Project finance modelling skills in other sectors

By Anna Kim on March 5 2009

I have been juggling a few different projects at the moment that do not fall under the typical project finance umbrella and I find that it has not been that difficult to work on a non-project finance related assignment. It has simply been because the knowledge gained by working on a diverse range of project finance models can be applied to projects outside this scope.

What makes project finance modelling skills so transferable is the scope that is covered in a project. Let’s take a look at what might be involved in a vanilla greenfield project compared to other sector model requirements.

Project Finance Model Scope

1. Construction: capital costs and funding required from debt and equity
2. Operations - operational volumes, revenues and operating costs
3. Debt - repayment of debt and reporting debt ratios
4. Equity - net cashflow and returns such as IRR and NPV
5. Integrated Financial Statements - cashflow waterfall, Profit and Loss statement, balance Sheet

Other Sector Model Scope

Most projects outside the project finance field will probably have a similar scope, but vary on the details. These variations may come from

• The project phases involved i.e. only having an operations phase (which is the same as a brownfield project)
• The types of debt ratios that are reported on i.e. instead of a Debt Service Coverage Ratio (DSCR) you may want to calculate an Interest Coverage Ratio (ICR)
• The focus on equity rather than debt

That being said, it is easy to take the concepts from a mining model and apply them to a valuations model. The outcome would be a valuations model that is probably a lot smaller in size and may have no debt at all.

On the flipside, if I had come from only working with valuations models would I still be able to apply that knowledge as easily to a project finance model?

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