Optimising Project Value And Robustness

Optimising Project Value and Robustness
G Whittle1, W Stange2 and N Hanson3
ABSTRACT
An important aspect of the project evaluation process is the achievement of a clear and quantitative understanding of the primary drivers influencing project value and risk. A business scenario-based approach is required to ensure that the project meets value and risk hurdles over the short, medium and longerterm. Adopting an optimising approach can aid significantly in the development of a project concept into a business that is optimal and sustainable in the longer term. Through the application of case studies, based on work performed with various mining organisations during the last five years, this paper will demonstrate how project value and robustness can be optimised. Experience hasdemonstrated that applying this approach results in significant value improvements and risk reduction – primarily by application of a rigorous, fact-based analysis and optimisation process that rapidly increases management team understanding and insight of key driver of value and risk.

INTRODUCTION
Much of the effort expended during project development ultimately contributes towards developing anaccurate estimate of the project value under an assumed set or range of conditions. Mining projects are sufficiently complex that an evaluation of the same basic project can be significantly different depending on the degree to which the project evaluation has been optimised. In addition, an estimate of project value is of limited utility if the robustness of the project around this value estimate hasnot been adequately quantified. Although the scale and inherent complexity of mining projects are such that optimisation and risk assessment are challenging, this paper contends that:

drivers of value and risk are clearly and quantitatively revealed. This understanding facilitates the effectiveness of the overall development process by keeping management focus on the ‘critical few’ key risk andvalue drivers to ensure development achieves maximum improvement in value and reduction in risk for any given level of expenditure and activity. Concentrating on a single plan too early can hide potential value that could be realised and/or reduced understanding of risk. This is best achieved by definition and analysis of the likely business scenarios in which the project is to be developed andoperated in the medium and longer term, eg in the current climate much more focus is required on managing around resource and infrastructure constraints, as well as understanding the impact of potential price trends. Although not addressed in this paper the application of scenario-analysis for strategic development and planning is well established (Ringland, 1998). The benefits associated with theapproach proposed extend past the project development phase. The insight and understanding gained in developing the integrated risk and optimisation model can be captured in a strategic asset management plan which should be transferred to the operations management team. This team should then update the risk and value model and plan to ensure that as business conditions change, as well as theunderstanding of the orebody and its mining and processing improves, the operation can be managed to a more rigorous risk and value profile. This paper is structured as follows:

• A review of the current status of relevant risk and
optimisation work is undertaken.

• Optimisation of even the largest project is now technically
feasible and practical. Due to the significant value premium achieved‘best-practice’ evaluation needs to encompass rigorous optimisation.

• An integrated risk and optimisation architecture which can
be applied to project evaluation is provided.

• A case study, based on the hypothetical Marvin orebody (see
Appendix 1) is conducted. An analysis of the case study demonstrates the benefits and typical outcomes of such an approach.

• Assessment of project...