The Stages Leading Up to a Final Investment Decision

Reaching a Final Investment Decision is rarely a single event. It is usually the end point of a staged process that can take months or, for very large projects, several years. Understanding these stages helps explain why some projects move quickly to FID while others stall or are abandoned before they ever reach it.

Concept and Screening

At the earliest stage, an idea for a project is screened against basic criteria: is there a plausible market or resource, is the general location and technology workable, and does the rough scale of investment match what the sponsors could realistically raise or justify. Many ideas are discarded at this point because they do not clear this first, relatively low bar.

Pre Feasibility Study

Projects that pass initial screening usually move into a pre feasibility study. This produces a more detailed, though still approximate, estimate of costs, revenues and risks. The purpose is to decide whether it is worth spending significantly more money on detailed engineering and studies, rather than to finalise the project itself.

Feasibility Study and Front End Engineering Design

If the pre feasibility study supports moving forward, the project typically enters a feasibility study or front end engineering design phase. This is a far more detailed and expensive stage of work. Engineering firms produce designs accurate enough to generate a firm cost estimate. Market or resource studies are refined. Environmental and regulatory approvals are pursued. Financing structures start to take concrete shape, with term sheets or indicative offers from lenders and investors.

Due Diligence

Before committing funds, banks, investors and, where relevant, government bodies conduct due diligence. This involves independent technical review of the engineering design, legal review of contracts and permits, and financial review of the assumptions behind the revenue and cost forecasts. Due diligence can surface issues that require the project design or contracts to be revised before anyone is willing to commit capital.

Negotiation of Binding Agreements

In parallel with due diligence, the parties negotiate the contracts that will govern the project once it is built: construction contracts, supply agreements, offtake or sales agreements, and loan or equity agreements. These documents are usually negotiated in near final form before FID, because FID itself is often defined as the point at which these agreements are signed and become binding.

The Decision Point

FID itself is typically a formal approval taken by the boards or investment committees of the sponsoring organisations, sometimes alongside approval from lenders or government partners. At this point, all the preparatory work is reviewed together, and a decision is made on whether the project, as currently designed and financed, should proceed.

Why Projects Can Stall Before FID

Projects can be delayed or cancelled at any stage before FID for a range of reasons: cost estimates rising beyond what sponsors are willing to fund, financing conditions becoming less favourable, regulatory approvals taking longer than expected, or market conditions changing in ways that make the original assumptions look too optimistic. Because so much time and money is spent before FID without any guarantee the project will proceed, sponsors generally try to resolve the largest risks and uncertainties as early as possible in the process.

After the Decision

Once FID is taken, the project moves into execution. The detailed plans, budgets and contracts that were finalised before FID become the baseline against which progress is tracked. Significant changes after this point, whether to cost, schedule or scope, are typically treated as notable events requiring explanation, since the whole purpose of the pre FID process was to settle these details in advance.