Feasibility Study: A Comprehensive Guide to Project Analysis and Evaluation, Lecture notes of Project Management

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UNIT THREE

PROJECT PREPARATION AND FEASIBILITY ANALYSIS

Muluadam Alemu (PhD) Email: muluadamlm@gmail.com

UNIT THREE

PROJECT PREPARATION AND FEASIBILITY ANALYSIS

Contents

**1. Technical Analysis

2. Economic Analysis
3. Financial Analysis
4. Social Analysis
5. Institutional Analysis
6. Project Appraisal, selection and Negotiation**

Definition of Feasibility Studies FS:  (^) It is an evaluation of a proposal designed to determine the difficulty in carrying out a designated task.  (^) It is the analysis of a problem to determine if it can be solved effectively.  (^) E.g. housing supply problem  (^) is an opportunity to refine and explain the concept, and to test market reaction.  (^) It is a critical factor in business success.  (^) Essentially Road map of project  looks at the viability of an idea with an 10/28/2020 4

Project Feasibility Study

• (^) This is the study of a proposed project to indicate whether the proposal is attractive enough to justify more detailed preparation
• (^) A feasibility study is part of the process of project identification, preparation and selection
• (^) It involve the process of appraising projects or group of projects and then choosing to implement some of them
• (^) This is an extremely important stage in project management 10/28/2020 5

Feasibility study

WHEN TO CONDUCT FS:

 This activity takes place during the project initiation phase  (^) precedes technical development and project implementation****.  (^) It is made before significant expenses are engaged.

 For What Decision Shall We Use FS

results?

 The results determine whether the solution 10/28/2020 7

Feasibility study  It produce a final proposal for the management,  The final report might includes:

**1. Project name

2. Problem or opportunity definition
3. Project description
4. Expected benefit
5. Consequence of rejection
6. Resource requirements
7. Alternatives
8. Theorization (if any)**

• (^) A key factor in any feasibility study must be ensuring that you are dealing with:
• (^) Correct facts,
• (^) Correct assumption, and
• (^) Up to date financial data. 10/28/2020 8

© Centre for Financial Management, Bangalore

FEASIBILITY STUDY : A SCHEMATIC DIAGRAM

Generation of Ideas Initial Screening Is the Idea Prima Facie Promising Plan Feasibility Analysis Conduct Market Analysis Conduct Technical Analysis Conduct Financial Analysis Conduct Economic and Ecological Analysis Is the Project Worthwhile? Prepare Funding Proposal (^) Terminate Terminate Yes (^) No Yes^ No P r e l i m i n a r y W o r k A n a l y s i s E v a l u a t i o n

Simplified Process of FA 11

• (^) Identify problem or opportunity Set up feasibility study Define scope and objectives Carry out different aspects of the study Evaluate alternatives – develop/buy Recommend – proceed /shelve

Elements considered while doing Project

Analysis/feasibility study

Project analysis  (^) refers to analyzing a project from various perspectives so as to determine its viability and sustainability.  (^) Project analysis consists of :

1. Market/demand analysis (Some parts covered in other courses)
2. Technical analysis
3. Financial analysis (Already covered in Managerial Economics)
4. Economic cost benefit analysis
5. Environmental and social cost benefit analysis
6. Risk analysis (Already covered in Managerial Economics)

Market/Demand AnalysisMarket/Demand Analysis

 This step in project analysis aims

• (^) to estimate the potential size of the market for the product proposed to be manufactured (or service planned to be offered) and
• (^) to get an idea about the market share that is likely to be captured.

 The two broad issues raised are:

1. What is the likely aggregate demand for the product/

service?

2. What will be the share of the market for the proposed

product/service?

The purpose of market/demand analysis

Market/demand analysis for new/improved products development should answer the following questions: Who are the buyers? What is the total current demand for the product? How is demand distributed geographically? What is the demand for the product segmented in different sizes? What price will the customers be willing to pay for the improved product? How can potential customers be convinced about the superiority of the new product? What price and warranty will ensure its acceptance? What channels of distribution are most suited for the product? What trade margins will induce distributors to carry it?

Process of market/demand analysisProcess of market/demand analysis

Market/demand analysis follow the following

processes:

1. Situational analysis

2. Collection of secondary information

3. Conduct market survey

4. Characterization of the market

5. Demand forecasting

6. Market planning

Collection of information

 (^) Involves gathering information help to better understand the market situation.  (^) Information may be obtained from secondary and/ or primary sources.  (^) Secondary information is information that has been gathered in some other context and is already available.  (^) Primary information, on the other hand, represents information that is collected for the first time to meet the specific purpose on hand.  (^) Secondary information provides the base and the starting point for market and demand analysis.  (^) It indicates what is known and often provides some clues for gathering primary information required for further analysis.

Evaluation of Secondary Information While secondary information is available economically and readily provided, the market analyst is able to locate: its reliability, accuracy, and relevance for the purpose under consideration. The market analyst should seek to know: Who gathered the information and for what objective? When was the information gathered? When was it published? How representative was the period for which the information was gathered? What was the target population? How was the sample chosen? How representative was the sample? How satisfactory was the process of information gathering? How accurately was the information edited, tabulated, and analyzed? Was statistical analysis properly applied?