ECN 460 Assignment

P.Ruberu A/BBA/07/110

Explain the importance and relevance of feasibility studies in investment project planning.
An analysis and evaluation of a proposed project to determine if it is technically feasible, if it is feasible within the estimated cost, and if it will be profitable. Feasibility studies are almost always carried out when large sums are at stake. Feasibility studies address such things as where and how to operate the project. They offer detailed information about the investment, to determine whether and how it can succeed, and plan to serve as a valuable tool for the development of an excellent investment. The main intention of a feasibility study to determine the probability of one or more solutions, which indicated the need for investment. If you are unsure whether your solution is the result you deliver, then a feasibility study will help to win, that clarity. During the Feasibility Study, a large number of "assessment" methods are performed. The results of the feasibility study are a confirmed solution for implementation. Knowing how to conduct a feasibility study will help many owners choose to make critical decisions quickly and select the right opportunities Relevance of feasibility studies

(1)

MARKET ANALYSIS

Market is place where both investor and the other parties met. From investor point of view, market analysis is primarily concerned with the aggregate demand of the proposed product/service in future and the market share expected to be captured. Success of the proposed project clearly hinges on the continuing support of the customers. Though it is difficult to identify the market, the investor have to carefully segment the market according to some criteria such as geographic scope, demographic and psychological profile of the potential customers etc. It is a study of knowing who all comprise your customers, for this you require information on: Consumption trends, Past and present supply position, Production possibilities and constraints, Imports and Exports Competition, Cost structure, Elasticity of demand

(2). FINANCIAL ANALYSIS

The objective of financial analysis is to ascertain whether the proposed project will be financially viable in the sense of being able to meet the burden of servicing debt and whether the proposed project will satisfy the return expectations of those who provide the capital. While conducting a financial appraisal certain aspects has to be looked into like: - Investment outlay and cost of project - Means of financing - Projected profitability - Breakeven point - Cash flows of the project - Projected financial position

(3). Organization feasibility To define the legal and corporate structure of the project that going to invest. An Organizational Feasibility Study may also include professional background information about the founders and principals of the investment and what skills they can contribute to the project. Organizational feasibility study should include: Description of Your project Structure ,Description of Your Organizational Structure ,Internal and External Principles and Practices of the project ,Professional Skills and Resumes (4). TECHNICAL ANALYSIS

The issues involved in the assessment of technical analysis of the proposed project may be classified into those pertaining to inputs, throughputs and outputs.

Input Analysis: Input analysis is mainly concerned with the identification, quantification and evaluation of project inputs, that is, machinery and materials. Throughput Analysis: It refers to the production/operations that you would perform on the inputs to add value. Usually, the inputs received would undergo a process of transformation in several stages of manufacture. Output Analysis: this involves product specification in terms of physical features- colour, weight, length, breadth, height; functional features; as well as standards to be complied with such as ISO etc.

(5). ECONOMIC ANALYSIS

Economics is the study of costs- and- benefits. In relation to the feasibility of the study the investor is concerned whether the capital cost as well as the cost of the product is justifiable vis-vis the price at which it will sell at the market place. This cost-benefit analysis goes into financial calculations for profitability analysis. At this stage it is also useful to distinguish between the economic and commercial feasibility; whereas economic feasibility leads one to the unit cost of the product, commercial feasibility informs whether enough units would sell. Apart from the cost-benefit analysis as above, which also refer to as private cost benefit analysis, it is also useful to do social- cost-benefit- analysis. For example, the investor may be getting subsidized electricity in which case private cost would be less than social cost Importance of feasibility studies Determine the scope and limitations of the project

First and foremost, the aim of feasibility studies is to determine the scope or prospect of any particular project. Analysis of the market scopes and planning accordingly is absolutely important for any project s to prosper and for consequent project development. Understanding Demand

Gathering information about the current market offerings is the next factor that the feasibility studies have to deal with. Feasibility studies enable project professionals to estimate the number of customers, visualize the productivity of any particular project thereby assisting project development altogether. Narrows project Alternatives

The feasibility study helps project planners give the project focus by looking at and narrowing down the alternatives. That means feasibility studies reduce the complexity.

Assessing Resources

Another of the advantages of feasibility studies is the opportunity to catalog the current resources available for a project and to estimate the need for additional resources. Feasibility studies that recommend against projects often cite a lack of human resources or financial capital. This kind of result gives a project manager the opportunity to reset expectations based on real budgets and headcount. Marketing Feasibility

Even for products and services with measurable demand, companies must examine their ability to spread the word about a new offering. During a feasibility study, project managers learn whether the market is already over saturated with stronger competitors. Company leaders can also discover any potential legal roadblocks involving trademarks, patents, or other intellectual property rights. Marking a Timeline

One of the biggest advantages of a feasibility study is the validation of a prospective timeline. When moving into a formal project planning phase, a project manager can use data generated by the study to help set milestones and deadlines. A quality feasibility study examines the timetable suggested by project sponsors for potential delays or breakdowns. When project managers use a study as the basis for making timeline decisions, they run the least risk of being overruled by anxious stakeholders. Determines If investment Will Generate Adequate Cash-Flow

Feasibility studies also have to deal with evaluation of the finances to suffice the requirement of any project concern. Estimation of the entire cost of any project and even making necessary changes to keep investment development unaltered is the axiom of the feasibility studies. It also identifies potential cash flow.

Identifies Reasons Not to Proceed

Just as the feasibility study can identify ideas that are viable, the study can also bring to light reasons not to move forward with a project. Reduce the risk of the investment

In fact feasibility study is a way of thinking rather than any technical process. In short feasibility studies determine the positive and negative aspects associated with any particular investment and consequently help in planning the course of action. Any investment should implement feasibility studies and ascertain the key factors that keep them ahead of the contemporary competitors. And also feasibility studies will be benefited in finding following key aspects. Implementing feasibility studies can
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plan out proposals strengths and potential realistically analyze the impact of expansion analyze the investment idea Gives focus to the project and outline alternatives Surfaces new opportunities through the investigative process Enhances the probability of success by addressing and mitigating factors early on that could affect the project

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Provides quality information for decision making Helps to increase investment in the company Provides documentation that the investment project venture was thoroughly investigated Helps in securing funding from lending institutions and other sources