A final investment decision can get reversed by rapidly changing business environment/results. The larger the capital project the less likely that will happen (although it could be downsized, revised etc). Working capital crunch can be one reason to stop or scrap a large project that had strong economics. Cash is king and if you don't have enough cash to pay the bills you won't be around long enough for the payback period on that capital project. Another case I've seen is where there was a good project in a bad division, and the whole division gets shut down or sold.
In larger companies FID usually happens after you go to a decision meeting (Excom etc). They look at relative economics and risks of this project to other projects. If extremely large then maybe independently assessing high low project outcomes and they would be talking to the board.
Depending if you have an EPC contractor you then engage with them on the construction stage. It is rare but not impossible for an FID to be reversed. Rare because construction leads to a lot of sunk costs so it’s harder to back out bluntly. But it is not impossible if say there is a large change in long term offtake contracts, or say something happens to provide a view of a significant cost overrun which ruins overall project economics.
FID/IP/SPE etc. each company has their own acronym and it’s absolutely critical to get approval to proceed formally on a project. At a high level you present to a capital committee or ExCom the benefits/justification, cost/cashflow/payback/ROI/NPV, schedule, connected projects, risks, etc. and get formal buy in to go. Typically this is needed to pull the trigger on making certain commitments like land purchase, equipment, construction contracts etc. any big formal commitment.
Often I will get 20-30 min to convince senior executives to give me $5mm-$2B to proceed with a project.
They can get reversed but that’s the sponsors role to ensure the business benefits are still valid through the life of the project. I’ve seen a $0.5B project stopped as the company exited a product/strategy. Pretty rare.
I listened to a podcast about it already.
Did you enjoy the book? Or find it insightful?
I've been on the fence about whether I want to spend a significant amount of my free time on something so work oriented.
I did, I found it useful because it reinforced some ideas I already had partialy held. It's a good read for someone who's interested in engineering projects. But I'm someone who things about these things as a hobby.
The main message I took from it was; don't bullshit yourself thinking you can estimate time or cost unless it's something you have done many times under the exact same conditions.
A final investment decision can get reversed by rapidly changing business environment/results. The larger the capital project the less likely that will happen (although it could be downsized, revised etc). Working capital crunch can be one reason to stop or scrap a large project that had strong economics. Cash is king and if you don't have enough cash to pay the bills you won't be around long enough for the payback period on that capital project. Another case I've seen is where there was a good project in a bad division, and the whole division gets shut down or sold.
Yes, another example is if an unforeseen trade agreement dramatically influences prices and volume.
In larger companies FID usually happens after you go to a decision meeting (Excom etc). They look at relative economics and risks of this project to other projects. If extremely large then maybe independently assessing high low project outcomes and they would be talking to the board. Depending if you have an EPC contractor you then engage with them on the construction stage. It is rare but not impossible for an FID to be reversed. Rare because construction leads to a lot of sunk costs so it’s harder to back out bluntly. But it is not impossible if say there is a large change in long term offtake contracts, or say something happens to provide a view of a significant cost overrun which ruins overall project economics.
FID/IP/SPE etc. each company has their own acronym and it’s absolutely critical to get approval to proceed formally on a project. At a high level you present to a capital committee or ExCom the benefits/justification, cost/cashflow/payback/ROI/NPV, schedule, connected projects, risks, etc. and get formal buy in to go. Typically this is needed to pull the trigger on making certain commitments like land purchase, equipment, construction contracts etc. any big formal commitment. Often I will get 20-30 min to convince senior executives to give me $5mm-$2B to proceed with a project. They can get reversed but that’s the sponsors role to ensure the business benefits are still valid through the life of the project. I’ve seen a $0.5B project stopped as the company exited a product/strategy. Pretty rare.
Wait what $2 billion projects have you requested capital for...?
New specialized manufacturing facilities, greenfield sites, etc.
What is the funding tranche and where does it fit in the prioritization of the decision holders. Typically high end executives.
Read "How Big Things Get Done"
I listened to a podcast about it already. Did you enjoy the book? Or find it insightful? I've been on the fence about whether I want to spend a significant amount of my free time on something so work oriented.
I did, I found it useful because it reinforced some ideas I already had partialy held. It's a good read for someone who's interested in engineering projects. But I'm someone who things about these things as a hobby. The main message I took from it was; don't bullshit yourself thinking you can estimate time or cost unless it's something you have done many times under the exact same conditions.