Abstract: A board of directors has the responsibilities of supervising the management and overall business performance of an organisation. During the acquisition of assets through project development, a board requires a high level of confidence that management is applying prudence in doing the right things and doing things right. This paper focuses on how a board can gain this assurance through Cold Eyed Reviews (CERs). It discusses why an effective CER creates significant value and effective risk hedging to an organisation.

1. 1
Cold Eyed Reviews — June 2016
Cold Eyed Reviews – a powerful tool for good
governance and effective board supervision of projects
The acquisition of new assets through
project development is a high risk
activity, particularly as capital
investments are increasing in
technological complexity, cost, time
criticality and strategic importance.
When an organisation embarks on a
new program or critical project, a
competent board will want to have
the appropriate level of assurance at
each stage of the project’s
development to confirm that the
project is ready to progress
successfully to the next stage.
Directors or project sponsors often
request independent reviews and
validations of the accuracy and
adequacy of a project’s business case
(or feasibility study) as it is being
developed and before granting final
sanction to the investment. Once this
occurs, further periodic independent
reviews are prudent to assess the
project’s ongoing health and to
determine if there are any corrective
interventions needed to bring the
project back on track. These types of
independent reviews are often
referred to as Cold Eyed Reviews
(CERs)1
and are sometimes called
Independent Reviews or Due
Diligence Reviews.
Using appropriately qualified and
highly experienced reviewers, who
are independent of the organisation
with no ties to the project team, adds
profound value to the review. The
CER can reveal any optimism-bias2
and can introduce fresh ideas
through challenging any vertical
thinking processes which
conventionally are applied by a
project team after considering and
eliminating multiple options. The
independent thinking of the external
reviewers can highlight any inherent
weaknesses that are likely to
undermine the value realisation and
technical outcomes expected by the
board and the investors.
Board Perspective:
A CER provides a board with
assurance of the robustness of
the investment decision and that
there is good governance of the
project risks and hedging against
potential downsides. It enables
the board to regularly stress-test
the investment’s risk profile as
changes can unexpectedly occur
over the life of an investment.
The CER can provide the board
with the appropriate readiness for
the purpose of equity and debt
fund raising.
Investor Perspective:
A CER provides project investors
with an impartial assessment
of the merits of the project and
its likely potential to realise
a return on their investment.
It independently evaluates
the adequacy of the project
definition, regulatory compliance,
the cost estimate and financial
modelling, the execution
planning, the project risks and
delivery timeframes.
1 Cold Eyed Review specifically refers to independent and objective review with the review team emotionally detached from the opinions provided. However, Cold Eyes Review refers
to the team being independent in not having had previous involvement or sighting of the material being reviewed, a subtle but significant difference is highlighted in the use of these
two expressions.
2 Mott MacDonald (2002), Review of Large Public Procurement in the UK, Mott MacDonald (2002), available at www.hm-treasury.gov.uk/greenbook
Other research in the field of Optimism Bias is referenced in Professor Flyvbjerg the founding Chair of Major Programme Management at Oxford University. Professor Flyvbjerg is
a leading international expert in the field of programme management and planning.
A board of directors is responsible for supervising the management and
overall business performance of an organisation. During the acquisition
of assets through project development, a board requires a high level
of confidence that management is applying prudence in doing the right
things and doing things right. This paper focuses on how a board and
its investor stakeholders can gain this assurance through Cold Eyed
Reviews (CERs). It discusses why an effective CER creates significant
value and effective risk hedging to an organisation.

2. 2
Cold Eyed Reviews — June 2016
The second strategic question is –
Are we doing things right?
The CER process will further consider
how the project has been progressed
through the project development gates
in terms of its definition, risk
mitigation, and accuracy of the capital
and operating cost estimates, work
breakdown structure, execution
methodology, contracting strategy and
project organisation.
The CER will also assess other
elements of the foundation for controls
and how these controls will be applied
throughout the life of the project.
The initial scoping study and
prefeasibility study phases consider a
range of options of what the project
could be, and determines if there is
sufficient opportunity for the project to
be justified on the basis of economic,
strategic, and environmental grounds.
The business case or feasibility study
phase focuses on defining the selected
optimal option to allow an informed
investment decision.
Two critical strategic questions are
applied as part of a CER during these
development phases.
The first strategic question is –
Are we doing the right things?
The CER will assess the justification
for the selected option, including how
well it will deliver on the required
outcomes for the assets and whether it
will overcome economic hurdles.
Focusing the development study
process on the strategic question – Are
we doing the right things?– and having
that rigorously reviewed can
significantly enhance the quality of the
project definition and its associated
budget.
The review will also evaluate and
confirm if all potential operating
scenarios were considered, including
trade-off between capital and
operating expenditure. The
confirmation that the right decisions
were made by the project team on
the operating philosophies and
performance requirements of the final
assets will create an environment for
lasting decisions4
, preventing rework,
delays and ultimately, additional costs.
Strategic review questions to improve the project’s effectiveness and efficiency
prior to the final investment decision
3 Note: Different terminologies have purposely been used in each of Figures 1 2, with the knowledge and awareness that different business sectors and domains use specific industry
language to represent the various phases in the project development and execution lifecycle.
4 Lasting decisions means that these decisions are not altered later in the project lifecycle.
Figure 1: Below shows the typical project lifecycle phases.3
Scoping study
(shaping)
What could it be?
Prefeasibility study
(PFS)
What should it be?
Feasibility study
(DFS/FEED/FEL)
What will it be?
Project commitment
(BFS)
Preparation and
investment decision
Project execution
Deliver the project
Operations
Extract the value
Recommended CER points
Recommended CER for funding investment decision

3. Business Case (Feasibility Study)
Governance Clarity and maturity
of project definition
Risk Management
Procurement
The review determines if the selected
procurement strategy is appropriate and
aligned with the project risk profile and
the supply market’s potential, including
possible funding options and scenarios.
The review will confirm if the
formal governance structures are
established to integrate the various
project functions, particularly for
the transition from development
mode to implementation.
The review will consider the context and the clarity of
the organisation’s strategic framework, including the
objectives, internal policies and business plans, as these
establish the foundation for the project’s business case.
Significant value comes from understanding the
business’s strategic objectives, and having clarity
around definition of the needs of the business and the
quantification of the outcomes against benchmarks.
Key elements of a CER
A CER can, and should be, structured to suit
a project’s characteristics, risk-profile, timing
within the lifecycle, governance review
requirements and readiness for the funding
investment decision (FID). The reviews are often
carried out under strict time constraints, given
the tight timeframes for approval to proceed to
the next development stage and for the final
funding investment decision.
An assessment is made
as to whether the project is
sufficiently well-defined for
its stage of development and
the likely influence on the
accuracy of the cost and
time estimates and level of
contingency applied.
The review will assess the completeness of
the risk register, including whether risk
controls and planned mitigation measures
have been included in the cost estimate and
residual risks included in the contingency
assessment. It will also confirm that risk
management processes are in place for the
implementation phase.
The business case is reviewed against the organisation’s
strategic framework to confirm alignment. In particular,
the risk-adjusted economic value of the project is compared
against the organisation’s strategic investment strategy.
An analysis can also be completed on whether the strategic
objectives are placing any unnecessary constraints on the
project which, if corrected, may unlock additional value in
the pursued option.
Foundation for
control
Strategy
Other elements where value is added by
having an independent assessment include:
• the capabilities and capacities of the project team
• team culture and behaviours
• organisational improvement
• fiscal management and discipline
• economic benefit and value add
• sensitivity analysis
• systems management
• monitoring, control and reporting
• change management
• document and information management, and
• market, corporate and commercial functions.
3
Cold Eyed Reviews — June 2016

4. 4
Cold Eyed Reviews — June 2016
The CER process has been applied to
a large number of projects across
major infrastructure, chemical, oil
and gas and mining sectors. In the
reviews conducted for various
organisations, the outcomes have led
to better risk focus, improvements to
the business value chain, reductions
in program and project costs and
improved returns on investment. On
one multibillion dollar pit to port
mining project the CER assisted the
owner to focus its efforts on
improving certain aspects of the
project definition, to successfully
negotiate a major engineering
procurement and construction
contract and to provide greater
confidence to secure the required
debt funding for the project to
proceed. For a major chemical
manufacturing plant, the CER
flagged the need for improvement of
the owner’s governance and risk
management processes and
improvement in budget certainty.
The project proceeded to execution
and successful completion, meeting
all of its objectives.
The CER methodologies applied to
the establishment of new assets has
beenadaptedtoprovidetransactional
due diligence for the merger and
acquisition of operating assets,
utilising third party reliance
agreements. It has been used in
contractual disputes, in alternative
dispute resolutions and forensic
analyses for the purpose of mediating
between two disputing parties. When
applied in these situations, time
constraints typically applied in a
CER will need to be varied to suit the
project requirements.
At the conclusion of the CER a
comprehensive traffic light matrix
(see image below) can be provided as
part of the report, outlining the
critical issues and providing
recommendations for improvement.
The process is focused on advice that
can be actioned to produce improved
results.
Outcome of recent reviews
About the Author
Magued Moftah is an Executive
Advisor with E3 Advisory Pty
Ltd. He has a proven track
record in leadership and
management spanning 40 years in
engineering projects and business
management. He has extensive
experience managing contracts in
the infrastructure, rail, oil and gas,
mining, water and waste water
and power sectors.
Magued has been responsible
for leading and managing Cold
Eyed Reviews, asset acquisitions,
technical and commercial due
diligence and contract resolution
mediation and disputation
activities.
Advisian / 1
SUB-ELEMENT MINIMUM REQUIREMENT NOTE
• Key supply and demand drivers Detailed assessment and
evaluation.• Revenue growth factors
• Industry structures
• Diversity of suppliers and customers
• Forecast project position – when operational
• Price assumption
• Historical and forecast margins
• Value adding sources, historically and forecast Demonstrated position
• Project’s ability to exploit these opportunities
• Fits with overall strategy Demonstrated position
• Review of the relationship between the project and business strategy
• Strategic alternatives including exit /no go option Detailedwithin available
envelope of data• Basis of potential project being best option
• Potential of phased development
• Scenario development process Basedon recommended
project
• Driver to execute exit strategy Fullydeveloped strategy
• Triggers for exit decision
Strategy CRITICAL AND URGENT
Immediate action on identified shortcomings and recommendations
is required to achieve success of the project
IMPORTANT AND URGENT
The project should go forward with action on recommendations
IMPORTANT AND OF BENEFIT
The program or project may benefit from implementation
or recommendations
Industry
Attractiveness
Strategic
Rationale
Strategic Fit
Strategic
Alternatives
Scen ario An alysis
Exit Strategy
Comprehensive traffic light matrix (example)