Project Management

Benchmarking, Investment Analysis and Front-End Planning

My blog is part of my passion for professional development—of myself and others. My areas of project management experience and expertise are benchmarking, investment analysis and front-end planning, and my blog will covers these subject in a series of posts.

About this Blog


Recent Posts

Can you benchmark assurance?

How you can benefit from SCORE investment analysis

SCORE Investment Analysis : Revenue and Endurance

The elements of SCORE that underpin investment analysis

The Cash Flow Model and Investment Metrics

Can you benchmark assurance?

Another area of personal interest is Project Assurance, and how Benchmarking and Measurement can be very helpful. 

Can you benchmark assurance?

Yes you can, based on the experiences of an Assurance Specific Interest Group (SIG) and its guide Measures for Assuring Projects. The guide was first issued in 2016 and has been widely read and referenced. Now is the time to build on that success and refresh the guidance to make it even more useful to assurance practitioner and project professionals.

A review of the Measures guide based on the experience of users, as well as recent developments, has revealed that the document is a very effective tool for projects, but expansion is required to provide clarity and deeper guidance in the matter of programmes.

The refresh is also intended to further cement the alignment between the guidance provide by the SIG in the matter of assurance and audit.

An additional part of the guidance is proposing an alignment with the UK Government’s five dimensions for projects – strategic, economic, commercial, financial, and management. For the criteria we have mapped the following terms:

  • Strategic = Client and scope
  • Economic = Solution
  • Commercial = Supply chain
  • Financial = Finance
  • Management = All the other criteria, from health and safety to governance, stakeholder management and communications.

These criteria are core to the guide’s content – but following a further review, we have identified seven main improvements. We would welcome your thoughts on these and how they align with your own experiences and your organisation’s approach.

A. Health and safety, social responsibility and sustainability as a criteria has been elevated to the first item of the list, with health and safety along with the project’s social and environmental impact recognised as being paramount, particularly in a high-hazard environment
B. Benefit management has been identified as part of Client and scope
C. Stakeholder management and communication has been separated from the criteria Management (and governance)
D. Commercial arrangements has been highlighted as part of the criteria Supply chain
E. Impact evaluation has been highlighted as part of the criteria Solution 
F. The Finance criteria has been refined to focus on accounting, affordability and funding.

And for the record here are the proposed list of criteria from the Measures for Assuring Projects document.

  1. Health and safety, social responsibility and sustainability – managing the impact of project delivery on the social, physical, ecological and economic environment.
  2. Client and scope – clear and controlled baseline requirements, objectives, success criteria, business case, terms of reference, contracts, benefits management and realisation.
  3. Governance, the processes to align the interests and strategic direction of sponsors and stakeholders.
  4. Stakeholder management and communication – stakeholders affected by the project have been identified and are appropriately involved.
  5. Risks and opportunities – management of risk and opportunity through the life cycle of the project.
  6. Planning and scheduling – appropriately detailed execution strategies, plans and schedules.
  7. Organisational capability and culture – people, behaviours, teams, processes, systems and the working environment.
  8. Supply chain – commercial arrangements, procurement processes, engagement with, and capability of, both the internal and external supply chain.
  9. Solution – the deliverables and outcomes that meet the client requirements. This includes product and/or service quality and the impact evaluation of the finished product or service on the social, physical and economic environment.
  10. Finance – accounting, affordability and funding.
  11. Performance – measuring all facets of performance against the baseline requirements, variance analysis and management action.



Posted on: June 22, 2020 03:27 AM | Permalink | Comments (5)

How you can benefit from SCORE investment analysis

This blog is In summary of my previous blogs and an addition regarding a view of the full project  life cycle. 

Imagine you are leading a project and your instinct tells you there is a flaw in the business case; is there something missing in the investment analysis. What do you do?

I have discussed the subject of investment analysis with many project managers. There is a view that the project economics are not normally the responsibility of the project manager, but I would argue that it would be very helpful for project managers to understand the drivers of value that underpin a project.

I’d like to start my explanation by talking about the projected cash flow and the ‘J ‘curve below, which shows a typical cash flow and is the basis of economic evaluation.

J Curve - Cash flow curve

There are two parts to the cash flow: the outflow investment – the expense and then the inflow of revenue – the return.

All economic analysis is based on the cash flow. Where I worked we had two main economic indicators that were calculated for each project and used as part of the business case.

1.    NPV (net present value)- discounted cash flow at a prescribed cost of capital – discount rate.
2.    IRR (rate of return) – effective interest rate of the cash flows

Let’s take look at the assumptions behind the value calculation. These are key to understanding the business case, which is only as good as the assumptions that underly it. These assumptions can neatly be summed up looking out for the SCORE. Remember the SCORE as I explain investment analysis.

J Curve and Score assumptions

There are five key factors to consider – these are labelled on the diagram and make up the SCORE:

S for Sanction of the project
C for Capital cost 
O for Operating start-up 
R for Revenue stream 
E for Endurance of the asset 

The SCORE is a nice an acronym because it implies a reference point and benchmark of the key assumptions which need to be delivered by the project plan.

I have a worked example using some simple assumptions: 

Sanction – 10% cost of capital
Capital cost – £100 – £50 per year over 2 years
Operating start-up – 2 years
Revenue – £20 per year for 10 years = £200 total
Endurance – 10 years

J curve - NPR and RPP

We also have NPV defined as the sum of the discounted cash flow IRR as the interest rate of the net cash flow with the following results. 

NPV = £15 – the current value of the cash flow at the cost of capital
IRR = 13% – the effective interest rate of the cash flow.

What do you think? This is certainly a reasonable investment as long as we are confident in the assumptions.

How to enhance your SCORE

In presenting this subject at several lectures and webinars and having great learning discussions with the audience, it is clear the SCORE model can be enhanced by considering the impact of life cycle and decommissioning considerations for a project.

In looking fully at life cycle, it is important to take operating cost into account – these are part of the R - Revenue assumptions. In addition, there is the residual value or cost at the end of the projected project life. In the diagram below I’ve added R = Residual and D = Decommissioning to the model.

J Curve cash flow overtime


Residual value is often in my experience offset by remediation costs, which combined with the time value of money can make the impact negligible. For example, with a petrol station there is the value of the land, which can be considerable and is offset by the possible remediation costs, particularly if it is an old site. The offsetting of costs and revenue is not a reason to ignore the end of project situation but with a full life cycle and sustainability perspective it makes it important to consider the end game. 

There are of course projects related to decommissioning or retiring an asset where the costs are more immediate, for example, the decommissioning of oil and gas platforms in the North Sea on fields that have been depleted and are coming to the end of their natural life.

Also, don’t forget another up-front cost, working capital – working capital is one of the key assumptions to spot to calculate residual value at the end of the project.  

So, to my earlier challenge – what would you do if you sensed a flaw in the business case for your project?  An understanding of the SCORE can make a big difference.

You can read more on SCORE investment analysis in Tim’s series of blogs on the Major Projects Association (MPA) Knowledge Hub.



Posted on: June 16, 2020 03:32 AM | Permalink | Comments (2)

SCORE Investment Analysis : Revenue and Endurance

Categories: analysis

In this fourth blog of the series on investment analysis I will share stories that illustrate the last two of the elements for SCORE that underpin the Investment Analysis.

Revenue represents the income from the project – the revenue net of costs – sometimes called the margin ; where the costs are mainly logistics and operating expenses.


Income is arguably one of the most significant value drivers (where income is a function of price and volume  and where volume is the design production rate at a given availability).  The value of overestimating revenue is worth noting – 15% underperformance would wipe out the value of our project – and make the NPV zero.

New Technology for the Lawyers – I think that lawyers are the most argumentative people to work with; that’s not a prejudice but an observation about  their profession, which is all about arguing.  

The revenue from the investment in technology was part of the benefit case for an IT project on which I worked.  The case was based on improving the efficiency of the legal team (over 200 in house lawyers around the world) and the benefit was assessed as ‘time saved being released to do other work and the avoided cost of reduced spend of external counsels providing support’.  The deputy legal counsel – a crusty old lawyer  and a Scot with connections to landed gentry —was our sponsor and wanted to embrace the opportunity – including the benefit of giving his legal team new technology including ‘Blackberries’ .  I remember him stressing in a project sponsor meeting -‘ I’m convinced we should give all our lawyers these new ‘gooseberry’ devices’.  Despite his lack of the right jargon, he was very supportive and engaged as a sponsor 

I turned the assumptions on time saved and external counsel hours into a cash flow benefit and equivalent NPV.  I remember presenting to the Global Legal Leadership Team in Los Angeles – where there was a major part of the global legal team. I had a room full of lawyers, eyes open and jaws dropping, when I showed them the cash flow curve.  The Chief Counsel said ‘ this was the first time an NPV has ever been presented to us’.  He strongly endorsed the strategy and associated projects.  The new technology, matter management and workflow has subsequently been introduced and the legal team have fully embraced the new technologies and raised the benefits. Although there are some lawyers in the team who are still arguing about the changes.

Finally –Endurance; a big driver for value in any project and a vehicle for meeting the strategic intent of the organization; though less important for payback and rate of return. My experience is that companies will rarely look at value beyond 10 years unless there is a very secure business or a significant strategic intent being delivered by the investment, such as a long term gas project which can run for up to 15 or even 20 years. The value of endurance is worth noting; an extra three years to make 13 years duration will double the value of the project, however a two year shortfall to eight years endurance will make the NPV zero.

The context for my example is Climate Change. According to BP’s Review and Forecast of World Energy to 2040 – there is a double edged approach that is required. The world needs more energy,as many countries strive to develop but to meet the need for energy there needs to be lower carbon usage’  So we need more gas for a sustainable lower carbon future. BP was the first oil company to embrace the need to change and become green. Lord Browne made a major speech at Stanford in 1997 advocating the change.  BP’s solution was to shift to developing more gas,which is much a more efficient fuel than oil and coal and to move into Alternative Energy as part of their portfolio.  This led to the development of a major strategy for Gas,  part of which involved sourcing gas for Europe.

My final story is about delivering the European gas strategy as part of the Green Agenda.  My role was as part of the team leading business development in the early 90’s.  The strategy was to develop diverse supplies for Europe from the North, South and East.  There was a portfolio of large projects to develop  production and export via long pipelines.  My particular project was the development of gas in Algeria, from the Sahara desert for export north via Italy and Spain to Europe. The project required long term contracts (15-20 years) with European buyers covering volumes and price.  The decision to proceed was based on a mixture of firm contracts and judgement on the market demand for full production volumes and on price based on analysis of market characteristics.  Once again I remember the ‘red face test’ in a meeting at Stockley Park near Heathrow.  I was in the gas business chief exec’s office – a sharp and hard-nosed business man. He was a highly successful retail business marketeer.  When he asked me about the market assumptions on volume and price and their basis,  I explained the premise, based on a portfolio of long term contracts, the growing market for gas and the value against competing fuels  such as coal and oil.  It was clearly a ‘red face‘ test and I showed my confidence in the assumptions and their basis.  I passed and the chief executive gave his full support to the very substantial investments required.

Rolling the clock forward the strategy has been hugely successful, gas is a major part of the company’s portfolio and the Algerian Asset has delivered successfully for over 20 years, during which time reinvestment has continued.  A recent example of this ongoing strategy is the major gas project in Asia which is due to supply gas for many years to Europe from the East –as an alternative to Russian gas.  

An understanding of value is important and helpful to any project manager  knowing the SCORE is crucial.

Posted on: June 03, 2020 05:51 AM | Permalink | Comments (2)

The elements of SCORE that underpin investment analysis

In the third in my series on Investment Analysis, I continues with the subject of Investment Analysis for Project Managers based on a series of three seminars for the UK Chapter PMI during 2018 and 2019.

The story I have to share relates to my experience of leading a Synergy Project at a refinery near Marseille in France.  The goal was to identify projects that would deliver value from the synergy between the Refinery and Chemical plants.  I was leading a team of local experts and working in French which I loved. From a long list of ideas we had developed a series of project options – a joint power plant investment, a refinery propylene feedstock extract for making polypropylene and an integrated feedstock planning process.  The investment decisions had a governance board comprising executives from HQ in London from refining (an American) and petrochemical chemicals (a British), the Paris Marketing Office (French Parisian ) and the two site Operations Directors (German and French Marseille);  a real diversity of cultures that we had done a lot of work with to lobby and work with in preparation of our cases.  I remember the key moment at one of the Governance meeting in the Board room in London.  I had presented the options and the economics – $20m of value on the table.  I was asked directly ‘How confident are you’  I was being asked about the assumptions and business case – ‘the red face test’ – so to respond to the critical question I said  ‘I am very confident’.  I was standing on the quality of the technical and commercial work done by my team, the preparatory work we had done working with the decision makers, and the investment analysis backing it up.   The decision was a definitive ‘go’.  All the projects were successfully implemented and Integration of Refinery and Chemicals significantly enhanced – so much so that the site was sold some years later as an integrated unit.

Capital costs are the main investment spend and one area where the PM and EM has most control and responsibility.  There is a strong connection to good front-end planning. Indeed, benchmarking has proven that incomplete scope development can lead to significant cost and schedule overruns. I personally have extensive experience of using a front end planning tool called the Project Definition Rating Index – PDRI which I will mention later.

The value of an overspend is worth noting – a 17% overspend would wipe out the value of our project – making the NPV = zero and IRR of only 10%.  This zero NPV test is a good test of the impact of changing assumptions

Value of an Overspend

Operating start-up is the second area over which the PM and EM has most influence and involves meeting the scheduled start up – the date when production operation commences – a key planning marker.  Meeting this date is very important as a delay to revenues can cause a big hit on value particularly for a high margin product, whilst an early start can be advantageous.  The rate of reaching full production and the reliability in the early phases will also impact early revenue and value.  The value of overrun is worth noting – a 50% overrun would wipe out the value of our project – and make the NPV = zero.

Oil and Gas pipelines from the East

Oil and Gas

My example for project costs and schedules relates to the importance of good front end planning as a means to avoid overspend and overruns and using an industry tool called Project Definition Rating index (PDRI); created by the CII. Industry research shows that using PDRI can lead to cost savings of up to 25% and schedule reduction of up to 17%.

When I was involved in using the PDRI tool for several major oil and gas pipeline projects from the Oil and Gas fields of Azerbaijan though Georgia to Turkey, I facilitated a series of PDRI workshops. These workshops in the contractor’s offices in London looked at the South Caucasus Gas Pipeline project as it moved through the planning stages up to the Final Investment Decision Point.  It was important to have all key disciples represented in the meeting and this included the PM, Project Services Manager (PSM) , Lead Engineers and representatives of Environmental Team and Operations Team (effectively the client).  As facilitator, my role was to listen and lead. We ran through the key points from end planning elements – plans, cost estimates, engineering definitions – before there was a question around the  Environmental Impact Asseessment (EIA)and Environment and Permitting requirements. A quiet voice piped up  ‘yes, these are complete but they need to go for stakeholder review’. The PSM said ‘good point and all done’.  I interjected and asked - 'tell me more'    ‘we need partner and government approval, tell me more’. This was the moment when a gap became apparent and actions were needed to address the issue of approvals and their impact on the critical path to avoid any delay. It was clear that there were not only gaps in understanding of the project objectives and the environmental regulatory requirements but gaps in two other areas, as well:

1. Communication of project objectives that was incomplete and unclear – the action taken reinforced alignment across the team

2. Fuller consideration of construction, commissioning and completion requirements – to be built into the integrated project execution plan.

The Front End Planning (FEP ) workshops delivered immediate value to the project.  The Project Assurance Engineer said ‘The session was well received by the project team, giving them a view of their current planning status and a definitive plan towards success’.

I’m pleased to say that the pipeline project has been successfully completed and increased volumes of oil and gas are being exported from Azerbaijan to Europe.

In the final blog I will share stories that illustrate the final elements for SCORE that underpin the Investment Analysis.

Posted on: May 22, 2020 09:43 AM | Permalink | Comments (2)

The Cash Flow Model and Investment Metrics

In the second of my series on Investment Analysis, I continues with the subject of Investment Analysis based on a series of three seminars for the UK Chapter PMI during 2018 and 2019.

Imagine the letter 'J' on a cash flow chart.  This is the curve of cash flow and is the basis of economic evaluation.  There are two parts to the cash flow: the outflow investment – the expense and then the inflow of revenue – the return.

All economic analysis is based the cash flow. Where I worked we had two main economic indicators that were calculated for each project and used as part of the business case.

  1. NPV (Net Present Value)- discounted cash flow at a prescribed cost of capital – discount rate.
  2. IRR (Rate of Return) – effective interest rate of the cash flows

Let’s take look at the assumptions behind the value calculation.  These are key to understanding the business case, which is only as good as the assumptions that underly it.

What is your favourite sport or TV competition show – is it football, soccer, baseball, basketball, ice hockey, cricket, rugby or strictly come dancing?  What do you look out for?  The SCORE!  Remember that point as I explain Investment Analysis. For you the important thing is the SCORE.

There are 5 key factors to consider – these represent different points on the 'J'  cash flow curve and make up the SCORE.  For each there are key assumptions to be made 

S for Sanction of the Project - the Financial Investment Decision Point right at the start

C for Capital Cost - the outflow expenditure of the project

O for Operating Start-up - the project start-up - end of expense and start of revenue

R for Revenue Stream - the income over an expected project life

E for Endurance of the Asset - the expected project life.

SCORE is a useful acronym because it implies a reference point and a benchmark of the key assumptions which need to be delivered by the Project Plan.

Now with this as the basis of assumptions that affect the elements of SCORE and therefore the cash flow – any variance in these will affect the value of the project.

In the next two blogs I will share stories that illustrate the elements for SCORE that underpin the Investment Analysis.

Posted on: April 25, 2020 05:22 AM | Permalink | Comments (2)