Project Due Diligence TemplatesDue Diligence for Project Risk Management. Due diligence may have different meanings depending on the circumstances, but there is no substitute for allocating risk. Learn about the importance of due diligence when planning for project risk management. Find more info at the Black & Veatch thought leaderhship library. Merger & Acquisition Due Diligence with GanttUse Template. See how to use the Basic Project with Gantt template to manage a project. 2:10. Gantt Chart View. Due diligence, broadly defined as “the care a reasonable person should take before entering a transaction,” typically is carried out as part of the financial risk assessment of an investment or acquisition.“Due diligence is an interesting term because it can mean different things to different people,” said Randy Becker, Director in the Independent Consulting Engineering practice of Black & Veatch’s management consulting division. When we do due diligence, we mostly do it for investors or lenders.”Lenders who provide financing are interested in the potential downside of the transaction, Becker said. They are most concerned with, Will my money get paid back? Investors taking an equity position, on the other hand, want to know about the upside – How much more money can I get back than I am putting into the project? The basic due diligence has technical and financial components and generally covers the same ground for both types of clients. The client will want someone to take a look at the design of the project and how it’s been operating,” Becker said. They want to look at all the contracts and make sure they have the correct provisions for risk management and risk allocation,” he said. ALLOCATING RISK PROPERLYFinancial risk goes beyond the ability of a borrower to repay a loan. There is also the risk of changing interest rates, fluctuating foreign exchange values and volatile fuel prices, just to name a few. How can these risks be alleviated? Becker says that’s not possible. Has anyone got examples of templates to use for due diligence and evaluation of an ITT Response? Our customer is looking at a hosted CRM solution.Many thanks for any. Cookies on Pinsent Masons website. This website uses cookies to allow us to see how the site is used. The cookies cannot identify you. Spire offers construction due diligence services for projects including performance and budget reviews. You can’t alleviate risk. All you can do is allocate the risk. The general rule in project finance is that you want to allocate risk to the party that is best able to bear it,” he said. For example, he explained that if a utility company is building a power plant, it will take a series of soil borings that it thinks will show a representative picture of the stability of the site. The contractor bidding on the job will use this information to help determine its bid. Since more precise information is not yet available – because the detailed design hasn’t been drawn up and there is a tight schedule for submitting the bids – the contractor takes a risk that soil conditions indeed might turn out to be different than initially indicated. That can have an impact on costs and schedules, Becker said. In this case, the contractor’s expertise or even its financial wherewithal may make it best able to bear this risk. In return, the contractor allocates at least a part of this risk through an insurance policy. Or take the case of a contract that is denominated in U. S. dollars, even though the product might be purchased in Europe. Through that mechanism, in essence, you’re allocating that currency risk to the holder of the supply contract,” Becker said. Yet, just because a risk gets allocated does not mean that the party holding the risk doesn’t have ways to hedge it, he says. The insurance company can spread its risk further through the re- insurance market, while the European company that is exposed to currency risk can allocate that risk on the futures market or via over- the- counter swaps, where a counterparty with an inverse risk profile will gladly take the opposite side. There are a myriad of other questions that investors in a new project or prospective buyers of assets should ask in their investigation. Has the facility been maintained? Is it likely to last for its useful life? What are the price forecasts? What are the market and regulatory forces that will affect the revenue stream and, ultimately, profitability of the enterprise? What are the inputs to the valuation model and how are those treated to look at the up and downsides? What are the terms of the various operating contracts with vendors, unions or suppliers? TO VISIT OR NOT TO VISITAn interesting aspect of conducting due diligence is that it is not always required that someone actually go to the site of a physical asset, such as a power plant or water treatment plant, and take a look. Peter Martin, the UK Technical Solutions Director for Black & Veatch’s global water business, said the company generally conducts due diligence on behalf of clients as part of their regulatory review. The water industry in England and Wales is privately held but is heavily regulated, he explained. That said, Black & Veatch has also done both vendor and acquisition due diligence, and sometimes for a refinancing or a bond issue. Generally speaking, the review is conducted as a desktop study based on regulatory information and other documents.“In the early days, we actually did sample site visits, and we sometimes still do, but they’re not typically done. These water companies are culled over by so many different auditors and regulators, sometimes monthly, so there is comfort in that,” Martin said. Also, just given the size of the asset base of the industry participants, “You would never get a realistic sample in a period of due diligence,” he said. A typical water and wastewater utility will have between 5. In the United States, the need for a site visit could depend on the risk profile of the buyer. Becker said that an investor (such as a hedge fund going into a deal for a wind farm) would know what it wants to pay, what kind of return it is seeking, and what its exit strategy is. So it might not be concerned with a $1 million or $5 million issue when doing its due diligence – rather, it is looking for the potential $5. It all goes back to the definition of due diligence,” Becker said. What you are going to do for a three- year investment is probably different from what you’ll do for a 2. He added, “You might have three different entities looking at the same asset and could be doing different things from a due diligence point of view because each prospective buyer has a different perspective, capability and risk profile.”Ed Anderson, a Principal with Black & Veatch’s management consulting division, says he sees good value to field visits.“You don’t necessarily have to see all of the facilities, but you need to see enough to be satisfied that they all appear to be at the same level of being maintained – that the equipment that is supposed to be working is working properly, and that they’re clean, they’re painted, the bulletin boards have the right material, people are wearing their hard hats and safety equipment,” Anderson said.“There’s a mindset that this is the way the plant is supposed to look,” he noted. You see a few of them and you start getting confident that the rest probably look the same. However, if you look at three and they’re all different, you should begin to wonder what the next one looks like. Often a buyer will accept that it’s a mixed bag and they’ll just take this into consideration.”There are many ways of approaching due diligence, and the areas of emphasis will vary case- by- case. Whatever methods are used, the objective is always to identify and evaluate the risks of the transaction and then allocate those risks in the proper manner. Story by Samuel Glasser, Black & Veatch.
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