Estimating energy projects is often very challenging due to the nature of how many energy projects are approved and funded. Regulated utility projects, as well as generation projects with loan guarantees and incentives, require the development of comprehensive estimates during the planning phase in order to obtain approval and funding despite the large number of assumptions and risks that have often not been properly vetted or analyzed.
The process of developing a comprehensive project budget with a reasonable contingency amount is critical for the project to be considered a success upon completion. Given the importance of meeting financial projections, recovery targets, and loan commitments, the ability to accurately report and track progress against the approved budget is critical. If there is limited visibility or accuracy with regards to budgetary performance, regulatory pressure increases, lending terms get more stringent, and, ultimately, investor confidence is eroded.
In this installment of the KPMG Major Projects Advisory Project Leadership Series, we provide insight about some of the common challenges identified when assessing construction projects and the resources available to owners to minimize their risks.