Case 4.4 Proposed Gold Mine in Canada
1) List the phases of the project and indicate the has been allocated to the process, people
minimum and maximum cost of each phase as foreseen in August 2006.
1. Planning and design: $10,000-$20,000
2. Construction: $50,000-$100,000
3. Operation and maintenance: $5,000-$10,000 per year
2)" While estimates for the distant future very 'broad brush,' it is always possible to make
relatively accurate estimates for the imminent phase of a project." Explain.
Making accurate estimates for a project is easier for the imminent phase, where there is less
uncertainty about the future, compared to the distant future, which has more variables that
could impact the project. The reason for this is that there is less time for changes in technology,
the market, and other variables to occur, and there is more information available when the
project is closer to the beginning.
3) Describe how each of the proposed project phases will help reduce the risk of the project.
1. Each project phase will help to identify and reduce risks associated with the project. As the
project progresses, new risks may be identified, and old risks may be mitigated or eliminated. By
catching risks early, the project team can take steps to reduce their impact.
2. A risk management plan will be developed and implemented during each phase. A risk
management plan is a document that outlines how risks will be identified, assessed, and
controlled. The plan should be developed during the early stages of the project and updated as
needed.
3. Regular risk assessments will be conducted to identify new or evolving risks. Risk assessments
should be conducted on a regular basis, preferably at the beginning of each project phase. This
will allow the team to identify any new or evolving risks that need to be addressed.
4. Mitigation strategies will be put in place to reduce the impact of risks. Once risks have been
identified and assessed, mitigation strategies can be put in place to reduce their impact. These
strategies might include changing the project schedule, increasing the budget, or adding more
resources.
5. Project risks will be monitored and controlled throughout the project lifecycle. Project risks
should be monitored throughout the project lifecycle to ensure that they are being effectively
controlled. If any new risks arise, or if existing risks become more severe, corrective action may
be necessary.
4) Comment on the problem that, once money has been allocated in the process, people might
become “hooked” into the project and be tempted to go ahead regardless of high risks.
When allocating funds to a project, people may be tempted to proceed despite high risks,
leading to wasted resources and safety concerns. To avoid this, a clear plan with contingencies
and an exit strategy should be established. It's crucial to remember that money is not always
the top priority in a project, and walking away from a risky project, even if money has already
been invested, may be the best course of action.
5) How would you determine the value of accurate estimates for the number of ounces that
could be mined for costs?
The value of accurate estimates for the number of ounces that could be mined and for costs
would be determined by looking at the difference between the estimated amount and the
actual amount. The smaller the difference, the more accurate the estimate. Additionally, one
would want to look at the variability of the estimates. The less variability, the more accurate the
estimate. Finally, one would want to look at the precision of the estimate. The more precise the
estimate, the more accurate it is.
6) Would you trust any internal rate of return or phases will help reduce the risk of
theproject.net present value estimates at this time?
No, I wouldn't rely on the projected financial returns of the company, like the internal rate of
return or net present value, because the company is currently undergoing a turnaround and its
financial situation is changing. It's hard to predict future cash flows and determine their present
value accurately. Moreover, there is a risk that the turnaround may not be successful, which
would impact the company's cash flow and discount rate. Any estimates made now would be
highly uncertain and prone to change.