03 July 2015Course Overview1 Energy Project Evaluation RES Course ESP606 Goal: To build up knowledge to so that participants will be able to assess if a given project in a real life industry will be profitable, i.e. economically sustainable, or not

03 July 2015Course Overview2 Energy Project Evaluation Course Overview 1. Profitability Theory and Measures 2. Investment Analysis 3. Operations Planning 4. Business Plans 5. Balance Sheet and Financial Ratios 6. Cash Flow Analysis and Profitability 7. Sensitivity Analysis 8. Real Life Case Assignment

03 July 2015Course Overview3 Course Motto: Plan before act!

03 July 2015Course Overview4 1. Profitability Theory and Measures, objectives This optional module is a classical short- course in standard Economic Analysis. After this part the participants should understand concepts like Net Present Value and Internal Rate of Return and be able to apply them to measure profitability of given cash flow series. This module can be skipped by those who have an economics background, like bankers and investors

03 July 2015Course Overview5 1. Profitability Theory and Measures, content Cost Concepts (variable, fixed, sunk, opportunity,...) The Concept of Interest and Value of Time Profitability Measures: PBP, NPV, IRR, B/C Ratio Comparison of investment alternatives

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03 July 2015Course Overview7 Try to see the big picture!

03 July 2015Course Overview8 2. Investment analysis, objectives After this module the participants are able to estimate the cost of initial investments, including contingencies and working capital requirement, and set up project financing with equity and loans. Also, they will learn how to calculate repayments and interests of loans. Depreciation will be addressed and annuity of capital costs will be calculated.

03 July 2015Course Overview9 2. Investment analysis, content Estimating Investment Costs Working Capital Requirement Project Financing, Equity and Loans Sources of Financing (where and how to attract funding) Calculating loans Depreciation

03 July 2015Course Overview10 Every small link is important!

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03 July 2015Course Overview13 Are all expenses necessary?

03 July 2015Course Overview14 3. Operations Planning, objectives Here the participants are trained to plan operations over a planning horizon of 5-10 years, i.e. estimate sales and prices of products, and do a detailed breakdown of all operating expenses. A case study will be used here as an example.

03 July 2015Course Overview15 3. Operations Planning, content Revenue Estimates, products and prices Variable Operating Costs Fixed Operating Costs Specific for the Case Study

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03 July 2015Course Overview17 Using models is like using glasses to see things better!

03 July 2015Course Overview18 4. Business plan, objectives To train participants in setting up a simple business plan including a planned operations statement based on the operations planning, and including calculations of taxes and duties. In this module, the participants will do a draft of business plan for the case study

03 July 2015Course Overview19 4. Business plan, content Operating Statement Framework Income Tax Calculation Dividend Payments Writing a Business Plan Report

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03 July 2015Course Overview21 We have built a great model!

03 July 2015Course Overview22 5. Balance sheet, objectives This module is not absolutely necessary for making profitability assessments, however it gives the participants valuable insight into how operating statements, cash flows and banance sheets are linked together. Furthermore, it is the basis for calculating financial ratios, like liquid current ratio etc

03 July 2015Course Overview23 5. Balance sheet, content Assets, Current and Fixed Current Liabilities (Short Term Debts) Long Term Debt Capital, Equity & Profit & Loss Balance Financial Ratios (Profit / Capital Ratios, Net and Liquid Current Ratios, Capital / Equity Ratio, Capital / Debt and Capital

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03 July 2015Course Overview25 Sure your model is debugged?

03 July 2015Course Overview26 6. Cash flow Analysis, objectives To learn how to build up cash flow plans on the basis of operating statements and how to calculate profitability. This module together with modules 2-4, provides the basis for profitability assessment. Profitability of the case study will be calculated.

03 July 2015Course Overview27 6. Cash flow Analysis, content Difference between Cash Flow and Operating Statement Cash Flow from Operations Source and Allocation of Funds (optional) Critical Cash Flow Ratios Profitability Measures (NPV, IRR) Graphical Representation

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03 July 2015Course Overview32 Computer models are powerful!

03 July 2015Course Overview33 7. Sensitivity analysis, objectives To learn how to analyse uncertainty factors and their impact on project outcome. After this module the participants will be able to do risk assessment in a simple way with sensitivity calculations and scenario analysis, and in a more advanced way with Monte Carlo Simulations

03 July 2015Course Overview34 7. Sensitivity analysis, content Impact Analysis One uncertain factor changed at the time Scenario Analysis Many uncertain factors changed at the time Monte Carlo Simulation Random number generators Probability distributions Simulation tools or Crystal Ball)

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03 July 2015Course Overview38 Pessimistic scenarios are more common than optimistic!

03 July 2015Course Overview39 8. Real life exercise assignment, objectives The modular Excel model that was developed by the participants in parts 2-6 will now be used to evaluate the profitability of a real life project preferably selected by the participants themselves. This is considered very important in order to ensure that what was learned will stay

03 July 2015Course Overview40 8. Real life exercise assignment, content Data Collection, Assumptions and Estimations Adapting the Profitability Model to the Assignment Case Analysis of Results Other views and considerations than economical Final Report

03 July 2015Course Overview41 Remember, there is more to life than numbers!

03 July 2015Course Overview42 Course Form Hands-on work in Excel gradually building up a case study business plan and a project evaluation model The course will end with a report describing a real life case assignment Typical time span: 10 days

03 July 2015Course Overview43 Form of Assignment work Assignment project work either individually or in small groups of 3-4 participants. The groups work independently although the teachers will assist the groups as needed

03 July 2015Course Overview44 Analysis of Results Graphical presentation of results Sensitivity Analysis Scenario Analysis Simulations Group discussion of results and sensitivity analysis

03 July 2015Course Overview45 Final Report Writing final report: Background of the proposed project Main assumptions and data Main results and findings Sensitivity analysis and scenarios Discussion and conclusion Appendices: Tables etc Also group presentations

03 July 2015Course Overview46 Have we achieved anything?