Screening Capital Projects
In screening capital projects, the first step is to determine the 4 or 5 key obstacles to project success. Whether you
are an owner who is thinking about a project, or a developer who is thinking about promoting a project, or a
contractor who is thinking about getting involved in a project - everyone should establish their own screening
capability. The purpose of the screen is to be "selective" in project pursuit. Selectivity increases the efficiency of
applied early funds in that it reduces the waste of funding projects that fail due to attributes that could have been
identified early and thus avoided.
The second step is to define further screens that are important to your particular industry. The process should be
one of identifying the various elements of the project and where they stand from a "probability of success"
standpoint. One primary goal of any screen is to identify any "showstoppers." Showstoppers must stop further
consideration of project pursuit IF they cannot be mitigated to the point of moving them from a showstopper
category to a "manageable" category. Most of the screening is "risk identification" and plays a significant role in the
risk management of the project. This risk management process should be identified early and "maintained" during
the project early stages as well as through implementation and even through the project life-cycle in some cases.
I use a screening process made up of several elements:
Quick screening is mandatory for early analysis of a project. It should not take long (less than 1 hour), but should be
effective in eliminating projects from further consideration that do not come up to certain "manageable" standards.
An example of the quick screen would be the following: regulatory issues, financial viability, political will, deal
structure and partnership management. These can be replaced by your key 5 areas that will determine for you
whether you should consider a project any further. If a project makes it through this screening (example below of
one of the above) then you are ready to proceed to the next screening, which you can call an "initial screen" for
purposes of differentiating it from the "quick" screen. In it you should identify the top 10 critical areas for further
project consideration, such as competitive advantage for example.
Quick Screen (Top 5 Criteria) Top 5 Quick Screen
Score
Category 1
Category 2
Category 3
Screening Criteria
Preferred - 3.0 | Analyze - 2.0 | Mitigate - 1.0
EXAMPLE: Regulatory Issues 2.0
Few or well known Complicated but manageable Complicated and changing, undefined
The results of the Quick Screen Analysis should indicate one of the following actions: Continue with the analysis, or
drop the pursuit (if in an owner or developer role, or make a "no bid" recommendation (if in a contractor role).
Initial Screen (Next Top 10 Criteria)
Initial Screen Analysis
Score High Potential | Medium Potential | Low Potential | Showstopper
Screening Criteria
Score 8 - 10
Score 5 - 7
Score 1 - 4
Score 0 - SHOWSTOPPER (multiply anything by 0 you get 0...STOP!)
EXAMPLE:
Competitive Advantage 8
Well established, definable technical or commercial advantage.
Some definable technical or commercial advantage.
No definable tech or commercial advantage
Competitors have a strong/insurmont advantage.
The score should indicate overall where the project "stands" in the analysis. If it ends up averaging a High or
Medium Potential then one would go to the next step... the Initial Analysis Summary (Assessment). This is where you
can "weight" specific elements of the analysis to craft a finer resulting basis for continuing or dropping. This is where
your senior management can have input into what criteria they deem to be more important and can influence the
outcome of the analysis to favor their desired attributes in projects they wish to pursue.
Initial Assessment CRITERIA
Weight Score Weight
Max % of
ASSESSED Score
Score Max Notes:
Competitive Advantage 9
8
72
90
80
We are positioned to be sole source for the project.
Another area of screening criteria can come from the "business" area such as legal & regulatory issues,
environmental impact, financial feasibility and so on. This should follow the initial screening IF the score is such that
such activity is worth pursuing. Let's take those three plus one, for example, and further define areas that would
categorize them.
Business Screen Business Screen Analysis
Score High Potential
Medium Potential
Low Potential
Showstopper
Screening Criteria
Score 8 - 10
Score 5 - 7
Score 1 - 4
Score 0
EXAMPLE: Legal & Regulatory Issues 6
Few and easily contained items.
Some complications but definable and manageable.
Significant complicated and changing situation.
High risk. Overwhelming complications and changing situation.
Unacceptable risk. - SHOWSTOPPER
EXAMPLE: Environmental Impact 3
Permits already approved. Applications being processed.
No significant problems anticipated.
Environmental studies not completed.
Possible restraints.
Major environmental controversy and resistance. - SHOWSTOPPER
EXAMPLE: Financial Feasibility 3
Financed or attractive financial conditions.
Feasible financial structure with moderate risk.
Questionable financing structure with high risk
Few sources and little in the financial community.
EXAMPLE: Political Support 6
Strong political support or no political element involved. High visibility project.
Political support required and being sought for project.
Medium visibility. Weak political support
Unpopular project, Low visibility
Strong political resistance, unstable political situation, Invisible
Should the top 10 areas of concern in this area add up to a High or Medium Potential, one would go to the Business
Summary (Assessment). If Low Potential, discussions would be held prior to going to this next section. Of course, if a
Showstopper existed, you would discuss and possibly dispose of the project from further consideration if it could not
be mitigated or changed into another category.
If the Assessment indicates it needs more time or more information before it can truly be evaluated, so be it. You
can move on to the Profit Screen. In this screen, you should attempt to evaluate the profitability or risk/reward for
money invested. Examples of this can be as follows just to name a few (4 out of what should be a list of 10 of your
choosing):
Profit Screen (Next Top 10 Criteria) Initial Screen Analysis
Score High Potential
Medium Potential
Low Potential
Showstopper
Screening Criteria
Score 8 - 10
Score 5 - 7
Score 1 - 4
Score 0
EXAMPLE:
Outline scope only.
Good ability to modify and innovate scope.
Detailed scope. Some ability to modify and innovate scope.
Fixed detailed scope. Limited ability to modify and innovate scope.
Loose, indeterminable scope. No ability to modify or innovate scope.
Again, with a score that places the project in the High to Medium Potential category, one would go to the Profit
Summary (Assessment). If Low Potential or a Showstopper existed, you would discuss with senior management and
decide to proceed with further evaluation or dispose of the project from further consideration. An example of this
follows:
Now you are ready to "add it up." You can take the Screen Summary and note the compelling factors. You would do
this because you have evaluated the project through several screens and it has made it through. Since it was not
disposed of by the rules of this screening, it is a High to Medium Potential project. You validate this by the following
example:
At the bottom of this assessment you should list two areas: compelling positive factors and possible fatal flaws.
I have developed an additional Screen for Project Finance. If the project is to be "project financed" by definition -
and not corporate project financed, then there is another screening to determine if the project is truly capable of
gaining project finance funding and support. The Project Finance Screen consists of two sections: checklist for
successful project financing and a Lender Credit Risk Appraisal (which is what lenders will look for and demand prior
to funding). Both of these must be carried out in detail prior to chasing (pursuing) a project development that is not
able to attract financing. It assists in determining what enhancements may need to be put in place to make a
development project attractive to financing. An example of both screens are below: ( a sample of 6 out of more than
30 on the checklist)
Lender Credit Risk Appraisal - Screen Project Finance Checklist
When the above are assessed fully, then you REALLY understand the project...and, you should. Before making any
investment, either as an owner or developer or contractor - you MUST understand your project and all the
ramifications if you want to manage the risk and perform successfully in meeting expectations. As they say, "Don't
leave home without it!" This should be your attitude - don't do a project without properly "screening" it to fully
understand it.
In screening capital projects, the first step is to determine the 4 or 5 key obstacles to project success. Whether you
are an owner who is thinking about a project, or a developer who is thinking about promoting a project, or a
contractor who is thinking about getting involved in a project - everyone should establish their own screening
capability. The purpose of the screen is to be "selective" in project pursuit. Selectivity increases the efficiency of
applied early funds in that it reduces the waste of funding projects that fail due to attributes that could have been
identified early and thus avoided.
The second step is to define further screens that are important to your particular industry. The process should be
one of identifying the various elements of the project and where they stand from a "probability of success"
standpoint. One primary goal of any screen is to identify any "showstoppers." Showstoppers must stop further
consideration of project pursuit IF they cannot be mitigated to the point of moving them from a showstopper
category to a "manageable" category. Most of the screening is "risk identification" and plays a significant role in the
risk management of the project. This risk management process should be identified early and "maintained" during
the project early stages as well as through implementation and even through the project life-cycle in some cases.
I use a screening process made up of several elements:
Quick screening is mandatory for early analysis of a project. It should not take long (less than 1 hour), but should be
effective in eliminating projects from further consideration that do not come up to certain "manageable" standards.
An example of the quick screen would be the following: regulatory issues, financial viability, political will, deal
structure and partnership management. These can be replaced by your key 5 areas that will determine for you
whether you should consider a project any further. If a project makes it through this screening (example below of
one of the above) then you are ready to proceed to the next screening, which you can call an "initial screen" for
purposes of differentiating it from the "quick" screen. In it you should identify the top 10 critical areas for further
project consideration, such as competitive advantage for example.
Quick Screen (Top 5 Criteria) Top 5 Quick Screen
Score
Category 1
Category 2
Category 3
Screening Criteria
Preferred - 3.0 | Analyze - 2.0 | Mitigate - 1.0
EXAMPLE: Regulatory Issues 2.0
Few or well known Complicated but manageable Complicated and changing, undefined
The results of the Quick Screen Analysis should indicate one of the following actions: Continue with the analysis, or
drop the pursuit (if in an owner or developer role, or make a "no bid" recommendation (if in a contractor role).
Initial Screen (Next Top 10 Criteria)
Initial Screen Analysis
Score High Potential | Medium Potential | Low Potential | Showstopper
Screening Criteria
Score 8 - 10
Score 5 - 7
Score 1 - 4
Score 0 - SHOWSTOPPER (multiply anything by 0 you get 0...STOP!)
EXAMPLE:
Competitive Advantage 8
Well established, definable technical or commercial advantage.
Some definable technical or commercial advantage.
No definable tech or commercial advantage
Competitors have a strong/insurmont advantage.
The score should indicate overall where the project "stands" in the analysis. If it ends up averaging a High or
Medium Potential then one would go to the next step... the Initial Analysis Summary (Assessment). This is where you
can "weight" specific elements of the analysis to craft a finer resulting basis for continuing or dropping. This is where
your senior management can have input into what criteria they deem to be more important and can influence the
outcome of the analysis to favor their desired attributes in projects they wish to pursue.
Initial Assessment CRITERIA
Weight Score Weight
Max % of
ASSESSED Score
Score Max Notes:
Competitive Advantage 9
8
72
90
80
We are positioned to be sole source for the project.
Another area of screening criteria can come from the "business" area such as legal & regulatory issues,
environmental impact, financial feasibility and so on. This should follow the initial screening IF the score is such that
such activity is worth pursuing. Let's take those three plus one, for example, and further define areas that would
categorize them.
Business Screen Business Screen Analysis
Score High Potential
Medium Potential
Low Potential
Showstopper
Screening Criteria
Score 8 - 10
Score 5 - 7
Score 1 - 4
Score 0
EXAMPLE: Legal & Regulatory Issues 6
Few and easily contained items.
Some complications but definable and manageable.
Significant complicated and changing situation.
High risk. Overwhelming complications and changing situation.
Unacceptable risk. - SHOWSTOPPER
EXAMPLE: Environmental Impact 3
Permits already approved. Applications being processed.
No significant problems anticipated.
Environmental studies not completed.
Possible restraints.
Major environmental controversy and resistance. - SHOWSTOPPER
EXAMPLE: Financial Feasibility 3
Financed or attractive financial conditions.
Feasible financial structure with moderate risk.
Questionable financing structure with high risk
Few sources and little in the financial community.
EXAMPLE: Political Support 6
Strong political support or no political element involved. High visibility project.
Political support required and being sought for project.
Medium visibility. Weak political support
Unpopular project, Low visibility
Strong political resistance, unstable political situation, Invisible
Should the top 10 areas of concern in this area add up to a High or Medium Potential, one would go to the Business
Summary (Assessment). If Low Potential, discussions would be held prior to going to this next section. Of course, if a
Showstopper existed, you would discuss and possibly dispose of the project from further consideration if it could not
be mitigated or changed into another category.
If the Assessment indicates it needs more time or more information before it can truly be evaluated, so be it. You
can move on to the Profit Screen. In this screen, you should attempt to evaluate the profitability or risk/reward for
money invested. Examples of this can be as follows just to name a few (4 out of what should be a list of 10 of your
choosing):
Profit Screen (Next Top 10 Criteria) Initial Screen Analysis
Score High Potential
Medium Potential
Low Potential
Showstopper
Screening Criteria
Score 8 - 10
Score 5 - 7
Score 1 - 4
Score 0
EXAMPLE:
Outline scope only.
Good ability to modify and innovate scope.
Detailed scope. Some ability to modify and innovate scope.
Fixed detailed scope. Limited ability to modify and innovate scope.
Loose, indeterminable scope. No ability to modify or innovate scope.
Again, with a score that places the project in the High to Medium Potential category, one would go to the Profit
Summary (Assessment). If Low Potential or a Showstopper existed, you would discuss with senior management and
decide to proceed with further evaluation or dispose of the project from further consideration. An example of this
follows:
Now you are ready to "add it up." You can take the Screen Summary and note the compelling factors. You would do
this because you have evaluated the project through several screens and it has made it through. Since it was not
disposed of by the rules of this screening, it is a High to Medium Potential project. You validate this by the following
example:
At the bottom of this assessment you should list two areas: compelling positive factors and possible fatal flaws.
I have developed an additional Screen for Project Finance. If the project is to be "project financed" by definition -
and not corporate project financed, then there is another screening to determine if the project is truly capable of
gaining project finance funding and support. The Project Finance Screen consists of two sections: checklist for
successful project financing and a Lender Credit Risk Appraisal (which is what lenders will look for and demand prior
to funding). Both of these must be carried out in detail prior to chasing (pursuing) a project development that is not
able to attract financing. It assists in determining what enhancements may need to be put in place to make a
development project attractive to financing. An example of both screens are below: ( a sample of 6 out of more than
30 on the checklist)
Lender Credit Risk Appraisal - Screen Project Finance Checklist
- Management
- What is management's objectives?
- How do they plan to achieve them?
- What are management's financial and operating policies?
- Has management worked in the past, and if so, how successful in implementing?
- Has management provided for unforeseen events?
- Level and stability of earnings.
- Demonstrate ability to generate good revenues consistently?
- ...etc.
When the above are assessed fully, then you REALLY understand the project...and, you should. Before making any
investment, either as an owner or developer or contractor - you MUST understand your project and all the
ramifications if you want to manage the risk and perform successfully in meeting expectations. As they say, "Don't
leave home without it!" This should be your attitude - don't do a project without properly "screening" it to fully
understand it.
AllenWeb Site - since 1995
Screening Capital Projects - Jun 1997
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