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Feasibility Studies - Scope and Accuracy

M E White

ABSTRACT
Feasibility is a value improvement process for projects.
At any stage in project development, a feasibility study
can be undertaken, but although the scope generally
remains unchanged the extent of detail and level of
accuracy usually increases with time. The main scope
elements are a business definition, project description
and an execution plan. The studies are designed to
assess the potential of the project and to secure funding
for
on-going
examination.
Invariably,
the
investigations loop back to earlier stages to establish
more appropriate development criteria but a critical
stage is reached when a project construction decision is
requested. This feasibility study requires very detailed
presentation and analysis to a higher accuracy for the
owner(s) and their potentiallender(s).

INTRODUCTION
The first assignment of a project manager is often to
define the scope of a feasibility study. The information
presented in a feasibility study and its associated accuracy
should be commensurate with the stage of project
development, the level of definition available and the
desired outcomes.
The significance of such scope
definition and the overall relevance of a feasibility study in
the development of a project are the basis for this paper.
Matters di cussed include:

The project cycle - the evolutionary nature of a project.


Project evaluation - differences and characteristics are
ascribed to the terms
scoping study,

preliminary feasibility study,

Dr Mark White is a graduate of the University of


Queensland with a BSc CHons) and PhD in extractive
metallurgy. Since graduation, Mark has worked in all facets
of resource development, from exploration and research
development to construction and commissioning, for both
mining companies and engineering/construction contractors.
This has included Mount Isa Mines, Esso Australia Ltd and
Minproc Engineers Limited. His experience extends to most
corners of the globe having worked on projects in the
Americas, Europe, Africa, CIS, South East Asia and
Australia/New Zealand. With relevance to the subject of this
discussion, Or White has been responsible for the
management and execution of literally dozens of feasibility
studies which has let to numerous small and large-scale
developments in varying parts of the world. Some of the
beller known local projects are Kanowna Belle, Macraes,
Golden Grove and Minahasa. For the past 18 months Mark
has worked within a small independent consultancy. DevMin
Consultants, which specialises in resource advisory activities.

Mindev 97 Conference

definitive feasibility study, and


basic engineering study.
The major scope elements for minerals projects.
The application of feasibility studies as a value
improvement process.
Estimation accuracy including the application of
contingency.

PROJECT CYCLE
A normal project cycle consists of four major functional
activity stages, namely:
I. opportunity development,
2. project development,
3. operations, and
4. asset disposal and final restoration.
Figure I relates each of the above functions through the
progress of a typical minerals development to the major
activities and review points.
Opportunity Development in a minerals industry project
refers either to an exploration stage, which is more typical
of a mining project, or the business opportunity
development appropriate to a manufacturing or processing
project such as a refinery. By illustration, the exploration
for and the discovery of the Scuddles base metals orebody
was the major opportunity development activity behind the
subsequent development of the Golden Grove base metal
project. However, it has been the licensing of Alcan
technology,
the
development
and
subsequent
commercialisation of AM (Australian Magnesium)
Process and the establishment of market opportunities
through the off-take arrangements with Ford which will be
the major opportunity development activities behind the
Australian Magnesium Research Development Project
(AMRDP) - Magnesium Metal Project.
From an activity viewpoint, project development is
normally
subdivided
into
pre-development
and
development stages. The pre-development stage refers to
those collective activities which take a project from
opportunity development (eg
exploration discovery)
through to a decision to proceed with detailed design and
construction. It is in this pre-development stage that,
under conventional circumstances for a greenfields project,
one carries out a feasibility study. Development refers to
the subsequent stage of design, construction and
commissioning to a point where operations have been
commenced and can be maintained on a sustainable basis.
The
At this point, operations have commenced.
operations stage may continue unabated until either the
reserves are no longer available for a viable project to
continue and asset disposal commences or, as is more
often the case, additional stages of project development
occur. Such additional stages of pre-development may
result from supplemental opportunity development (eg

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27

MEWHITE

FUNcnONS

OPPORTUNITY
DEVELOPMfNI'

SCOPING '"

ACTMTIFS

PRW~

EXPLORATION
RFSEARCH&
DEVELOPMfNI'

OPERATlO S

PROJECr DEVELOPMfNI'

1-FEASmll.JTY ....

DEflI\TI1VE

FEASmU.JTY

:~~~~

J-D_I:T_A1_u:D_EN__G....L

....__.....

ASSET

DISPOSAL

-L_C_O_M_M_IS_S_IO_N--lI

PR_OCIJRE
_ _~_IE/(f

- - - I PRODUcnON

.....

SHUTDOWN

FINAL
STAR11JP

INIllAL DEVELOPMENT

VG PROJECTS I TEST MINES

REHAB

DEVEWPMINT

PREDEVELOPMENT

MILFSTONFS

ESTIMATE

ORDER OF
MAGNmJDE

TYPES

FIG I - Progression of resource projects.

evaluate, as the case may be, the potential financial


viability of the project. This iterative or somewhat
evolutionary development of projects is illustrated in
Figure 2. From an estimate viewpoint, terminology such
a scoping (sometimes called order of magnitude),
preliminary feasibility and definitive feasibility study are
applied to the various stages of pre-development. Some
comments about these various classifications are given
below:

further exploration which has yielded further ore or


research activities which have defined improved systems
which lower the unit costs of production or value add to
the product generated); or simply as a result of unit
replacement due to life cycle issues. A good example of
the application of opportunity development which has
extended the operations phase is QNI where on exhaustion
of the Greenvale deposit, plant feed was switched to
imported lateritic nickel ore.

SCOPING (OR ORDER OF MAGNITUDE) STUDY

PROJECT EVALUATION

This term is typically applied when only a very


preliminary examination is needed or in the absence of

Accompanying each move between separate stages of a


project is generally a requirement to evaluate or rePRELIMINARY
EVALUATION

OPPORTUNITY
DEVELOPMENT

DEVELOPMENT
CONCEPTS

EXPLORATION

DETAILED
EVALUATION

ECONOMIC
ASSESSMENT

m:RA11VE

DEFINITION
PROJECT BASIS

m:RA11VE

I~;

FINANCIAL ANALYSIS

~
~

PRELIMINARY
DESIGN

DISCOVERY
CONCEPTUAL
ENGINEERING
APPROVAL
CRITERIA ANALYSlS
RESEARCH &
DEVELOPMENT

COST
ESTIMATION

DETAILED PLANNING
AND COSTINGS

CONSTRUCTION
PLANS

PROJECT DEVELOPMENT
FIG 2 - Project evaluation.

28

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FEASIBILITY TU DIES - SCOPE AND ACCURACY

specifics regarding the particular project. Scoping studies


have many uses including:
developing long-term corporate strategies;
evaluating acquisitions;
assessing the transfer of exploration finds to a predevelopment stage;
deciding whether a particular mineralised resource is
worth exploring further; and
determining exploration and opportunity development
(eg research) goals.

the importance of the issues to be addressed. The degree


of detail required in feasibility studies should be consistent
with the nature of the investment decision to be taken and
the associated risks involved.

LEVEL OF ACCURACY
Table I summarises the major study phases discussed
above including where such tudies are applied and the
level of accuracy generally sought or which can be
anticipated (based upon the information available).

PRELIMINARY FEASIBILITY STUDY


The major objective of a preliminary study is to undertake
a comprehensive, but not yet optimised, project
assessment, ie a viable and workable project plan. For
such studies, with orebody-based projects, sufficient
definition of the deposit's mineral content, distribution,
and spatial definition must exist to prepare a feasible, but
not optimal, mine plan and the associated development
and ore production schedule. That is, there must be
sufficient mineralisation present that it is technically
feasible to mine and that is economically viable to do so
(reserves). Estimates of process facilities would be based
on assumed siting considerations, identified process
flowsheets, material, water and energy balances and
identified pieces of major process equipment. Typically,
flowsheets would be based upon bench scale tests of unit
operations sufficient to assess process recoveries and
product quality.
The preliminary feasibility study represents an estimate
based on conceptual engineering from limited physical
and experimental data. It also includes a discussion of
probable environmental concerns, required regulations,
permits and an identification of further investigations
required ahead of, or during, a definitive feasibility study.

DEFINITIVE FEASIBILITY STUDY


During the execution of a definitive feasibility study for a
project, alternative systems including mining method,
process flowsheet and infrastructure options are evaluated
to define an optimised strategy. Cost estimates are
prepared and often incremental economics are determined
to decide upon the preferred system. These systems would
then be employed for final optimisation.
A definitive study and associated cost estimate should
be based on a firm definition of the optimised project
design basis. Such basis would include the necessary
testing of the mining environment and mineral recovery
system or appropriate material supply and treatment
technology. The design basis prepared would form the
basis for preliminary design specifications and thereafter
subsequent cost estimation.

BASIC E GINEERING
The employment of basic engineering within a feasibility
study context, as a pre-development activity, has become
more popular in recent years, particularly with large
projects, where owners require greater levels of certainty
ahead of a decision to proceed. Such elections illustrate

Mindev 97 Conference

TABLE 1
Feasibility sllldy level categories.

Estimate Type

Level of Accuracy

When applied

30%

Developing long-term
corporate strategies. Deciding
on level of on-going
exploration. Assessing project
advancement from exploration
to pre-development.

20%-25%

Assessing large predevelopment expenditure eg


test mine. Ranking project
opportunities

Definitive

15%

Corporate decision to proceed.


Obtain funding

Basic Engineering

10%

As above

Scoping

Preliminary

LOOPING WITHIN AND BETWEEN STAGES


A consistent forward stepwise movement of a project
through pre-development is often planned. However, it
should be noted that, depending on the quality of the
project, the personnel involved in project evaluation,
external factors (eg environmental constraints), the state of
knowledge at the time (ie resource or technology), market
conditions
and/or
the
development
company's
priorities/hurdle rates/etc, a project may loop within a
selected stage or stages until conditions are appropriate to
allow full progression to the development stage (refer
Figure 2). Indeed, many of today's more successful
projects spent a great deal of time in the pre-development
phase before a decision was made to proceed. Such
projects include:
Porgera gold deposit (PNG),
McArthur River base metal deposit (Qld),
Kidston gold deposit (Qld),
Golden Grove (Scuddles) base metal deposit (WA),
Macraes gold deposit (NZ), and
Murrin Murrin.
Other potentially exciting projects of the future, such as
the Yakabindi nickel, Cadia copper/gold and Wimmera
mineral sands projects, have also undergone numerous
rounds of project evaluation and systems development to
establish a concept which allows an optimum viable
operation to be developed.

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ME WHITE

SCOPE ELEMENTS FOR MINERALS PROJECTS


Definition of the requirements ('the Scope') of any form
of feasibility study can be ascribed to those elements
which dictate a predictable outcome. Broadly speaking,
such elements can be classified into the following three
categories:
Catel!:orv

Matters Inclusive

Business Definition

Owner Parameters
Project Goals
Market Considerations

Project Description

Tangible and intangible features which


constitute the proiect

Execution Plan

Implementation Plan
Operating Plan
Rehabilitation/Disposal Plan
Capital/Operating Costs
Risk Evaluation

These three elements combine


formula:

In

TABLE 2

Tailings disposal - example of the definition levels required for


increasing levels offeasibility study

Systems Definition

Process and technique used for the


environmentally safe and efficient method of
impoundinj( waste liquids and solids.

At Scoping Study

Method and equipment selection is based on


personal experience and those used in similar
projects. Preliminary calculation of volumes
and content.

At Preliminary Study

Preliminary workable methods evaluated are


based on preliminary engineering, with solid
and liquid volumes calculated. Preliminary
testwork on waste product content and
composition completed.

At Definitive Study

Optimised method selected and fixed as part of


the design basis. Detailed definition of
composition and characteristics of waste
products is completed as well as the
environmental impact of such streams.
Environmental permits are applied for on the
basis of the preferred design alternative. In
some cases the granting of such permits would
be required before projects go ahead.

accordance with the

Business Definition + Project Description + Execution


Plan = Predictable Outcome
Appendix 1 outlines the typical scope elements for a
mineral resource based project.
The definition of the various scope elements of a project
to ensure a predictable outcome is a necessary precursor to
the execution of any feasibility study. This is regardless of
the accuracy provisions set for that study. The scope of
any given feasibility study should not substantially vary
between the differing levels of study, ie order of
magnitude vs definitive, but what will vary is the basis
upon which determinations are made and therein the level
of accuracy or level of risk to assuring a predictable
outcome.
For example, a proposed implementation plan with an
order of magnitude (scoping) study can be based upon
assumptions derived on the basis of similar projects
previously executed,
whereas, for a definitive
determination, such considerations and activities as a
procurement plan, contracting strategy, work breakdown
structure will require definition to complete the required
implementation plan. Similarly, at an order of magnitude
level, process flowsheets may be based upon bench scale
testing on single samples whereas, at the definitive level,
full-scale pilot tests and associated variability analysis
may be required. Table 2 gives further examples of the
varying level of detail required with increasing levels of
project definition.

design, construction and operations offer considerably less


opportunity for any given level of expenditure to realise
significant value improvement in the project outcome.
Figure 3 iIlustrates the varying capacity to influence the
project outcome at differing stages in the development
cycle.

PROJECT PHASES

FIG

FEASIBILITY - VALUE IMPROVEMENT


PROCESS
The iterative approach to project development underscores
the significance of feasibility efforts as a value
improvement process. The capacity of this process to add
value is realised via optimisation of scope criteria from
'reasonable assumption' through to 'optimised design or
plan' . The latter stages of the project cycle, ie detailed

30

--+

3 - Potential influences of feasibility studies as a value improvement


process.

In today's highly competItIve business world, few


projects successfully achieve their optimum outcome on
initial assessment. Early establishment of measurement
criteria (eg cost per unit of product output, implementation
time, competitive position on the cost curve) enables
progressive assessment and consideration of contributing

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FEASIBILITY STUDIES S OPE AND ACCURACY

elements to an optimised outcome.


Whilst the
establishment of such reference criteria is logical, the
author's ob ervations reveal that only in few situations are
such actions consistently applied. In mo t cases, project
personnel tend to concentrate on technical factors with
little attention to the requirements of changing market
forces. The use of appropriate benchmarking i a key
ingredient in the establishment of the most succe sful
project concepts.

"'''

'-'
Z

40%

iX

'"'"z
G
Z

30%

'"
-l

g
...

ESTIMATE ACCURACY

ID"

loo

Table I outlines the general categories of feasibility


studies and their accuracy level. Key points to note in
interpretation of the meaning and relevance of such
accuracy levels are:

Whilst industry interpretation of estimate accuracy


varies, the most usual defines accuracy as the band
within which a project has an equal probability of
overrun and underrun. In other words, a plus or minus
ten per cent estimate should have an equal probability
of outcome within plus or minus ten per cent of the
estimated cost, given any assumptions which are made
relevant to the estimate.
Estimate accuracy is often stated on the basis of certain
assumptions or exclusions. Care should be taken to
ascertain and factor in the impact of such assumptions.
Typical examples of such assumptions including date
of commencement, cost on some historical date, no
escalation, fixed exchange rates and set labour rates.
Higher levels of estimate accuracy are a reflection of
the extent of analysis undertaken to quantify risk
elements and therein establish cost to the prescribed
level of accuracy (ie 10 per cent vs
30 per cent).
A higher level of accuracy does not itself indicate that
a particular concept has been fully optimised and that
the potential opportunities available via value
improvement have been realised.
Figure 4 illustrates typical trends in the level of
engineering required to achieve higher standards of
estimate accuracy. The absolute levels of engineering
required to achieve the different standards of estimate
accuracy vary depending on a number of factors. These
factors, for the most part, relate to the similarity of the
current project design basis to others completed under
identical circumstances. A good illustration of the above
occurred during the I970s where a substantial number of
essentially identical coal washeries were built in the
Bowen Basin. Provided the design concept was kept the
same and the same contractor was employed, a highly
accurate estimate of project cost could be made with very
limited engineering. This situation was repeated in the
1980s with free milling gold ore treatment plants in
Western Australia.
The significant cost of undertaking higher standard
studies (eg preliminary vs definitive) relative to the project
cost, (as indirectly shown in Figure 4), supports a policy
for deferring detailed engineering for feasibility studies
until after project concepts have been fully optimised.
As with estimate accuracy, the application and treatment
of contingency varies within the industry.
Close

MJndev 97 Conference

'0"

SCOPING
~TUDY

PRELlAUNARY
fEASlBlUTY

DEnNlnvE
FEAS18LUTY

B'ASIC
ENCINUJtlIC

DEVELOPMENT PHASE

D<TAIL

DSl""

Fig 4 . Typical level of engineering requirements vs project development


stage.

examination of any capital cost estimate will identify sums


of money which may be defined as a contingency. From
an owner's viewpoint, it is the author's view that
contingency is best described as that sum of money which
is added (rarely deducted) to a base estimate to give an
equal probability of a given estimate being within the
prescribed accuracy guidelines for the given scope of work
and assumptions.
There is no simple formula for
contingency estimation although most procedures are
based upon a cost weighted analysis, given the risk of
deficiencies within or changes to the technical or
commercial basis for the estimate.
Figure 5 conceptually illustrates the level of accuracy
compared against the actual cost for a given project at
different stages in the pre-development program. Whilst
reductions in contingency should occur through the project
cycle (as also indicated), the absolute levels applied should
depend upon the quality of information available, how
firm is the design and project basis and the role or likely
role of value enhancement to the ultimate project cycle.

SUMMARY
Feasibility studies are an essential pre-requlslte for the
development of any given venture. Such studies form a
structure through which a project can progress until a final
decision to proceed to commercial operation is
undertaken. Although there is a common methodology in
the evaluation and optimisation of projects, the path
followed for any given project will vary depending upon
the nature of that project and the required business
outcome.
Invariably that path involves iterative
assessment until the required outcome is achieved.
At each progressive stage in a project's assessment, the
scope of any given feasibility evaluation should not vary,
only the degree of effort expended to achieve the required
level of accuracy should change. This in turn will be
dependent upon the significance of the decision to be

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M EWHITE

APPENDIX 1

TYPICAL SCOPE ELEMENTS A D CONTENT


FOR A RESOURCE-BASED FEASffiLITY STUDY
BUSINESS DEFINITION
Project General

ESTIMATED ACCURACY
RANGE

COST

SCOPING

'RILlMINARY

STUDY

I'LUIIILlTY

DEnNrTIV&

IASIC

FlASI.ILITY ENCINIU,INC

DETAIL

DUICN

COMPu:n:D

PROJECT STAGE

PROJECT
COST

t--------===========----j

Market Opportunity

LEVEL or CONllNCtNCV

COST

SCO'L"'fC ....ILlMJ1'CARY OI:"NITIYI.


IASIC
STUDY
FEASIIIUTY RASlllUTY &HCINIUlN'C

DETAIL
DUIGN

C(IPlETED

PROJECT STAGE

Flo 5 - Estimate accuracy vs project development stage (ideal case).

made. The scope for a feasibility study should cover


business definition, project description and execution plan
regardless of the level of accuracy of estimate required.
Scopes are defined to enable a predictable outcome to be
assured.
The iterative approach to project development
underscores the significance of feasibility efforts as a
value improvement process. The capacity of this process
to add value is realised via optimisation of scope criteria
from 'reasonable assumption' through to 'optimised
design or plan'. From solely a cost viewpoint, such
optimisation is invariably best undertaken at lower levels
of estimate accuracy ahead of a definitive investigation.
The consistent application of benchmark tests eg cost per
unit of product output throughout the project development
phases as a tool to assist in the value improvement process
will add substantially to the probability of a timely and
successful outcome.

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Details of project sponsor, including historical


performance, current financial strength, management
capability and the type and amount of equity
participation.
General project details such as location, nature,
regulatory environment.
Verification of any elements of a project's technical
evaluation, costs or market assessment that are
developed by the sponsoring organisation.
Permit and lease situation together with the legal
requirements for any permit approval and licences.
Major impact issues including country risk, political
stability, potential and adverse changes in the
regulatory, tax or ownership status of the project once
in operation.

Quantities to be mined matched to the reserves,


product specification and sale prices.
Supply and demand relationship, both historical and
projected.
Market share, diversity and number of customers,
position in the customers supply chain (baseload or
marginal), competitor reaction to the new project,
linkage of the project to particular customers and
customer reliability.
Marketing arrangements such as type of contracts,
period, pricing formulas, quantity options.
Substitution and susceptibility to technological or other
market changes.
Government regulations affecting markets, export or
import restrictions and tariffs and price levels.
Specific characteristics of the project that would serve
as advantages or disadvantages from a marketing
standpoint (such as proximity to customers, ie smelters
or refineries or impurities).

Project Economics

A project cashflow covering, by category and at least


annually, capital expenditures, operating expenditure,
revenue, sustaining capital, deferred capital, taxation,
currency consideration, foreign exchange exposure,
forward selling, residual value.
Sensitivity analysis on the project cashflow. General
factors to consider include changes in ore grade,
impact of recovery, product price, capital cost,
operating cost and taxation changes to the project
cashflow. Also the impact of delays in schedule and
the failure to achieve design capacity in the prescribed
time should be examined.

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FEASIBILITY STUDIES - SCOPE AND ACCURACY

PROJECT DESCRIPTION

Geology and Ore Reserves

Adequate description of geological reconnaissance


program, including regional, stratigraphic and
structural geological assessment, mapping programs,
definition of ore types and variability of these ore types
within the deposit.
Sampling and testing program including drilling
program, with type and spacing of drill holes, core
recovery and logging procedures, sampling and
assaying methodology, mineralogical study and
definition of rock types. Bulk sampling programs as
required with comparison to assays obtained from core
samples and as to the reliability of samples
representing the anticipated material to be mined.
Precise description of the ore resource/reserve
calculation methodology and classification into
requisite categories of the lORC Code.
Geotechnical data and evaluation program covering
such factors as rock strength, ore and waste in situ and
bulk densities, moisture content, drilling and blasting
characteristics, equipment fill factors, ground stability
and safety factors.
Hydrology for both the surface and subsurface
including such factors as definition of hydrologic
regime (identification of aquifers and impervious
layers),
pressures
and
flowrates,
pumping
requirements, groundwater behaviour, need for surface
diversion systems.

Development of process flowsheet and design criteria


including assessment of alternative flowsheet concepts
necessary to optimise the design.
Preparation of the requisite mechanical, piping,
electrical, civil and structural engineering by way of
drawings, equipment lists and material take-offs to the
required level of accuracy. Where necessary, execute
survey, geotechnical testing to
site studies, eg
complete engineering to the required level of accuracy.
Determination of operating philosophy, eg use of
contract services, on-site vs off-site support.
Preparation of waste disposal and waste management
plan together with any requisite engineering.
Assessment of requirements for manning, utilities,
reagents, consumables, etc.
Infrastrncture, Transportation and Ancillary Facilities

Mine Planning and Operations

Evaluation and determination of the mining method, eg


open cut vs underground, open stope vs block cave,
etc.
Completion of the necessary testwork to establish
design criteria including such issues as mine
geotechnical testing for pit slope angles or drill and
blast properties.
Assessment and justification of the cut-off grade and
production capacity.
Preparation and development of the mine design and
production schedules including associated studies
necessary to optimise mine design to the requisite level
of accuracy.
Determination of operating philosophy, eg contract vs
owner operate, provisions for maintenance, equipment
replacement schedules.
Requirements for equipment, utilities, manning,
consumables, etc.
Development of waste management, environmental
controls and rehabilitation plans.

Execution of the requisite testwork at bench and pilot


scale to define the process flowsheet and ore variability
to the extent necessary for the required study. This
should establish metallurgical recovery factors.

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EXECUTION PLAN

Process Plant

Determination of the fuel and power requirement for


each component of the operations along with
provisions for obtaining or generating the quantities
required. Optimise to the extent necessary for the level
of study being undertaken.
Determination of the water requirements for each
component of the operations along with provisions for
obtaining or generating the quantities required.
Optimise as noted above.
Determination of the other utility and serv:ices
requirements, eg gas, compressed air, communications,
sewerage and sewage treatment for each component of
the operations along with provisions for obtaining or
generating the quantities required. Optimise as noted
above.
Assessment of support buildings requirements together
with associated facilities given the location and nature
of the project and the established operating philosophy.
Buildings to potentially cover warehousing,
workshops,
offices,
laboratories/test
facilities,
accommodation.
Execution of the requisite
engineering in order to define and quantify these
facilities.
Assessment of transportation requirements, including
access to the site and the material and personnel
transport requirements into and out of the site,
adequacy of internal road/rail/air or other required
transport facilities as well as port and dock facilities
for handling and securing material flow during
construction and operations.
Similiarly for the
requirements of product distribution.
Assessment of labour availability versus project skill
requirements.
Evaluation of housing needs and associated employee
transport requirements.

Implementation and Operating Plan

Determination of the requirements for completion of


construction,
the
engineering,
procurement,
commissioning and maintenance of operations

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33

MEWHITE

including a project schedule and project plan


recognising how work is to be completed, the use of
contract services, etc.
Assessment of site support needs such as site access,
camp facilities, accommodation, communications,
upgrading of existing facilities.
Definition of and planning for the manpower
requirements,
skills
levels,
labour
relations
requirements. Subject to the level ~f the study,.
sufficient planning should be completed m the area of
labour relations and labour training to ensure there are
no delays to the project.
Identification of and compliance with statutory
requirements for project construction and operation
including, as required, the securing of any and all
permits.
Identification of and planning for any other impact
upon the project plan and schedule including natural or
other features, eg weather, government controls,
corporate approvals processes.
Subject to the level of the study, the execution of risk
analysis including scenario planning for the relevant
risk activities identified.
Establishment of asset disposal and rehabilitation
philosophy and plan to the degree required to establish
the impact of and cost to the project and in accordance
with corporate objectives.

34

Capital and Operating Cost Estimation

Preparation of capital and operating cost estim~~es.


The degree of definition and the level of effort
expended to determine the cost estimates will be
subject to the accuracy of estimate required which in
turn will define the level of detail needed to prepare
such estimates.
For both capital and operating estimates, costs should
be fully inclusive covering direct and indirect,
contractor and owner, initial/ deferred and sustaining,
pre-production and production.
To the degree required estimates should be classified
into fixed and variable components, prepared as cash
flows and sub-divided for project, accounting, financial
or other purposes.
Estimate basis should be clearly defined and
commercial factors (eg escalation, exchange rates)
stated.
Where assumptions, qualification or exclusions are
made these must be clearly stated.
Contingency levels and basis should be stated.
Any spreadsheets should be designed to allow easy
change of key variables to assess project sensitivity to
incorrect assumptions.
The calculation of any residual value should be clearly
explained.

Sydney, 24 - 26 November 1997

Mindev 97 Conference