The power of the feasibility study

14 February 2012

Richard Vann, managing director of RVA Group

Richard Vann, managing director of RVA Group

The concept of the feasibility study is not new. However, the role that it is playing in the modern-day global processing environment is changing at a phenomenal rate. Some would even argue it is changing the face of the industrial demolition marketplace as a result. RVA Group managing director Richard Vann explores the value of this incredibly important tool and examines the extent to which it is breathing life back into the industry.

It is widely acknowledged that demolition - like many areas of the construction industry - has experienced difficulties due to recent global economic turbulence. Many well-established contractors have had to work harder than ever before to keep their staff and plant fully employed as a result of fewer contracts and increasingly pressurised margins. While some companies encouragingly report definite improvements looking forward, it will be some time before confidence returns to past levels.

However, the apparent lack of active demolition projects does not accurately reflect the level of sites, plants and assets that are lying redundant. The number of production facilities being mothballed, rationalised or permanently closed down across the globe remains staggering, so in theory the work does exist. Yet many decommissioning and demolition projects have been postponed due to the cost of undertaking what is often perceived as an unnecessary exercise, or certainly one that can be delayed until a fiscal improvement is seen and funding can be allocated.

Operators often assume that there are limited options when closing a facility and therefore simply ask a local contractor for a 'demolition' price before deciding whether to proceed with the exercise or not. Naturally asset owners wish to avoid non-essential spend, yet delaying projects that are deemed unaffordable is not always the most appropriate solution. They will inevitably have to be tackled at a later date and in most cases at an overall increased cost due to continuing liabilities such as hazardous material containment, security provisions, regulatory compliance fees, care and maintenance costs, plus the burden of unavoidable overheads such as local authority building rates.

Some companies initially try to sell their plant in-situ in an attempt to pursue a relatively 'pain-free' site exit and where possible protect employees' jobs. But in truth, even this course of action may not result in the highest possible commercial outcome and if a buyer is not found, the majority of clients do not know where to turn next.

Difficulties lie in making well-founded decisions about the future, especially at a time when pressures are mounting or there are gaps in knowledge. Independent tools such as feasibility studies are therefore playing an increasingly crucial role in the development of organisations' redundant asset management plans and consequently the possible level of demolition work within the industry.

A clear view

Drawing upon specialist engineering experience, sector knowledge and commercial awareness, feasibility studies provide an unbiased, clear and realistic view as to the true liability or indeed opportunity of a decommissioning and demolition project. EHS, commercial and financial factors associated with the given site and current marketplace, are all considered. This means assessing achievable costs, potential hazards and risks, supply chain status, commodity value of scrap, technological trends and requirements in emerging markets, waste management obligations, required resources, relevant legislation and programming and scheduling constraints.

Every project differs and consequently each study has to be bespoke and generate value-adding management information. The objective is to explore all options and identify the optimum solution for each situation. Often the route eventually selected may not have been considered by the client or even deemed possible, perhaps due to false perceptions of associated financial burdens.

Studies also provide sufficient data and confidence to pursue a given strategy, whether that be:

  • The dismantling of plant for re-sale, re-erection and operation elsewhere;
  • The demolition of plant, where it is often possible to generate an income stream due to the prevailing value of scrap. Not only does this mitigate ongoing and unacceptable levels of liability, but in some cases the project can be self-funding or even cash-positive;
  • The mothballing of plant;
  • Or, a combination of the options above, with detail as to how, in what sequence and over what period of time the project should be pursued and with what safety management plan in place.

By assessing every risk and exploring every opportunity, these widely-regarded strategic management tools remove an element of the unknown and provide an insightful starting point from which innovative, value-adding and considered business decisions can be made. Some bespoke and well-managed solutions can be the difference between a project getting started or not starting at all.

Last year, for example, a world-scale chemical producer intended to hand its redundant site back to its landlord with the manufacturing plant intact. However, recognising the financial penalties of this proposed site exit strategy, a specialist investigation of potentially more commercially attractive routes was carried out, which revealed previously unconsidered opportunities and significant cost benefits. An alternative approach of returning the site as flat slab meant that sufficient income could be generated from the dismantling and sale of process equipment to discharge the lease liabilities and in addition, provide a cash surplus.

Safety first

It is important to remember though that demolition is not always a straightforward process; it is an inherently hazardous activity. The goal should always be to maximise return on assets where possible and indeed safe to do so, but factors such as plant age, former processes, recovery cost, testing, market forces and commercial competition will all form part of the decision as to what should and should not be salvaged.

Devising a cost-effective project plan certainly does not mean cutting corners, because EHS excellence must remain the non-negotiable priority. Nor does it mean the avoidance of legislative compliance. It just means utilising a true understanding of the engineering environment, anticipating possible challenges and resolution methods, and evaluating factors that may otherwise have remained unconsidered.

To this effect, investigative feasibility studies require a defined level of engineering specialism to be completed effectively. For most organisations, 'the four D's' constitute a step into the unknown, so just as no-one would expect clients to execute a demolition project unassisted, neither should they attempt to undertake a feasibility study without expert external guidance. The considered involvement of an organisation's own engineering staff is in most cases a positive and value-adding exercise though, as nobody will know plant-specific information better than the people that have been running it all along.

Of course every single project has the potential to present challenges, whether they are associated with the make-up of a structure, the process nature of the plant during its operational life or the location of adjacent hazards. Yet if they are anticipated and planned for, it naturally follows that they can be resolved more efficiently if and when they do arise.

It all comes back to the same thing - knowledge is power. Therefore informed and considered project strategies that involve the right people with the right engineering skill-set and experience will help to ensure a safe, fully-integrated and professional approach, not to mention legislative compliance.

Feasibility studies certainly seem to be playing a significant role in shaping the future of the demolition industry, and as such there is no reason why the profession should not have a brighter future. The expertise of some of the UK's most talented specialists is being increasingly sought overseas, and this pattern looks set to continue.

However, it is important that close-working, knowledge-based relationships are developed with clients, irrespective of location, so that the safest and most financially optimal solutions are not only considered, but are truly understood.

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