Course Overview
Large capital projects require significant and often risky investments in acquiring, operating, and maintaining organizational assets. To protect these investments and mitigate financial and operational risks, a systematic and comprehensive project appraisal process is essential. This includes detailed cash-flow analyses to estimate expected returns under varying conditions of uncertainty, ensuring informed and secure investment decisions.

Key Features
This Project Appraisal: Financial & Economic Factors course equips participants to:

• Conduct detailed appraisals of capital projects to align with organizational financial and strategic goals
• Safeguard investments in capital-intensive assets
• Understand and apply engineering economics principles
• Integrate financial management, cash flow analysis, and risk management for profitable project execution

Learning Objectives
By completing this course, participants will learn to:

• Apply discounted cash flow techniques for project evaluation
• Perform net present value (NPV) and equivalent annual value (EAV) calculations
• Determine a project’s internal rate of return (IRR) to assess organizational risk exposure
• Evaluate and rank project alternatives using tools such as NPV, IRR, Benefit-Cost Ratio (BCR), and EAV/C
• Incorporate risk analysis into cash flow projections during feasibility studies
• Manage project cash flows proactively and anticipate issues for early intervention

Target Audience
This course is designed for:

• Program and Project Managers
• Project Leaders and Project Engineers
• Cost Engineers
• Senior project control and business services professionals responsible for project financing and cash flow management

Training Methodology
Participants will develop advanced skills in financial engineering, cash flow management, and risk analysis through interactive and practical learning methods. The program includes individual exercises, team projects, case studies, group discussions, and video materials that bring concepts to life.

The course is structured to allow immediate application of skills in the workplace. It assumes no prior knowledge, introducing concepts gradually from fundamentals to advanced project appraisal and engineering economics. Pre- and post-course assessments will measure learning effectiveness.

Course Contents

Module 1 – Fundamental Principles of Economic Appraisal
Overview: Introduces the basics of project finance and the time value of money in project feasibility.
Key Topics:

• Time value of money and discount rate principles
  • Compound interest
  • Present and future value of money
  • Compounding and discounting tables
• Project evaluation and appraisal criteria
  • Mixed stream cash flows
  • Expanded mixed stream cash flows
  • Limitations of payback period
• Discounted cash flow projections
• Timing of cash flows and projects with different time horizons
• Equivalent Annual Cost/Worth (EAC/EAW) method

Module 2 – Rate of Return (IRR), Benefit-Cost Ratio (BCR), and Cost of Capital
Overview: Explains the Internal Rate of Return as a measure of financial risk tolerance and methods for calculating project cost of capital.
Key Topics:

• Determining IRR for single projects using present and annual worth
• Incremental analysis for mutually exclusive projects
• Evaluating options with different project lifespans
• Cost, benefit, and non-benefit assessment
• Estimating BCR
• Calculating cost of capital:
  • Debt and equity capital
  • Weighted Average Cost of Capital (WACC)
  • Financial structuring and gearing

Module 3 – Financial Project Risk Analysis and Expected Value
Overview: Covers risk analysis applied to project cash flows and the use of Expected Value (EV) to quantify financial risk. Three-point scenario analyses predict probable project outcomes.
Key Topics:

• Risk management overview
• Risk quantification and prioritization
• Probabilistic methods and Expected Monetary Value (EMV)
• Scenario planning: best case, base case, worst case
• Decision-making under uncertainty and multiple-option analysis

Module 4 – Financial Scenario Planning: Case Study
Overview: Applies advanced scenario planning to project cash flows using risk impact projections and mitigation strategies.
Key Topics:

• Cash flow projections for case study: base, best, and worst-case scenarios
• EMV calculation before mitigation
• Identifying risk triggers and probability
• Identifying risk receptors and financial impact
• Developing probability and impact mitigation strategies
• Adjusting projected risk profile after mitigation
• Using the J-curve to determine optimal economic mitigation points

Module 5 – Financial Modeling and Project Evaluation
Overview: Focuses on detailed cash flow analysis, considering costs, inflation, taxation, depreciation, and interest to assess financial feasibility over a project’s life.
Key Topics:

• Preparing comprehensive cash flow projections
• Incremental costs and benefits, working capital, and operating costs
• Forecasting cash flows under inflation and risk conditions
• Opportunity and sunk costs
• Determining economic project life
• Depreciation methods: straight-line, declining balance
• Interest, insurance, and tax considerations
• Taxation: corporation tax, taxable profit, capital allowances, and incorporating tax in cash flow models