Project Feasibility

UNIT -2

ANUPAM KRISHNABE, MBA PGDM PhD. (MNIT)

ANUPAM KRISHNA

What is a Feasibility Study?

A feasibility study is an analysis of the viability of an idea through a disciplined and documented process of thinking through the idea from its logical beginning to its logical end.

A feasibility study provides an Investigating function that helps answer “Should we proceed with the proposed project idea? Is it a viable business venture?”

A feasibility study should be conducted to determine the viability of an idea BEFORE proceeding with the development of a business.

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Why do a Feasibility Study? Provide a thorough examination of all issues and assessment of

probability of business success Give focus to the project and outline alternatives Narrow business alternatives Surface new opportunities through the investigative process Identify reasons NOT to proceed Enhance the probability of success by addressing and mitigating

factors early on that could affect the project Provide quality information for decision making Help to increase investment in the company Provide documentation that the business venture was thoroughly

investigated Help in securing funding from lending institutions and other monetary

sources

Project formulation

Technical dimension Economical dimension Financial dimension Social dimension Marketing dimension

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Pre feasibility study

Prima faceiInvestment decisionProject conceptAdequate informationProject aspect

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Pre feasibility should ensure viability from following angles:

Market demand Plant capacity Inputs Plant location and sites Project investments costs Project engineering Manpower Plant overheads Plant implementation schedule Financial and economic evaluation Statutory clearances

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Project feasibility analysis

Covering all aspects of PFR in a detailed manner

Also known as techno-economic feasibility report

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Market analysis

Pattern of consumption growth Supply position Composition of the market Nature of competition in the market Income and price elasticity of demand Consumer behavior Availability of substitutes Distribution channel Marketing policies Administrative, technical and legal constraints etc

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Data source can be primary as well as secondary

Secondary sources Census National sample survey reports Planning commission reports Central statistical organization India year book Annual economic survey

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Reports from ministry Techno economic surveys Stock exchange directories RBI bulletin Publication from ads agencies

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Market survey

Total market demand and rate of growth Demand in different segments Income and price elasticity Motives of purchase Satisfaction level and existing products Distribution practices Socio- economic nature

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Survey process…. Demand forecasting1 Trend projection method2 Delphi method3 Consumption level method4 Leading indicator method5 Econometric method

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Technical analysis

Plant capacity Production technology Machinery and equipment Plant location and sites Material inputs and utilities Product mix Plant structure and civil works Project charts

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Project charts

Functional layout Material flow Production line Transport Utility consumption Communication Organizational layouts Plant layout

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Financial analysis

Profitability measurementA Estimates of sales and productionB Estimates of production costsC Estimates of operational results Financial analysisProjected balance sheets

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Projected fund flow statementProjected cash flow statementFinancial appraisalEconomic analysisExistence of growing market with demand and supply gapStability Back up and reliable supportOverall appraisal of competitors

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Comparing similar projects Incentives offered by govt.Sales tax. Octroi, entry taxLand offeredSubsidy on powerFinancial assistance term loan, underwriting, working capitalWater ratesHousing schemeSupply of raw materialLabour development

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Managerial and organizational analysis

Culture and motives of owner Leadership and communication ability Connected structure Project volume and trainings Background of PM Personnel policy Security and maintenance

Energy management and ecological aspects

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Consideration for Feasibility

Economic Operational Technical Schedule Legal and contractual Political

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Economic

Identify the benefits and the costs associated with the development of the plan

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Benefits and Costs

Cost reduction Error Reduction Increased Flexibiltiy Speed Improved planning and

control New markets and

opportunities

System development New hardware and

software Training Data or system

conversion

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Tangible/Intangible

Tangible benefits or costs are ones that can be measured in dollars

Intangible benefits or costs are those that cannot be directly measured in dollars

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Operational Feasibilty

The process of examining the likelihood that the project will achieve its desired goals.

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Technical Feasibility

Examines the company’s abiltiy to construct the proposed system

Includes assessment of potential hardware and software needs

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Schedule Feasibility

Examines whether a given project can be done in a time frame that meets the needs of the organization

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Legal and Contractual

Study of any Legal or contractual issues related to the project Labor relations and regulations Safety regulation Copyright or patent laws Antitrust laws

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Political Feasibility

The attitudes and position of stakeholders regarding the project.

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Project sensitivity

Sensitivity analysis is an approach which focuses on how the results of a decision change if the original estimates or the underlying assumptions change.

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Estimated variables

Life of project Investment Cost of capital Sales volume Selling price

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decisions

Under certainty Under uncertainty Under conflict Under risk

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Main techniques of decision making under risk and uncertainty

Probability and expected values Heuristic decision criterion Optimistic and pessimistic estimates Decision trees

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Social cost benefit analysis

Scba is a systematic evaluation of a concern's social performance as distinguished from its economic performance.

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Social costs

Goods and material acquired Labour and services used Fixed assets purchased Environmental damage Depletion of animal resources Depletion of energy resources Soil erosion and deforestation Disruption of family life Reduction in life expectancy Wastage of natural resources Economic disparity Urbanisation

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Social benefits

Products and service provided Provides employment Upliftment of weaker sections Better social life Earning foreign exchange Rise in living standards Equality Decrease in poverty End of class system Community/ social welfare

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