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Fig. 40-3 Representative Critical Path Tasks of the Development Process in Gantt Chart Format.

Fig. 40-3 Representative Critical Path Tasks of the Development Process in Gantt Chart Format.

are prepared as an early indication of project potential.

Another key element of the Scoping Audit is the identification of facility goals and objectives. These are critical factors that must be identified early in the process. They become important screening criteria for review throughout the project development process.

Based on the results of the Scoping Audit, a brief report is developed to indicate the likely areas of focus, establish an overall order of magnitude of the project opportunities, and identify particular areas of expertise and time/effort required. At this point, an assigned management team reviews the results and determines whether to recommend that the facility proceed with a formal study. Feedback from the management team will be synthesized in making the final determination if there is sufficient benefit to be achieved through further pursuit of the project.

Project Development Plan

Following a positive recommendation to proceed, all project planning information, beginning with the Scoping Audit results, should be documented in a Project Development Plan. The plan is initiated during the Scoping Audit and is continually updated throughout the study phase to incorporate new information as it is compiled and as the scope of work and measure concepts evolve accordingly. The plan will identify the areas of the facility to be investigated, project objectives, goals, deliverables, and key global assumptions and constraints. It also establishes the project team, including representation from all necessary disciplines.

Additionally, the plan will identify the scope, objectives, and rationale behind the plan. In large facilities, for example, it is common to target only certain locations or types of systems initially as part of a multiple-project, long-term master plan. This allows for a timely, focused effort and a systematic approach to developing subsequent projects. It is still necessary to scope the entire facility to develop the master plan and make logical selections for each project effort. In smaller facilities, the entire facility is usually addressed from the onset.

The project plan will also identify the schedule and requirements of the host facility. Subject to feedback from facility management and subsequent modifications to the plan and its final acceptance, the study team will proceed with the next phase of the process, which is the Preliminary Feasibility (Phase I) Study. This same iterative process of recommendation, feedback, modification, proposal, and acceptance should be followed for this study phase and each subsequent phase to follow.

Preliminary Feasibility Study

When the Scoping Audit is complete, a more clearly defined group of measures has been established, and the commitment to proceed has been made, the study team conducts an initial site survey to refine the scope of the project and enhance the Project Development Plan, and then focus on the development of the initial integrated project. The study team will develop a full understanding of the existing conditions and begin to refine measures for inclusion in the project.

During the Preliminary Feasibility Study, the team continues to compile detailed information on the energy and other resource usage of equipment targeted for potential improvements. The team should construct a simple model of the facility's primary energy, distribution, and end-use systems, as well as the loads being served. They will gather data for a preliminary analysis of measure potential, locate metering and monitoring points, and identify areas of focus for subsequent phases. Long-term facility master planning objectives are incorporated, including utility supply optimization, capital equipment upgrade, and efficiency improvements. A list of potential measures is identified and screened, yielding a refined list of technically and economically feasible project opportunities. While this study phase represents only the preliminary phase of the process, quality work performed during this phase enables reliable preliminary decision making and will improve the accuracy and efficiency of the subsequent analytical and design phases.

The deliverable for this phase is a report that will include an economic summary of measures and alternatives recommended for further consideration and the key assumptions that must be confirmed. The report will be presented to facility management for their review to serve as a basis for discussion of further steps toward implementation. Key success factors will be identified during the site visits to eliminate wasted effort in subsequent phases and to expedite the entire process. This effort is far more robust than the Scoping Audit, but less than the detailed study to come. It may require several team members to spend a couple of weeks on site in total, and may take one to two months to complete.

Detailed Feasibility Study

At this point, the potentially viable measures have been selected during the Preliminary Feasibility Study and facility management has agreed to pursue those measures that withstand rigorous feasibility and cost-effectiveness screening. Upon receiving authorization to proceed with the target list of measures, the team can commence a comprehensive Detailed Feasibility Study. Much of the required data will have been gathered and analyzed using preliminary screening tools. During the study, which involves thorough site investigation, all remaining data will be identified and obtained. For each energy- and resource-using subsystem, the team will review all relevant facility documentation and establish all operating conditions.

This phase involves accurate, careful characterization of actual thermal and electrical loads. Qualifying the viability of a potential measure starts with a more thorough physical inspection of facilities, equipment, and systems. This involves more than observing equipment and collecting nameplate data. The team should inspect distribution systems to determine their capacity and condition, confirm as-built drawings, and determine if there is space and access for installing the new equipment. The team will select systems and components with the flexibility, efficiency, durability, and performance to meet individual or concurrent loads, and evaluate operating economics against current systems and/or possible competitive alternatives. Technology application concepts are also refined with sufficient design detail for investment grade construction cost estimates. The final result is a package of measures with reliable savings and accurate firm cost estimates incorporated into a life-cycle financial model and ready for implementation. Deliverables include firm energy (and other resource) and operational savings, an optional savings verification plan, conceptual design of each measure, final construction costs, and results from a financial model that shows the rate of return or cash flows for the life of the project. The Detailed Feasibility Study is sometimes referred to as an investment-grade audit, as it serves as the basis for overall project investment decisions.

Financial Analysis

As a final step in the development phase, rigorous financial analysis must be performed to evaluate potential capital commitments. There are a variety of capital budget analysis and presentation tools that may be employed. These include techniques such as:

• Simple payback

• Simple rate of return

• Discounted payback period

• Savings investment ratio (SIR)

Prospective investors often expend great effort to properly evaluate capital investments. Often times, they will use a mixture of simple analytics, such as payback or substitute comparisons, and more complex tools, such as IRR and other cash analysis tools as well as price earnings (PE) and other net income-oriented ratio analysis tools. Each method has its strengths and weaknesses. A good investor will use all of these analytical tools, but will rely most heavily on previous investment experience in making a decision.

Life-cycle analyses evaluate the sum total of project incremental costs and benefits over the life of the project. In each year, different situations will occur, such as a significant expenditure for overhaul in a certain year. Also, energy and other resource costs are projected to change over time. Given a stream of expected annual cash flows, present value (PV) analysis is a means of equating an amount received or paid in the future in today's dollar. Virtually all sophisticated economic analyses use the basic concepts of PV to account for the time value of money over the life of a project. The value of a dollar saved in one year must be differentiated from a dollar saved in another based on the time value of money. Thus, all cash flows in every year of a project, whether costs, savings, or net cash flows, must be related to each other in a way that accounts for when they occur.

In performing time-valued project economic analyses, numerous factors must be considered on an annual basis. These factors include capital and interest, energy and other resource operating cost savings, OM&R costs, inflation, salvage value, replacement costs, disposal costs, property tax, insurance, deprecation, and other tax deductions. These factors, along with detail on the various financial analysis techniques, are presented in Chapter 42.

Contracting for Project Implementation

Once a determination to proceed with a project is made, the work must be contracted for. Under a design-build arrangement, such as that detailed in Figure 40-1, the contract would be executed after the detailed study phase and prior to the design stage. With other approaches, there may be a series of contracts issued for various stages of the work, such as with an engineering firm to perform the initial study, an A&E firm to perform the design engineering, and then a construction firm who is the winning bidder on the scope of work that was put out to bid. In all cases, the purpose of a contract is to detail the responsibilities of both the owner and contractor, including their rights and liabilities, throughout the execution of a project. A properly drawn contract, in which the scope of work and expectations of the owner and contractor are clearly defined, will minimize the risk to all parties of trouble during project execution. The same is true between a contractor and its subcontractors.

There are many contracting methods available to an owner, including cost plus, lump sum, unit price, turnkey, and performance-based, among others. Each method has its own benefits and liabilities that must be considered prior to selecting one for a project. Once selected, it is common to utilize prepared standard contracts for professional services that have been developed by the American Institute of Architects (AIA), which has been time-tested throughout the architecture, engineering, and construction industries. With certain performance-based contracting methods or energy services agreements involving third-party ownership, non-standard customized contracts may be used. While careful contract execution greatly reduces risks, it is still necessary to anticipate and deal with contract issues that may arise during the execution period. Chapter 43 provides detail on contract method options and key issues for consideration.

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