Print4.1.4: Do You Have an Envelope That I Can Use?
Engineers often talk about doing “back of the envelope” calculations. This is an expression for making a first approximation to a solution or answer. It is a process in which we don’t worry about the details but only the biggest factors that influence the result. By necessity, it requires experience and judgment. The answer is nothing more than a rough estimate and is likely to result in a solution that looks like 1, 10, or 100, i.e., an order-of-magnitude estimate, rather than an exact number like 0.67, 13, or 180! Or, to be more specific here, the team will evaluate the foregoing factors with the goal of concluding one of three outcomes: this project has little chance of success – we need to cut our losses and move on; this project shows strong potential – we need to move into the next stage of the project without delay; or, this project has potential, but without doing further analysis, it is difficult to say that we should move this project to the next stage. Sure, there are shades of gray, but you get the idea of what is happening at this stage.
Reasonably, you may also wonder just who are the people making this decision. That’s a good question. Although the full team may include a number of subject experts, e.g., geologists, mining engineers, among others, the decision-makers are likely to be few in number and are likely to include: a mining engineer with decades of experience in the industry and years of experience in evaluating and bringing new projects online. This person probably has a title with the words “vice-president” in it. There will be a financial wizard. Someone with years of experience in the industry, who can probably do complex discounted cash flow analyses in her head. And there may be a third – perhaps a “rising star” in the organization. Someone with several years of experience, highly motivated, and with the potential to head up this new mining project if it becomes a reality. The model will vary depending on the size of the company and the size of the project, but this will give you an idea of the approach.
So, what’s next? Assuming that the conclusion of our “back-of-the-envelope” analysis is that we still want to build a mine, then we will move to the feasibility-study. This is the subject of Lesson 4.2.