple - just complete the Project Shell as described in my Ebook “5 Steps” and issue this to the consultants to undertake Step 2.

What do you do if you are a consultant and need to respond to one of these very poor RFP’s?

The answer is a little more complicated.

Lay out the methodology in your proposal on the basis of Steps described in the Ebook and minimise your response to the RFP requirements. If you are interviewed you may be able to convince the Project Sponsor that your skills will provide the best study available. If you cannot just walk away because the worst thing you can do is try to develope a high quality study in response to a poor RFP - it could badly damage your reputation!

Regards

Will Witt

Hello again

I am sure that you are all a bit puzzled that I place so much emphasis on the identification of alternatives in the 5 Step process.
By definition the study objective is a unique highly defined goal that meets the precise requirements of the Project Sponsor.

The objective should always answer the question “What are we trying to achieve?”, never “How can we achieve whatever it is?”

You will find that it is difficult enough to frame the objective precisely and clearly without adding conditions that refer to how it can be achieved.

Once the objective is established and agreed by the primary stakeholders then the means of achieving the objective is necessarily the next area of focus in your feasibility study. You will nearly always find that a short workshop involving the primary stakeholders assisted by technical experts where necessary will flush out most of the viable options very quickly.

Remember that the most important aspects of the alternatives are that they are both doable and distinctly different. One of the primary benefits gained from the process involved in the identification of the alternatives is that it often helps to clarify the “Strategic Fit” aspects of the project. In fact during this Project Shell step you may often find that discussions on this results in changes to the objective because when the primary stakeholders think through the alternatives that are thrown on the table they realise that although the objective fits in with strategy the “How” does not.

But it must always be an iterative process - not an interactive one! i.e. if examination of “How” shows that “What” does not fit strategically then change the objective and then look at the alternatives again.

I am sure that you are already seeing the power of process that really will ensure that any project is soundly based before lots of money is wasted on something that does not fit in a strategic sense. The very process of identification and selection of alternatives will always lead to:-

• A better understanding of the project
• Greater appreciation of the benefits that might accrue
• Better understanding of the risks involved
• Improved ability to ensure that the design briefs and survey scopes are appropriate

Another primary advantage gained from the identification of doable distinct alternatives is that the identifier of the opportunity or the originator of the idea that sparked the project is certain to have gone down the “How” path in some detail - he would not have suggested the project otherwise!

The drawback of this is that the originator will probably have some pretty fixed ideas on “How” his pet project should be carried out. This can be fatal for any project and is a primary cause of project failure - but it occurs quite often because of the strength of the office or personality of the originator. The Millenium Dome project in London is a classic case in point. Some one decided that they wanted a big tent without due consideration of all the alternatives and it ended up costing a billion dollars and was eventually virtually given away. Battersea power station is another example. This was just handed over to a developer pal of the British government of the time in complete working order and could easily have become the best industrial museum in Europe because the turbines and machinery were quite unique. The developer sold the machinery for scrap and took the roof off the machine hall and then let it all rot for over 20 years. In both instances politicians were to blame - and this is often the case.
What other benefits accrue from a rigorous evaluation of the alternatives?

• Evaluation of the value added and risks involved in each alternative will help in the development of value and risk mitigation strategies - you will often find that one aspect of one alternative can be grafted onto a better option to increase value and reduce risk
• If the alternatives are based on the scale or size of the project the evaluation of the alternatives will assist in the identification of the best stages for a bigger development that is to be phased to reduce risk
• It reduces the likelihood of major late design changes because the best alternative will have been developed - late changes are the major cause of project time and cost overruns
• Alternatives can help optimise the values and trade-offs between Capital Costs and Operating Costs and to optimise productivity

I hope this has helped clarify why alternatives are so important in the feasibility study process.

Regards

Will Witt

You may be struggling with this because of the size and complexity of your project and your organizations reluctance to spend the money required on a full blown feasibility study.

If you are reading this you will have received a copy of my Ebook and this includes a useful tool to assess project complexity (Appendix B) that will show that your project is either:-

Minor, Medium or Major

There are many projects with a high rating where the responsible manager and / or the board of directors are nervous of the cost involved in embarking on a full blown feasibility study.

Because of this various different levels of feasibility study have been developed as follows:-

Scoping, General or Opportunity Studies

Various names are used to describe these studies but in broad terms they all actually perform the same function as Step 1 - the production of the Project Shell. However because they are often seen as studies that are not fully backed by the Project Sponsor they are often developed in an unstructured manner without any focus. If you follow the methods recommended for the development of the Project Shell you will not fall into this trap. In effect you should consider the production of the Project Shell as the transformation of an idea into an investment proposition.

Prefeasibility Studies

I intensely dislike this term and believe that the way that it is used is one of the primary reasons why so many projects go badly wrong. Many organizations use the term to describe the process of investigation of the alternatives.

The problem is that these are invariably technical investigations carried out by consultants without any real input from the Stakeholders! Furthermore the consultant is often asked to identify the alternatives. They will always identify and develop the alternatives that will provide them with substantial future fees - So this just does not work!

Most of you will have already realised that Step 2 of the 5 Step process is equivalent to the so-called Pre-feasibility study.

Bankable Feasibility Study

I dislike this term even more than the term prefeasibility study - because the whole concept is nonsensical.

Why would any responsible organization undertake one level of feasibility study for its own use and another more refined study just because it wants to borrow money or get investors on board.
I quote from the Ebook - Ground Rule 2 in Chapter 1

“The appropriate level of resources has to be provided at each stage of the project. If your business cannot afford to provide the resources then it is a waste of time and effort to promote the project. Any project where inadequate funding of the project planning stages restricts the resources required is probably doomed to failure before you start”

I know that many of you reading this will not like what I am saying - but it is better to forget about your project than taking the huge risk of not doing the studies properly.

So in a complex project how do you keep the initial cost down? Well it is quite simple you just get the funds for Step 1 - the production of the Project Shell. If this Step is carried out properly you will know whether your project has a future or not.

However there are instance when the Project Shell cannot be produced because of lack of technical data. In this instance “Reconnaissance Surveys” may be required. For instance if a new mine is being developed many kilometres of drilling will be required to assess the quality and quantity of the ore reserves. This is obviously impossible to fund at the Project Shell stage and so 5 or 10 % of the drilling will need to be undertaken at the Project Shell stage. The same approach would apply for the development of any large construction project where the ground conditions are unknown.

In every instance the Project Shell must be soundly based on fact and so if reconnaissance surveys are required to establish preliminary viability you have no option but to bite the bullet and carry them out!

But just forget about all these other terms like Prefeasibility Study that are bandied about and rely on the 5 Step process - it really does work!

Have a good week

Will Witt

This question in various forms frequently comes up in my Email Inbox and so I thought I would deal with it in some detail today. I am going to assume for the purposes of this post that the Project Sponsor is a firm or business that trading satisfactorily and is making a profit.

First of all lets look at the circumstances where a Feasibility Study is obviously necessary - these include:

1. Projects that need the investment of substantial capital and resources before any income accrues
2. Projects that are so large that failure would substantially harm the ongoing future of the Project Sponsor
3. Projects that are large and where the management and technical expertise that is required is outside the experience of the Project Sponsor

Many projects will often fall into 2 or 3 of the above categories and so studies are obviously needed.I can already hear you thinking OK - what other sorts of project are there?Well I am going to show my age now by referring to a technique that was very common in industrial development in the 50’s and 60’s - but is barely heard of today when every new product or business seems to require a Feasibility Study to be undertaken.What is this technique? - well they were commonly called Pilot Plants or Pilot Projects.

These involved production facilities that might produce 1, 5 or even 10% of the capacity of the eventual investment and the capital cost was probably approximately the same percentage. Feasibility Studies for large complex projects can also cost as much as 5% or more if very detailed studies and special surveys and forecasts are required.
If it is possible to develop a proportion of the production capacity for the same proportion of capital cost then the Pilot Project approach will deliver the following advantages over a Feasibility Study:

• Actual construction costs that will provide very accurate costings for the full project development
• Direct experience of many of the actual problems and risks that the full scale development will incur
• Direct operational experience that will provide very valuable feedback for the detailed design of the full scale development
• Direct operational experience that will provide much greater confidence in the accuracy of the operating costs of the full scale development
• The sale price that is achieved for the product or service can provide a more accurate assessment of the revenue that the full scale development will provide
• Any environmental impact such as emissions can be accurately measured thus providing much greater confidence in the forecast emissions of the full scale development
• Training facilities for the future operators of the full scale development
• The ability to demonstrate that the full scale development is viable to both the internal and external stakeholders

What sort of project might be suitable for this approach?

Lets look at those projects that are not suitable for this approach.

They would include:-

• Hotels - you cannot build 4 bedrooms and expect the business to work like a real hotel
• Hospitals - These are large and full of substantial integrated elements - all projects that have this characteristic are unsuitable for the pilot project approach
• Any transport project - you cannot build part of a road or bridge or start part of an airline
• Building development projects such as Industrial Parks or Office Complexes
• The development of a large capacity project when the process and market are known and well established

So when might you use this approach?

It is often suitable when natural resources like minerals, oil and gas reserves, new crops etc are being considered for development.

For instance a Feasibility Study on the development of ore deposits might be very expensive because of the site investigation and environmental study costs - so why not finance these by hiring some diggers and drivers, build a stockpile of a few thousand tonnes and then see what you can sell it for.

Or if you have a chain of shops and want to diversify into other lines just open one shop selling the other line and see how it goes.

Or if you have a factory making one type of widget and want to diversify to build another type then put your best designer and a few of your best workers on it and tell them to build a pilot production plant.

I am sure you get the idea - Feasibility Studies are not always the best approach to new developments - in fact the best approach may be to combine the two techniques by doing a feasibility study on your pilot plant before building it!
Have a productive week.

Regards

Will Witt

This week deals with the role of Consultants in Feasibility Studies.
This post is based on the concept that the Consultant is a specialist in the Study topic. Of course many consultants will be involved as Project Managers in Feasibility Studies because their established clients are used to dealing with them on that basis.

In the past couple of weeks we have seen that the primary role of the Project Sponsor is to provide the Internal Stakeholders that look after the interests of the Project Sponsor during the feasibility study process.

We have also seen that the primary role of the Project Manager is to implement the 5 Step Process using all the skills and experience that are necessary in any particular project.

Normally the Internal Stakeholders from the Project Sponsor will be line managers that work “In the business”

When feasibility studies are being prepared you are working “On the business”.

You are now probably wondering what all this has to do with consultants and feasibility studies.

Well it is very germane because an excellent feasibility study will require the input of managers that know how to operate a business (Work in it) and technologists that know how to manage and undertake special studies and surveys (Work on it).

Many large organisations will have both types of personnel and that is one of the reasons why the large companies are more capable of producing excellent studies. But that does not mean that high quality studies cannot be produced by small firms.

All you have to do is make sure that you have the right mix of skills in the project team.

There is no right or wrong way to set up a feasibility study project - every single one must be tailored to suit the circumstances prevailing at the time.

For instance if you are doing a feasibility study on a speculative industrial estate development the important consultancy input would come from an estate agent that knows the local commercial market.

On the other hand if your study involves a manufacturing facility for “widgets” the line management skills would need to include raw material procurement, product design, operations, stock control / purchase, machinery design, maintenance and marketing specialists all with direct “widget” knowledge and experience.

So - consultants are needed whenever the special skills that are required are not available from the resources of the Project Sponsor.

The consultants do not need to be specialists who only work as consultants - anyone who has the expertise can do the work - perhaps on part time basis as a change from their day job or on secondment for the time required.

Step 1 - the production of the Project Shell can be carried out by a Project Manager who is an employee of the Project Sponsor - or a contract Project Manager that is hired in to facilitate the process. Other consultants will not normally be required during Step 1.

Steps 2, 3 and 4 can all be carried out by consultants that are controlled and managed by the Project Manager and his team when the project is large enough to justify one.

Regards

Will Witt

This week I am going to look at the Role of the Project Manager in the feasibility study process.

What skills should the Project Manager have?

This is an easy question to pose and a very difficult one to answer because it will always depend on the feasibility study subject and the complexity of the study itself.

There are two types of skill that need to be considered.

The first is skill in the inception and execution of the feasibility study process.

If you have looked at the FeasibilityStudyExpert.com website and read my Ebook you will know that I am of the opinion that many Engineers are not adequately trained to carry out feasibility studies. In fact I get lots of feedback from students that have been given feasibility study exercises and are at total loss in how to carry them out.

However it is not rocket science and if you insist that the general principles in my Ebook “5 Steps to Project Excellence” are followed the Project Manager will not go far wrong.

The second skill relates to the feasibility study subject.

This might be highly technical but the study scope very small - in this instance the Project Manager would have to be an expert in the subject as the Project Team would be too small for a devoted expert to be available in it.

Study complexity may be caused by any of the following or combinations of them:-

Size, technicality, number of alternatives, combinations of alternatives, novelty, strategic importance.

Generally the larger and more complex the study is the more important it is that the Project Manager has specific technical skills and experience in the subject of the feasibility study.

For instance I have over 30 years experience in large scale civil engineering and industrial projects and would happily take on the Feasibility Study Project Manager Role in a US$ 10 billion industrial estate project, the infrastructure for a new oil or gas field, a greenfield US$250 million port project, or even a US$ 20 million industrial building or hotel project involving run of the mill buildings.

But I would not take on a US$ 200 million city centre landmark office block because that would require architectural skills and knowledge that I do not have.

Some projects are complex because of the number and disparity of the stakeholders that are involved.

In these projects it is essential to follow the 5 Step Process faithfully and use all the advanced Project Management tools that are available to confirm that the decision making processes are of the necessary quality.

If you have a complex project that you need advice on please click on the following link, fill in the form and then click on Submit.

http://www.feasibilitystudyexpert.com/Facilitation.html
Regards

Will Witt

This week I am going to look at the role of the Study Sponsor and Client in the execution of feasibility studies.

First of all what is the difference between the Study Sponsor and the Client?

Well it all depends on the contractual relationships between the parties that are involved. The Client is always the organisation that is paying for the study and the Project Sponsor is the organisation that has the most direct interest in the outcome of the feasibility study.

In most instances the Client and Project Sponsor are the same organisation but this is not always the case.

For instance the Client may be a wealthy local inhabitant or large firm that is paying for the feasibility study and the Project Sponsor might be the local city council that wants the study to be carried out.  In this instance the councillors and council employees would be the internal stakeholders and the Client’s staff would be external
stakeholders.

For the sake of simplicity I am going to assume that the Client and Project Sponsor are the same organisation as is the case in the great majority of feasibility studies. But just be beware that the roles of the interested parties always need to considered with care before jumping off into a study without defining who the internal and external stakeholders are.

Who are the internal stakeholders?

They are normally defined as all those that have the power or ability to directly affect the Terms of Refence for the Study and the results from the study.

Who are the external stakeholders?

These are normally all those that might be effected by the project or those that can effect the outcome of the project

I can already hear you thinking “Why all this emphasis on stakeholders? - surely a feasibility study is all about facts and
logic - why are stakeholders so important?”

Well that is a very good question because the answer is fundamentally important to understanding why some feasibility studies are excellent and why some are useless.

First of all all the stakeholders in every construction project either benefit from it or are adversely effected by it.

Those that will benefit from it will back it and reduce the risk of failure.

Those that are adversely effected will fight it and increase the risk of failure.

Many stakeholders will also have a great deal of knowledge and experience of the feasibility study topic and this can be used against the project or for it in a beneficial way.

Because this stakeholder input is so important it is essential that every feasibility study includes the development and deployment of a Stakeholder Communication Plan that has the objective of minimising the impact on adversely effected stakeholders and maximising the benefits that can be gained from those that will benefit from the project.

OK - what has all this got to do with the Project Sponsor?

Well - the employees of the Project Sponsor will normally be the most important internal stakeholders.

How does the Stakeholder Communication Plan deal with the Project Sponsor?

It does not do so - The very first activity in any feasibility study is Project Briefing Meeting between the Project Sponsor and the Project Team including, the preparation of the agenda, the Meeting itself and the issue of agreed Minutes.

This meeting should have the objective of identifying all the internal stakeholders that have specific knowledge or experience that is relevant to the feasibility study topic and making sure that this resource is available to the Project Team.

The Agenda for the briefing meeting should also include identification of the background to the study and current circumstances that have instigated the study but should not consider any of the study issues in detail - that should be left to the Internal Stakeholders Workshop.

After the Briefing Meeting the Project Sponsors role as a body should be confined to the consideration of the results at the end of each Study Step, leaving its employees - the internal stakeholders looking out for its interests during the execution of the feasibility study itself.

Regards

Will Witt

I wonder whether you are struggling with a complex project.

These often involve multiple elements and for overall project success each element must work.

In these circumstances you should apply the 5 Step process to each project element using the same Value and Risk parameters for each one.

If you find that one of your project elements does not work or the Return on Investment (ROI) is too small you can park the studies on the other elements and concentrate on the one that is unsatisfactory.

You should try to get all the elements up to the same level of reliability and ROI.

Never rely on the high performing project elements bailing out a poor element. This is just like leaving the proverbial “rotten apple in the barrel”

This is not the same as Cash Flow management where you use an element that will provide a very quick ROI to subsidies an element that might eventually provide a large ROI but be a lot slower to get off the ground.

If you have a complex project made up of quite a few elements you may feel that you can carry out the more straightforward ones and use an expert consultant to carry out the studies on the technically complex elements.

As the French say “Bon Chance” (Good Luck)

Regards

Will Witt

Will Witt