What Should a PERA Master Plan Cost ?

That depends on how large an Enterprise, Program or Project that you are planning. Obviously a large Enterprise will take longer and cost more than a small one. However, the benefits of good planning are greater on a big investment than on a small one.   Most companies under-invest in planning and pay for it in schedule and cost over-runs.

If a new Enterprise does not involve major decisions or choices, a Master Plan may not be needed at all. For example a project that is copied many times like a new MacDonalds store, or a UOP licensed process like an Ethylene Cracker. In this case, the Enterprise may move directly from the Busines Plan to Conceptual Engineering.

The Enterprise Master Plan should include a level of detail appropriate to the proposed investment and risks.

• A small enterprise might estimate the number of operating staff, multiply salaries by 1.4 (to cover social taxes), and assume a tax on EBIT of 25% (for example).
• Larger enterprises require much more detailed analysis, including project engineering costs, currency and inflation risks, cost of cash, etc.

A small project, for example a new product, might start with perhaps $1 million of costs and revenue in the first 2 years. You should not spend more than 1% of that on a Master Plan (e.g., $10K). At $500 per day, that is one man-month.

On one large project ($4 billion), we spent 4000 times as much on the Master Plan/Conceptual Design. That is 4000 man-months or about 100 people for 2 years (from 1997 to 1998) and then 200 people for one year (1999).

PERA Master Planning has been used on dozens of billion-dollar enterprises and we have observed a number of Rules-of-thumb:

• Spend 10 to 15% of capital budget on Engineering (depending on technical complexity)
• Every $500 million requires a Project Manager, and every $50 million requires a Project Engineer .
• Consider the worst-case outcome as well as the most probable.  If the worst case involves bankruptcy, stop or modify the project immediately.
• Revenue farther out than 5 years can be ignored
• Plan for 15% to 20% ROI (depending on risk)
• Track % of budgets expended, and assume that if you fall X% below the budget curve, your costs will increase by X%.
• There is no such thing as a change or elimination after Preliminary Engineering that will save money.
• Concentrate effort on improvedcommunication.  Communication failures are where you lose the most schedule and money.