lectures notes of feasibility study

Feasibility Study Dr. Ahmed Galal

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Modern University For Information and Technology

Civil Engineering Department

Lectures Notes of

Feasibility Study

CENG 328

Prepared By

Dr: Ahmed Galal

(First Edition 2021)


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Vision

The vision of the Faculty of Engineering at MTI university is to be a

center of excellence in engineering education and scientific research in

national and global regions. The Faculty of Engineering aims to

prepare graduates meet the needs of society and contribute to

sustainable development.

Mission

The Faculty of Engineering MTI university aims to develop

distinguished graduates that can enhance in the scientific and

professional status, through the various programs which fulfill the

needs of local and regional markets. The Faculty of Engineering hopes

to provide the graduates a highly academic level to keep up the global

developments.


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Contents Chapter One .................................................................................................................................................. 6

Feasibility study Definition: ...................................................................................................................... 7

Reasons for the feasibility study: .............................................................................................................. 7

The relationship between the feasibility study and strategic planning: ................................................... 8

Contents of the economic feasibility study for any project: ..................................................................... 9

Chapter Two Investment project: ................................................................................................... 12

Investment project: ................................................................................................................................. 13

First: new investment projects: .......................................................................................................... 14

Second: Completion projects: ............................................................................................................. 14

Third: Expansion projects: ................................................................................................................... 14

Fourth: Modernization projects (replacement and renewal): ............................................................ 15

Project management: ............................................................................................................................. 15

The program:........................................................................................................................................... 16

Program management: ........................................................................................................................... 16

Project Elements or Components: .......................................................................................................... 17

Project relationships with other projects: .............................................................................................. 17

(i) Autonomous Relationship of the Project: ...................................................................................... 18

(ii) Non-Autonomous Relationship of the Enterprise: ........................................................................ 18

A- Complementary relationship: ......................................................................................................... 18

(i) Independent relationship of the Project: ....................................................................................... 18

(ii) Non-Independent relationship of the Project: .............................................................................. 19

A- Complementary relationship: ............................................................................................................. 19

B- Interchangeability Relationship of the Project: .................................................................................. 19

Project classification: .............................................................................................................................. 19

Developing countries and investment projects: ..................................................................................... 20

First, political reasons: ........................................................................................................................ 20

Second: Environmental reasons: ........................................................................................................ 21

Third: Economic reasons: .................................................................................................................... 21

Fourth: Technical reasons: .................................................................................................................. 22

Investment decisions: ......................................................................................................................... 23

Thinking about investment projects: ...................................................................................................... 25

Project promotion: .................................................................................................................................. 26


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Investment decision ................................................................................................................................ 27

Ranking Decisions ................................................................................................................................... 28

Accept /Reject Decisions ......................................................................................................................... 29

Mutually Exclusive Decisions .................................................................................................................. 30

Factors affecting investment decisions................................................................................................... 30

Management philosophy ........................................................................................................................ 31

Market Study and Sales Forecasting ....................................................................................................... 31

Competitor behavior ............................................................................................................................... 31

Alternative opportunities ........................................................................................................................ 32

Taxes and Depreciation ........................................................................................................................... 32

Funding Structure and Sources ............................................................................................................... 33

Working capital ....................................................................................................................................... 33

Machine sources ..................................................................................................................................... 33

Balancing cash flows ............................................................................................................................... 34

Change in price level ............................................................................................................................... 34

Production mode .................................................................................................................................... 34

Non-economic factors ............................................................................................................................. 34

Timing...................................................................................................................................................... 35

Risk and uncertainty ............................................................................................................................... 35

Project and organization circumstances ................................................................................................. 35

Impact on the organization's circumstances .......................................................................................... 36

Organization environment ...................................................................................................................... 36

Organizational Structure of the Organization ......................................................................................... 38

Organizational strategy ........................................................................................................................... 38

Identifying new projects that will generate more profits ....................................................................... 39

Infrastructure of projects ........................................................................................................................ 40

Chapter Three Project idea, selection and preparation ....................................................................... 41

Target ...................................................................................................................................................... 42

Project Idea ............................................................................................................................................. 42

Choosing the right project ...................................................................................................................... 42

The correct setup process for the project .............................................................................................. 45

Project work document .......................................................................................................................... 45

Project client needs and expectations .................................................................................................... 46


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Define project constraints ...................................................................................................................... 48

Due Assumptions .................................................................................................................................... 48

Legal form of the project ........................................................................................................................ 49

Chapter Four General framework for project feasibility studies ......................................................... 52

Target ...................................................................................................................................................... 53

Introduction to feasibility studies ........................................................................................................... 53

First: Identification stage ........................................................................................................................ 55

Sources of ideas for projects ................................................................................................................... 56

Second: Pre-selection stage .................................................................................................................... 57

Third: Analysis stage ............................................................................................................................... 58

Evaluation stage before implementation ............................................................................................... 61

Implementation stage ............................................................................................................................. 61

Evaluation stage after implementation .................................................................................................. 61

Reasons for the failure of project feasibility studies .............................................................................. 61

Objectives of investment projects .......................................................................................................... 62

Project General Objectives ..................................................................................................................... 63

Classification of feasibility studies for investment projects ................................................................... 64

Applied areas of feasibility study ............................................................................................................ 69

Chapter Five Initial Feasibility Studies .............................................................................................. 70

Target ...................................................................................................................................................... 71

The objectives of the initial feasibility studies ........................................................................................ 72

Analysis of the investment climate ......................................................................................................... 75

Initial financial feasibility study (Top-Down feasibility study) ................................................................ 90

Deciding whether the project is feasible or not ..................................................................................... 93

Some real life feasibility studies examples and cases ........................................................................... 114

Case One: .......................................................................................................................................... 114

Case Two: .......................................................................................................................................... 116

Case Three:........................................................................................................................................ 118

Case Four:.......................................................................................................................................... 120

Case Five: .......................................................................................................................................... 123

References: ............................................................................................................................................... 125


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Chapter One


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Feasibility study Definition:

It is a study carried out by the owner of a new project (or his

representative, or by the fund supplier) to study the possibility of

implementing the project and its success, or in the case of developing an

existing project.

The feasibility study illustrate and identify the required investments, the

expected return, and external influences on the project, such as state laws,

competition and technical development.

The economic feasibility study is the methodology for making investment

decisions. This methodology relies on a set of methods, tools, tests and

scientific foundations that work on accurate knowledge of the possibilities

of success or failure of the investment project around which the study is

based, trying to reach the extent of the ability of this project to achieve

specific goals, including the highest return. Or the benefit of the project

motivator or to the national economy or both within the limits of the

project’s assumed life.

Feasibility studies are one of the branches of modern commercial sciences

that are related to both economics and management science in its various

disciplines and accounting, especially management accounting and cost

accounting.

Reasons for the feasibility study:

1- Uncertainty about achieving the project objective due to the presence

of various internal and external variables, and to reduce the uncertainty

conditions, it is necessary to deepen the feasibility studies. The greater

the uncertainty (risk) conditions, the more in-depth feasibility studies


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are required to try to reduce these circumstances. Knowing the success

of the project.

2- It is noted in this field that the economic feasibility study is a project

model that is conceived before starting implementation to ensure the

preservation of scarce resources from loss, and then the feasibility

studies become a tool for caution and caution and a safety valve against

engaging in investment activities that have no return from engaging in

them. Hence providing a certain degree of certainty and good use of

resources. Knowing the need of the project and its chances of success.

Knowing the expected return on investment and the period of capital

recovery. Knowing the fixed and variable costs of the proposed project.

3- Economic feasibility studies are necessary for all types of projects,

regardless of their objectives, as we find that they are required for

public projects, as they are required for private projects, and also

required for agricultural and industrial projects as they are for service

projects.

The relationship between the feasibility study and strategic planning:

The feasibility study is to study the feasibility of a new project or the

feasibility of developing an existing project. As the strategic planning is

to study the best areas in which the Firm or institution can work in the

coming years and how it can compete in these areas. Strategic planning is

more general than the feasibility study because strategic planning shows

the best areas in which the institution can work in the coming years, while

the feasibility study is concerned with studying a specific project or

projects. Despite that, there is a great similarity between them, as both of

them need to study the market, competitors, customers, external factors

influencing, available capabilities and end with the expected financial

return.


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Consulting offices prepare the feasibility study, and pre-prepared

feasibility studies can be used for specific projects. In the case of the use

of a consulting office, the project bears the cost of preparing the study. As

for the use of feasibility studies prepared by parties that encourage new

projects, it forces you to choose among the offered projects, which are

usually traditional projects.

Contents of the economic feasibility study for any project:

The feasibility study, in its broad or narrow sense, is making a decision to

reject or accept a particular investment. The broad concept of feasibility

studies refers to all studies of the investment project since the exploration

of the investment project until the moment of making the final decision to

accept or reject it. Thus, it includes four basic steps:

- Explore, study, and classify investment opportunities.

- Pre-feasibility studies.

- Detailed feasibility study.

- Estimating the viability of implementing the project.

While the narrow concept corresponds to the pre-assessment phases and

the post-exploration phase for investment opportunities, and then the

feasibility study goes to the preliminary study and the detailed study.

Thus, the decision to approve or reject the project preceded by a set of

preliminary and detailed studies that deal with the marketing, financial,

and technical aspects. Therefore, the decision maker can evaluate the

financial results and economic effects and present them to the owner to

make the investment decision to know the appropriateness of this

investment from the point of view of the general trend of international

economic policies.


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Within the framework, feasibility studies categorized as follows:

1- In terms of the responsible person on perform the analysis: the owner

or a group of partners studies the economic feasibility of some

investment ideas that they want to implement, and in return, the

Ministry of Planning and Investment, international bodies or

machinery suppliers and producers study the machines with feasibility

studies.

2- In terms of the level of analysis: economic feasibility studies can be

divided into preliminary feasibility studies and detailed feasibility

studies, but sometimes we find that the preliminary feasibility study is

sufficient, especially in small projects. Stop proceeding in the later

stages of the feasibility studies, and the preliminary studies show those

in charge of the feasibility studies - in the case of continuing and

moving to the detailed studies - about the parts that need some

supporting studies, such as conducting certain laboratory experiments

or conducting a survey on the shape of the product.

3- In terms of functional division: We saw that feasibility studies in their

broad concept include detailed feasibility studies. These studies need

the availability of competencies and technical qualifications that differ

from one part to another within the feasibility studies. There is a need

for marketing men to study the expected sales volume and draw up an

appropriate marketing strategy. There is also a need for engineers in

the field of education, construction, design and technology, in addition

to the need for experts in financial analysis, lawyers, and others.


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Accordingly, feasibility studies categorized in terms of the following

functional specialization:

1- Marketing feasibility study.

2- Technical feasibility study.

3- Financial feasibility studies.

4- Economic feasibility studies.

5- Social feasibility studies.

6- Environmental feasibility studies.

7- Legal feasibility studies.

The objective of the course is to introduce the student to how the

feasibility study works and how to think about managing the investment

business.

In addition to what was clarified as containing the feasibility studies

curriculum, a practical application of a feasibility study will be made for

some projects, including, for example, the work of a feasibility study for

a real estate investment company.


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Chapter Two Investment project:


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This chapter deals with clarification and explanation the investment

project. The difference between it and the investment program. Project

management and program management. Identifying elements or

components of the investment project, its relationship to other projects.

How to classify investment projects. How projects are thought and how

to promote them. Who makes the investment decision. How to determine

its priorities and then how it is done. Acceptance or rejection of projects,

what are the factors affecting investment decisions. How is the

organization’s climate identified and its impact on the project, and what

affects the organization’s situation.

Investment project:

A project is an investment proposal aims to establish, expand and/or

develop what is already in place with the aim of increasing the production

of goods and/or services in a place during a certain period.

Accordingly, the project is an investment process that takes place in a

limited place or places in which financial materials “costs” are spent in

order to create productive assets that lead to obtaining “returns” benefits

over a certain period, through the project. In practice, it may not be

possible to identify an investment unit as a result. There are several

alternatives or sub-projects within integrated projects. In this case, it is

necessary to study each alternative or sub-project separately as a project.

In some cases, it may be more appropriate to study each project and

consider it integrated with other projects. If the independent study of the

project does not reflect the actual reality, and accordingly, the future of

the sub-project is not profitable at a time when the integrated projects are

profitable as a whole. Therefore, a project at a certain level may be

considered a sub-project at a level to and for this reason, we find that the

project designer may resort to including Or neglecting what he sees as

sub-projects according to the nature of each project. Except for this


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problem, and if it is easy to solve at the level of the establishment or the

private investor, it is relatively difficult at the national level due to the

intertwining of National goals. However, in all cases, it is necessary to

apply the same rules used, whether in projects or sub-projects. In general,

the project is a temporary endeavor to achieve some specific goals at a

specific time and with certain capabilities.

The projects may differ significantly in size, continuity extent, and what

they included individuals. Whether in the form of a small group or a large

group distributed over the various departments or departments of the

organization. The project is always unique in its content and is not

repeated again in exactly the same way. On the other hand, investment

projects are divided to the following groups:

First: new investment projects:

These are projects that did not exist before, and therefore new production

capacity is generated from them.

Second: Completion projects:

It is the addition of assets to existing projects with the aim of achieving

additional production capacity that leads to a balance between the

different production stages.

Third: Expansion projects:

It is the addition of a new production capacity in an existing project, such

as adding a new production line to a previously produced product or a new

product.


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Fourth: Modernization projects (replacement and renewal):

It is represented in the purchase of new assets (machines, for example) to

replace them with old ones in order to maintain the production capacity

of the project, or with the aim of developing and improving the production

and operational efficiency of the project. Thus, the project establish a new

investment unit to obtain a specific product or complete existing projects

in order to achieve a balance between the production stages or expand the

production capacity of existing projects by adding new production lines

or modernizing existing assets with the aim of maintaining or developing

the maximum production capacity of the project. It is a group of

interrelated activities having start and end to ensure the use of certain

resources to obtain expected benefits during a certain period.

Projects considered the real framework for development in any country.

As any development plan is nothing but several projects distributed

among the different sectors of the national economy. It is implemented by

public, private, cooperative, investment, or combined by all of them.

Therefore, the success of any development plan depends directly on the

success of its component projects. Since the establishment of these

projects depends on part of the economic resources of the state - which

often suffer from scarcity, especially in developing countries - so the good

use of these resources and their distribution among the proposed projects

is one of the most important things that the state must undertake in order

to achieve the best economic results. This is in addition to the priorities

that each country sees and that it wants to direct investments to.

Project management:

Project management is a dynamic process that uses the organization

available resources (material, human, technical) in a directed and planned


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manner to achieve some clear objectives known as strategic needs, which

are implemented within the framework of a set of specific controls.

In line with contemporary global changes, the advanced methods adopted

by many organizations are the use of "project management" to deal with

those variables, including that we may need in many situations for more

than one project until we reach the desired final output. In such cases, it

is often appropriate to divide the required implementing work into a group

of projects to be implemented by the organization in an integrated manner

through what is known as the program.

The program:

It is a group of interdependent projects that are managed in a coordinated

manner so that their implementation together leads to achieving the

desired results. Programs divided into phases with setting target deadlines

for the first phase that are known and binding on all. As the first phase

approaches completion, the following phases identified, allowing new

related projects to begin.

In the event that more than one project overlaps, or there are several

projects linked to each other in a phase, that has a time extension, then we

use “Program Management” to manage and control the change process.

Program management:

It is the use of a project management approach and its inherent procedures

to manage a closely related group of projects in a directed and planned

manner to achieve some clear and specific objectives known as strategic

needs. Therefore, it is natural that the processes used in both programs

and projects are similar.


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Project Elements or Components:

Any project must include the following elements or components:

(1) Cash outflows, also called costs, resources, investments, or

project inputs.

(2) Inflows, also called benefits, returns, products, or project outputs.

(3) A specific period representing the life or life of the project, and

these are divided into:

a- The economic life of the project - the period of time that the

project is supposed to end at its end, even if it remains productive

after that.

b- The useful life of the project - the period of time during which the

project remains productive, and it may be more or less than the

economic life of the project.

(4) Spatial space - it means a specific site or locations in specific

areas.

(5) Project management - includes personnel, technicians and those

responsible for project management

Project relationships with other projects:

The relationship of the project to other projects differs according to the

nature of the project, the conditions of the region and the type of activity

it engages in.

In general, this relationship can take one of the following forms:

1- An independent relationship.

2- A non-independent relationship


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(i) Autonomous Relationship of the Project:

It is said that project (A) is independent of project (B) if its cash outflows

or inflows will remain unchanged regardless of the acceptance or rejection

of project (B), but if the cash flows of project (A) are affected by the

acceptance or rejection of project (B), it is said Project A is a subsidiary

project. Therefore, the conditions for the independence of the project

require the availability of the technical capabilities necessary to establish

the project (regardless of the acceptance or rejection of the other project).

It also requires that the net benefits of the project are not affected by the

acceptance or rejection of the other project.

(ii) Non-Autonomous Relationship of the Enterprise:

If the cash inflows or outflows of project (A) are affected by the

acceptance or rejection of project (B), then project (A) is not independent

of project (B) and they have either a complementary or a mutual

relationship.

A- Complementary relationship:

The complementary relationship between two projects exists if the

acceptance of one of the two projects increases the overall net benefits

from the other project, whether by increasing the final return (inflows) or

by reducing costs (outflows), or both.

(i) Independent relationship of the Project:

It is said that project (A) is independent of project (B) if its cash outflows

or inflows will remain unchanged regardless of the acceptance or rejection

of project (B), but if the cash flows of project (A) are affected by the

acceptance or rejection of project (B), it is said Project A is a subsidiary

project. Therefore, the conditions for the independence of the project

require the availability of the technical capabilities necessary to establish

the project (regardless of the acceptance or rejection of the other project).


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It also requires that the net benefits of the project are not affected by the

acceptance or rejection of the other project.

(ii) Non-Independent relationship of the Project:

If the cash inflows or outflows of project (A) are affected by the

acceptance or rejection of project (B), then project (A) is not independent

of project (B) and they have either a complementary or mutual

relationship.

A- Complementary relationship:

The complementary relationship between two projects exists if the

acceptance of one of the two projects increases the overall net benefits

from the other project, whether by increasing the final return (inflows) or

by reducing costs (outflows), or both.

B- Interchangeability Relationship of the Project:

There is a reciprocal relationship between two projects if the acceptance

of one of the two projects leads to a decrease in the overall net benefits

from the other project, whether through a decrease in returns (Inflows) or

through an increase in costs (Outflows), or both.

Project classification:

Classification of projects according to the sector to which it belongs,

according to the size of the project, or according to place or geography.

(1) Classification by sectors - where there are agricultural projects,

industrial projects, service projects, etc.


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(2) Classification by size - in which projects are divided into large,

medium and small.

(3) Classification according to location or geography - in which projects

are divided into local, regional and national projects.

Developing countries and investment projects:

As we have already mentioned that projects are the real framework for

economic and social development in any country, as it is the plan with all

its sectors, so the success of any plan depends primarily on the success of

its projects - and vice versa - the failure that accompanies projects must

be reflected in the plan, and therefore the Focusing from the beginning on

good and proper planning of projects and preparing them accurately gives

the opportunity for the possibility of the success of the plan itself.

It is noted that many projects in developing countries have been

compromised, even though these countries suffer from a scarcity of

available economic resources and therefore are in direct need of making

the best use of them. They are classified as follows:

First, political reasons:

1- The desire of political leaders in most developing countries to show

their audience the rapid success in implementing many projects,

especially those that have a certain political luster, without carefully

studying the technical or economic aspects of these projects. This is

usually accompanied by kinds of pressures on those in charge of the

project to obtain quick results and an appearance that does not

reflect the truth, as well as the support of some parties, political

groups or certain social groups - technically, financially or

politically - for some projects and their encouragement regardless

of the real and necessary needs of the state.


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2- The impact of projects on the prevailing political currents and their

volatility with the volatility of these policies.

Second: Environmental reasons:

1- The developing countries transferred to them many projects that

succeeded in the developed countries, but the success of these

projects was not repeated in the developing countries due to the

shortage that these countries suffer from in the field of project

management, where the organizational methods and means

necessary for project management play a major role in their success.

2- Designing projects for developing countries according to general

standards prevailing in developed countries without taking into

account the availability of resources, raw materials, infrastructure,

and skilled labor needed locally….etc.

The conflict between the personal interest of the organizers, whether they

represent the public sector, the private sector or the investment sector,

and the higher national goals in developing countries.

Third: Economic reasons:

1- Lack of coordination between the various economic activities to

which the project is linked in developing countries, since most of

these countries work with a comprehensive view of the economic

planning as a whole. An example of this is the neglect of those in

charge of a project that needs large amounts of electrical energy to

take into account that the sector specialized in providing electricity

for the project His plan does not have any future expansions. Poor

planning here must lead to the project being suspended or (failed)

after its establishment.


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2- Also, encouraging some projects through incentive programs or

inappropriate incentives, such as the government providing types

of support or adopting policies, leads to rapid deviations.

Fourth: Technical reasons:

Those in charge of project planning in developing countries were not

always able to choose the appropriate technology to achieve the project’s

objectives in order to confuse the project’s economic objectives with the

political as well as technical objectives. Therefore, taking into account the

good link between these objectives in preparing and evaluating projects

has an important role in their success.

It should be noted that these effects cannot be mitigated to some extent

when preparing or evaluating the project.

Direct causes of project failure:

In addition to the general reasons associated with many developing

countries that lead to the failure of many projects in them, there are other

direct reasons related to organizations or sponsors of projects and lead to

the same result. Some of these reasons are more clear and common and

often come together and these reasons are the inaccurate identification Or

the wrong goals in the beginning.

Absence or weakness of senior management commitment.

Weak management

Inability to understand the capabilities and capabilities of project team

members to perform work


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Inability to anticipate surprises

Inability to diagnose and solve problems

Inability to take the right decision at the right time

Investment decisions:

Perhaps there is no decision in the field of business more dangerous than

the decision to invest, especially long-term investment, as such a decision

is considered a financial link with relatively large sums, especially in

circumstances that are largely unknown in the future, which makes the

investment process, as expressed by the economist Schumpeter, an

attempt to hit a target not only It is clear but also mobile and in an

unpredictable way.

Therefore, we must always remember that the nature of projects that are

held in developing countries is completely different from those that are

being carried out in developed countries, as a result of the different

general economic features in both of them and Egypt as one of the

developing countries whose general economy is characterized by features

that should be in the eyes of those who think about any investment project

The most important of these features:

- It is a decrease in the average annual income of an individual

- The increase in the number of agricultural workers

- Double employment rates

- Double the rate of individual savings for society

- Weak development and marketing facilities

- Decreased average foreign trade volume per capita

- The need for free foreign currency to cover the value of imports


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These phenomena or features force many developing countries, including

Egypt, to use the planning method to control and accelerate the process of

economic development. Taking into account all the above-mentioned

phenomena, on the basis of which the criteria for judging the value of

projects and the extent of their importance to the national economy are

determined, so when thinking about any of the investment projects, all

previous considerations must be taken into account so that the project does

not meet with rejection in the end, and this fact is not the new projects - It

is often taken by the highest level, whether it is at the level of the

company, the bank, the facility, the ministry, or even the Council of the

Ministry. In fact, many companies and banks establish special

departments for economic feasibility studies of investment projects that

include a group of experts and specialists in this field. Many governments

also establish departments or bodies specialized in evaluating national

projects and investments (such as the General Authority for

Industrialization in Egypt), or in evaluating joint and foreign investments

(such as the General Investment Authority).

Also, many international institutions have developed and developed

guides for evaluating investment projects, such as the United Nations

Industrial Development Organization (UNIDO), which developed a

guideline for evaluating industrial projects in 1972 under the title

"Guidelines for Project Evaluation", as well as the Organization for

Economic Cooperation and Development Economic Cooperation and

Development (OECD), which developed a project evaluation guide in

1968 under the title: Manual of Industrial Project Analysis, as well as the

Industrial Development Center for Arab Countries (EDCAS), which in

cooperation with (UNIDO) prepared a guide in English and Arabic under

the title ( Guide to Evaluation and Comparison between Industrial

Projects for Arab Countries in 1979).


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Thinking about investment projects:

The idea of investing in projects basically begins in the mind of a person

or group of people, whether in their personal capacity or as representatives

of one of the parties or investors that wish to invest in the investment

process. Or a specific service. There is a set of methods sometimes,

usually to investigate this, the most important of which is to refer to the

list of imports, or to note the intense craving for a good or service in the

local market of the state. And an inventory of the existing projects that

produce this commodity and the possibility of these existing projects that

produce this commodity and the possibility of this Projects to meet the

needs of the market. The idea can also arise from the possibility of

benefiting from the existing raw materials or the local workforce in the

production of a new commodity that is suitable for export to foreign

markets.

The idea may also appear in other images - the idea may revolve around

the exploitation of a new scientific invention in the production of a new

commodity or the development of a previously known commodity. Or it

may revolve around an invention that was previously discovered but not

yet used in the country concerned.

The idea may also be simply to create a project to compete with a number

of existing projects. In this case, it must be ensured that the project is able

to produce the commodity at a cost lower than the cost of similar projects,

so that the product produced can have the ability to compete. As the entry

of a new product into the market will be accompanied by an increase in

the supply of the commodity and thus a decrease in the selling price. The

thought may also revolve around integrating more than one of the existing

projects with each other in order to reduce the intensity of competition

between them and take advantage of the economies of scale.


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Project promotion:

After defining the investment idea, the promoter, whether it is a

governmental, private, individual or group of individuals, studies it to find

out the possibility of exploiting it. Usually, the promoter evaluates the

idea in an approximate way, and the promoter can use a number of

specialists according to the nature of the proposed project.

The promoter plays this role in the economic life, as he is the one who

takes the first steps to create projects necessary for economic

development, and the promoter may do this process only once, and he may

take it as a permanent craft, but the vast majority of projects are carried

out by individuals once in their life and project promoters get a return In

return for the services they provide, this return may be in the form of cash,

or it may be in the form of a share of shares in new projects.

Some countries resort to reorganizing the national economy according to

established plans aimed at developing production and raising the standard

of living, and the state may undertake the process of promoting projects

by itself.

It should be noted that the Egyptian economic life witnessed a number of

project promoters, and one of the most famous of these was the late Talaat

Harb, who adopted the idea of establishing Banque Misr and its partners,

which contributed greatly to building the Egyptian economy.


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Investment decision

Investment decision-making is linked to the degree of centralization and

decentralization in the economic structure, whether at the national level

or at the private level. On the one hand, we find that a number of

companies do not give the project manager the right to take the decision

to spend more money than a certain limit. On the other hand, we find that

other facilities specify the minimum amount Which are considered by the

Board of Directors (ie, not less than a certain limit) and may amount to

several million pounds.

It is natural that this degree of centralization and decentralization is related

to the economic situation of the facility with the degree of quality and

accuracy of the investment decision. If the quality of the decision is high,

it can be taken at a lower level, as there is no sense in this case of

consuming the time of senior managers or boards of directors in topics

that can be studied efficiently at the level of lower managers. It is worth

mentioning that there are two main reasons for weak (not good) decisions.

The first is the lack of correct and sufficient information available to the

decision maker.

In general, it can be said that if there is a good system for collecting and

authorizing information and there are specific criteria for making

investment decisions, then this must encourage decision-making at the

lowest administrative level. An exception to this is the case in which the

higher administration has information related to the general policy of the

state. , or other reasons. But in all cases, the investment decision-making

must be studied by the planning director, financial planning director or

financial manager. In practice, we find that the Planning Department

participates in preparing the required and sufficient data to make the

investment decision.


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Ranking Decisions

This means arranging the proposed investment projects according to the

relative benefit of each of them, especially if the inputs available for

investment are limits, whether related to cash flow or the human

competencies necessary for operation, or the degree of technology used.

In such cases, the investment decision is not based solely on the overall

profitability of the project or The proposed projects, but also depends on

the relative benefit of the limited income Input so that the selection of

projects that maximize the amount of return from the specified inputs and

often use some quantitative methods complex Quantitative Techniques in

its installation and implementation in practice to reach the resulting

investment decisions.

Accordingly, the proposed investment projects are arranged in the form

of an investment program that accurately determines the priorities for the

implementation of projects according to certain criteria (these criteria

differ from other countries, and from a certain stage to another stage of

development), and we mention, for example, the following :

(1) The criterion of the total return or profitability of the proposed

project or projects, and this criterion is used in the event that there

is no shortfall or shortcoming in the financial and operational

investment inputs.

(2) The criterion of relative return on the specified input or inputs, in

which the project that achieves the largest relative return on these

inputs is preferred, then the project with the lowest return on it.....

and so on.

In this case, the investment program may allow the

implementation of all the projects proposed in the same program,


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but with the different start of each project according to the

previous considerations or priorities, until all the projects in the

program are completed.

The importance of investment programs is increasing in countries that

pursue a policy of central planning for the process of economic and social

development, as in the Arab public of Egypt - in this case, the problem

faced by the master plan is how to find appropriate solutions to reach an

optimal arrangement of the priorities of investment projects, taking into

account the intertwined elements of development The comprehensive

economic and social, and at the same time, it allows the optimal

investment of the untapped resources in the state, and the optimal

exploitation of what is exploited.

Accept /Reject Decisions

Such decisions are considered normal and inevitable at the same time in

the investment field, where some investment projects are accepted, and

this is also done through a set of criteria on the basis of which selection is

made, and that these criteria differ according to each case and the

conditions of each stage of development. And the acceptance process This

rejection is called the process of differentiation between investment

alternatives, in other words, the decision here is a decision to choose an

investment alternative.

However, it must be understood that the optimal investment alternative

here does not necessarily mean that it is a project linked together, because

it is possible to classify projects not on an individual basis, but on the basis

of multiple groups, each of which includes more than one project, and not

necessarily that each of these groups must To include projects of one

nature such as industrial projects, agricultural projects, agricultural


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projects, or service projects. Rather, it would be better to classify these

investment groups so as to lead to a kind of investment integration within

each group, for example that investment groups include agricultural and

plant projects And animal and animal factories, factories for the

manufacture or treatment of products, in addition to projects to improve

the soil and test breeds and varieties, in addition to financing projects such

as the establishment of a financial institution specialized in financing

these operations, and others that carry out the process of discharging and

marketing raw and manufactured products at home and abroad...etc.

In such cases, the different investment groups are discussed and evaluated

in proportion between the groups and some of them and not among their

components of projects, then the best alternative is chosen, which in this

case is an integrated investment group.

Mutually Exclusive Decisions

Usually we are faced with such decisions, especially when we do not have

factors restricting the sources of investment financing, and it is required

to choose an alternative one project or group of investment projects,

knowing that the choice of this project or this group of projects will

necessarily prevent us from choosing the proposed alternatives for

investment that perform the same service or produce the same commodity.

In this case, the selection is made according to the preference of the form

or amount of return or benefits achieved by each project or group, and the

rest is necessarily rejected.

Factors affecting investment decisions

After we have clarified from the above the steps for making the

investment decision, we must make it clear that in practical life the

investment decision in most establishments is often taken on the basis of


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only a few tangible economic factors. However, such a decision is

appropriate only if the management of the establishment is aware of all

the internal factors. In general, the factors that affect investment decisions

can be summarized as follows:

Management philosophy

This factor reflects the policy of the facility determined by its

management. It is important that this philosophy be commensurate with

the conditions of the industry in which it operates, the environment

conditions and the time factor, and to avoid the concept of the marketing

view that is based on unthoughtful adventures.

Market Study and Sales Forecasting

Management must predict the market potential (domestic and foreign) and

the volume of long-term and short-term sales. Long-term plans should

include critical decisions in investment spending, and focus its efforts on

growth and innovation to keep pace with future markets.

Competitor behavior

The management of the facility must consider the main competitors for

several reasons, the most important of which is that the competitors who

continue to acquire more efficient and higher production machines pose a

threat to other facilities operating in the same field. The management must

also be aware of the competitors’ strategies with regard to investment

spending and targeted growth rates and determining reactions on a long-

term basis.


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Alternative opportunities

The main and permanent question before the management becomes where

the resources can be exploited so that profits will be maximized in the

long term? This also means that spending on capital equipment must be

balanced with spending on human resources under the available

conditions, as well as achieving an appropriate balance between

development programs and marketing research. And other areas of

activities that require specific expertise or a skilled worker.

Taxes and Depreciation

Taxes depend on profits, as well as on the assumed depreciation expense,

and a high-value investment leads to a high annual depreciation expense

that is subtracted from the revenue for purposes related to calculating the

tax. There is no doubt that the lower the tax, the greater the cash flow for

a particular investment.


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Funding Structure and Sources

There are two ways to finance investments in long-term assets:

- Withholding money from profits made, or selling stock. This

increases the rights of the owners of the facility.

- Borrowing from others, which, although it allows greater flexibility,

increases the claims of creditors from outside the facility. Since

investing money in capital assets is an economic choice, there is

usually an obvious or implied alternative opportunity represented in

the cost (or return) of a second best use of the invested money. If

internal sources of financing are used, the cost of capital is the return

from the best available alternative for investment, but if funds are

borrowed from outside the facility, the cost of capital is necessarily

paid on the funds.

Working capital

The factor is represented in the increase in current assets over current

liabilities, and the maintenance of an increase in long-term loans or capital

increase. In all cases, attention must be paid to maintaining cash flow.

Machine sources

The sourcing of machinery significantly influences some investment

decisions related to machinery. These sources are:

Machines available in the facility - New machines from suppliers - Used

machines sold by commercial sources - Machines rented - Foreign

suppliers.


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Balancing cash flows

Flows must be developed for each investment alternative, and the analysis

of the cash flow budget affects making investment decisions. On the one

hand, it may indicate the importance of the change in timing, and on the

other hand, the timing of cash flows for investment alternatives may

appear. It is obvious that investments that give net cash inflows in years

are preferred as the initial life of the investment.

Change in price level

This is mainly due to the inflation factor, which leads to a decrease in the

purchasing power of the currency. If the costs and revenues are the same

with each other, the change in price levels has little effect on the pre-tax

benefits.

Production mode

The appropriate mode of production of the project's products must be

taken into account when evaluating investments, and management is

required to evaluate projected labor costs against the costs of new

machinery. In general, automated (or automatic) production lines are

preferred in large projects, while intensification of human work is

preferred in small projects. However, all this also depends on the degree

of availability of capital or labor force, interest rates and the level of

wages.

Non-economic factors

These factors have economic impacts, but they are difficult to measure.

The most important of these factors are:

Adequate safety in operating the machines to avoid their damage and to

avoid the expenses of treating workers and the injured, as well as the time

lost in arranging subsequent operations.


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Appropriate working conditions that often lead to reduced absences and

increased productivity.

Timing

This factor enters into the investment decision in three ways:

Timing as part of the project's long-term plan.

The timing of the alternative hypothesis.

The timing that links the selection of capital expenditure for the machine

to the preparation of the product design.

Risk and uncertainty

The risk and uncertainty associated with the future accompanies

investment and related decisions, as all the factors involved in evaluating

investment projects and related to the future are subject to change, such

as operating costs, revenues, interest rates and prices. When comparing

the alternatives, the decision maker makes a distinction between two

different risk situations, and operations research provides different

methods that help management in estimating the results related to

alternative decisions.

Project and organization circumstances

The general climate that prevails in the organization affects the selection

and establishment of projects, and implementation is carried out in light

of this climate, which may be:

Internal conflicts prevail.

Exposed to unexpected external influences.


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Focuses on the present without regard to the future.

Therefore, managers at the higher levels of the organization have to

innovate and strive constantly to maintain an environment conducive to

the success of projects. These managers must always remember that it is

their failure that is often mentioned more than their success.

Impact on the organization's circumstances

Organization circumstances.

Organizational structure of the organization.

Business strategy.

Infrastructure of projects.

We note that each of the previous elements has a significant impact on

whether the project climate is appropriate or not.

Organization environment

The prevailing environment within the organization is often cited as the

reason for not achieving what was planned. It is difficult to define the

principle of environment or explain it in a conclusive way, and there is no

consensus on its meaning or on the nature of its relationship to climate in

the organization. One of the simple and common ways of defining the

environment is “how to perform tasks in this place”, and it generally

distinguishes between “acceptable and unacceptable” and between the

behavior that is encouraged and that which is rejected. Most of the

attempts that wanted to analyze this definition focus on the set of customs,

values, policies and beliefs. and the trends that make up a general

environment for everything you do within the organization.


37

You can therefore expect that the environment is influenced by rituals,

ceremonies, patterns of communication, and the types of behavior that are

expected and accepted. The management also has a noticeable impact on

the environment through the leadership style and the acceptance of the

work staff for the existing climate, and this affects the environment in

which the organization operates by responding quickly and keeping pace

with change when that is required.

Thus, we see that accepting the environment or not has a clear impact on

the climate, as the behavior of individuals is strongly affected by the

feelings that they have about the internal climate of the organization. The

main elements in the climate that affect the ability of individuals to

achieve success in the project also include other effects of the

environment that may be less obvious, including:

- Impact on the morale of individuals.

- Influencing their mutual trust.

- Influencing their support and respect for decisions.

- Influencing openness, sincerity and avoiding confrontations.

- Influence the recognition and acceptance of risks.

- Influencing their participation in decision-making.

- Influencing freedom of action through conscious responsibility.

- Impact on commitment and sense of belonging.

- Influencing joint cooperation and teamwork.

- - Impact on training where opportunities to learn new.

Attention must be paid to the importance, location, and extent of these

effects, especially by managers, who must work with the team to ensure

that each of the aforementioned influences receives the appropriate

attention, and that each manager provides the appropriate climate so that

he and his team can achieve success in the project.


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Organizational Structure of the Organization

Organizations were and still many of them follow the hierarchical

organizational structure, which despite its many advantages, the most

important of which is defining responsibilities and delegating authority

and in which each function plays a well-known part, but this structure may

result in some problems that stand in the way of success in the project.

However, projects can succeed despite their hierarchical organizational

structure when the project leader is strongly committed to breaking down

the barriers that frequently arise between work groups. But that required

an extra effort that could have been spent on the project's work.

But problems can arise that show that the structure is more than just a set

of layouts.

A formality within the organization, where the structure includes all the

major and sub-systems, which are:

- Formal and informal communication channels.

- Relationships by means of reports, which is the real strength of the

structure.

- Decision making processes.

- The system of incentives, rewards and distribution of profits.

- Easy to accept rules and norms.

Organizational strategy

Recognizing the work strategy pursued by the organization enables people

not only to be able to know the objectives of the projects that are being

implemented, but also to identify the reasons that called the organization

to think about these projects. Although the vision of management is not


39

always clear, otherwise every organization It always has a primary

direction in which to dedicate its efforts. The strategy that the organization

develops is always compatible with that direction, and any of the

strategies that are used consist of:

Supporting existing activities to increase growth and create profits.

Focusing on projects that are currently being implemented to achieve

additional gains.

Identifying new projects that will generate more profits

If the projects that are being implemented are not in line with the business

strategy, the risk of using the available resources and funds to create

something that the organization does not need will exist. This is on the

one hand, and on the other hand, there will be a possibility of losing an

alternative opportunity that may or may not be apparent.

The business strategy is the basic starting point, and any new program or

project should not be started without knowing whether it agrees with the

existing strategy, or justifies making some changes to the strategy - under

special circumstances. If the program does not fit and supports the

strategy, we must ask why we did it?

The bottom line is that the criteria of the strategy alone are not enough to

ensure success, but they only serve to ensure that we are doing the right

thing, and that we are not doing anything that has nothing to do with

business needs.


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Infrastructure of projects

Despite the important contributions to the work structure formed by the

structure of the organization, the organizational structure and the work

strategy, all of these elements need to be linked with each other, and this

is what the infrastructure does. And that the presence of the appropriate

infrastructure leads to the possibility of making the right decision, and

ensures that the focus of all systems and projects is directed towards

meeting the needs and objectives of the business strategy. Also, the

creation of this infrastructure ensures that each of the basic individuals in

the organization’s project environment has a clear and specific role and

responsibility.

On the other hand, the vision of the work must be balanced and

comprehensive to ensure that all available resources are best utilized for

the growth and development of the business, and this exceeds the limited

view usually supported by the hierarchical organizational structure.

It is worth noting that decisions can be effective only if they are based on

accurate and real information. Hence the need for information collection

and analysis support systems and to enable management to make

decisions based on information and not based on dependence, inspiration

and predictions.


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Chapter Three Project idea, selection and preparation


42

Target

In this section, the idea of the investment project will be addressed, and

how to choose the right project. It will also discuss how to prepare and

amend the project business document. It also dealt with identifying the

needs and expectations of the project client. He can also determine the

restrictions on the project, and the necessary assumptions in this regard.

And he can identify the legal form of the investment project.

Project Idea

Most investment projects stem from initial ideas, whether from a potential

client, or generated within the organization itself, or from one of its

employees, and such ideas abound until they often exceed the amount of

available resources or the value of funding that allows these ideas to be

transformed into a tangible reality in the form of projects. active.

Therefore, a preliminary filtering of these ideas must occur so that the

organization can achieve the desired results within the framework of its

available resources.

Therefore, this may include some forms of written suggestions, or the

issuance of an administrative decision to prepare the initial business

document. As a general rule, it is better to prepare the initial business

document as a basis for making decisions based on information.

Choosing the right project

How many times have organizations spent huge amounts of money and

put in strenuous efforts on a project only to find out that no one needs the

output from that project

For this reason, the importance of the project selection process came on

clear, specific and accurate bases to a large extent in order to ensure that

our choice was correct and therefore the allocation of different resources


43

to the chosen project was in order. In this regard, there are two main

directions of the selection process:

- Selection according to a model that provides quantitative information.

- Selection according to a form that provides qualitative information.

Each method has its advantages and disadvantages, as well as its

disadvantages and disadvantages. Therefore, we find that it is common to

use more than one method or model to ensure that the results are as

accurate as possible. The more information generated, the greater the

effort required to re-evaluate and measure actual performance.

But the final choice remains the decision of the senior management

through the program management team, which needs to provide it with

sufficient data and information to enable it to take such a decision. And if

the climate is available - which was referred to in the previous chapter -

the role of obtaining strategic approval comes as a prerequisite for the

project management team to begin studying this proposal or that business

document. Each organization must develop its own way of conducting this

process to the extent that it ensures that its entire portfolio of active

projects does not require credits or resources in excess of what can be

provided to achieve success.

We note that what is agreed to be studied in detail is then subjected to a

complete analysis of the needs and expectations by the core team, and it

is usual for these data to lead to the establishment of a complete business

document for the proposed project. As for the second filter carried out by

the program management team, it reviews the entire business document

before issuing the order to move to the project definition stage.


44

At each stage of the liquidation process, if the decision is rejected, the

projects are returned completely, or some of them are transferred to the

waiting list to be studied at another time.

Naturally, the project selection process will prompt the program

management team to ask some basic questions, and determine the exact

answers to them, which are:

- Will the proposed project increase profits?

- Will the proposed project work to raise the profile of the

organization?

- Will the proposed project increase the utilization of existing "human

and material" resources?

- Will the proposed project increase the utilization of existing

production capacities?

- Will the project activity match the organization's current skills and

experience?

- Will the project increase the degree of risk faced by the

organization?

- Will the proposed project lead to one of the following:

- Maintaining the organization's share of the market?

- Strengthening the organization's position in the market?

- Opening new markets?


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The correct setup process for the project

Some managers are enthusiastic and eager to start setting up the project

and show some activity. However, such haste leads to a lot of risks, and

the credit is always due to a careful review of the information collected in

order to make sure that the project is going in the right direction.

Therefore, at this stage, it must be absolutely clear that:

- Who is the project supervisor?

- Who are the core team members, or the closest candidates for that?

- Who will use the results?

- Who is the primary customer?

- Who is the secondary client?

- Who else has influence on the work .. the shareholders?

Project work document

Every project should have its own business document, which is already a

basic control document for the project as the blueprint for its business.

This document should be regularly reviewed, reviewed and updated. It is

established in multiple stages during which it is developed from an initial

business document to an initial business document to a final or completed

business document.

The initial workers document is drafted with the initial liquidation with

the initial liquidation of the available investment ideas and opportunities,

and what is approved for detailed study is then subjected to an analysis of

the needs and expectations by the main project team. Naturally, this data

will enrich the business document.


46

We note here that whenever new information is reached during the

project, it must be used to strengthen and update the business document.

At each stage of the liquidation stage carried out by the management team,

the entire business document is reviewed before issuing the order to move

to the next stage.

Attention should also be paid to the administrative formation of the

project, and to record all revisions and additions that have been made. It

is important for the management team to refer to the most recent reviews

of the business document when making decisions.

Project client needs and expectations

There is an important fact that any business document will contain some

defects if it does not take into account accurately the requirements of the

client and understand his needs accurately. Also, challenging the needs of

the client and understand his needs accurately and identifying the needs

of the client will help in the end to prepare a list of goods or services

tailored to meet his expectations. Once you become clear about these

needs, you can develop requirements that drive the planning process, and

this can be considered as preparing the foundations for the proposed

project for investment.

We stress here that failure to allocate sufficient time and effort to complete

the process of identifying the client's needs will negatively affect the

project throughout its life. Therefore, a special effort must be made to do

the following:

- Understanding the customer through a customized questionnaire.

- Understand the environment in which the client operates.

- Demonstrate ability and technical knowledge of client technical

needs.


47

- Transforming unexpected customer needs into practical solutions.

- Maintaining an open mind and innovative attitudes.

- Helping the client display his hidden expectations.

- Helping the client identify needs that are difficult to name.

The goal at this stage is to transform the information we receive into a

clear statement of needs. These needs can be passed on to the client for

approval and acceptance without ambiguity. At this point, the project

organizer and client are ready to cooperate fully to guide the project

towards a successful conclusion.

The following is an example of the list of questions that are asked to the

client or clients when we begin to prepare a project business document to

get specific answers to them.

- What does the customer think is required?

- Do all customers agree?

- Are the basic security needs separated?

- Have the estimated solutions already been proposed?

- Has the end user's vision of needs been defined?

- Have primary and secondary needs and hopes been arranged?

- Was this list arranged according to priorities in agreement with the

client?

- Can you convert information into data as required?

- Can you use a needs analysis to formulate statements about

requirements?

- Will the customer agree with statements about the requirements?

- What are the specific variables?

- What are the style changes?

- What are the behavior changes?


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Define project constraints

Restrictions on the project are all the factors that limit the activities of the

project. In today's business environment, there are scarce resources,

financing and unlimited time to complete the work. And if we take into

account the fact that the requirements and needs of the market change

continuously and effectively, the project’s products must always be

presented to the market on time, because any rental that may occur may

lead some to believe that the effort that was made in the project was a

waste of time and the rest of the resources allocated to the project .

The project constraints are usually in the following categories:

- Financial constraints - represented in project costs.

- Qualitative constraints - those related to setting standards and

standards.

- Time constraints - those related to the time factor, represented in the

specific times for the delivery of products.

Due Assumptions

It is a well-known fact that at the beginning of work on the establishment

of any project, there is no escape from formulating many assumptions

about all aspects and activities of the project. These assumptions are

always related to the more complex or obscure things. Assumptions are

potential sources of obstacles in the future, so we must make sure to record

them now, and to record all new developments in the future. We also

constantly correct and correct every assumption that we dealt with if

necessary, otherwise it could become a future issue waiting to be resolved.

Assumptions are made to deal with them, not to be used as an excuse to

fail. Therefore, the management team needs to identify all the

assumptions made in order to help them in the decision-making process.


49

Remember that incorrect assumptions become problems that have a

negative impact on the progress of the project and must be resolved.

Legal form of the project

After the investment decision is taken, and the specialists study the

financial plan for the establishment of the project and decide the

possibility of its implementation, they must determine the legal form that

the project will take. From a legal point of view, we find that the project

may take one of the following forms:

(1) Individual project

(2) Personnel companies - divided into:

A- Partnership companies

In which all partners are jointly liable for all the obligations of

the company before the offer, and that this responsibility is not

limited, and this company is called a solidarity company because

it is based on the persons of the partners in it, and therefore it is

considered among the companies of persons, and any action of

any partner towards others is obligatory for all partners.


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B- Partnership

It is one of the partnerships of persons as well, and the solidarity

in it is between some of the partners only, without the rest, and

they are the ones who participate in the management of the

company and their responsibility for its obligations is unlimited.

The company’s obligations are limited to the extent of their share

in the company’s capital.

(3) Joint Stock Company:

It is a money company because its legal personality is

independent of the personality of its shareholders, and because

these shareholders or shareholders are not responsible for the

company’s obligations towards third parties, the limits of what

each of them owns from the capital shares. As for the ownership

of the real capital of the company represented in its fixed, current

and liquid assets, it is a common ownership. The legal entity of

the joint-stock company is not affected by the death or

withdrawal of one of the partners - unlike the case in partnership

companies - if the shares of the joint-stock company can be traded

by buying and selling in the stock market.

(4) Holding Company:

A company that owns a company or other companies in part or

in full.

(5) A cooperative society.


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(6) Projects established under the Investment Law No. 230 of 1989

for the Arab Republic of Egypt, and they take any form of the

previous companies, but they enjoy the advantages and

exemptions granted by this law to companies operating under it.

The previous legal forms for investment projects, thus shows a close

relationship with the financial aspects. For example, the risks to which

the funds of partners and creditors are exposed are determined according

to the legal form that the project takes. On the other hand, you find that

the legal form determines to a large extent the amount of money that It

can be collected and invested. In addition, the legal form determines the

tradability of the partner's share.


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Chapter Four General framework for project feasibility studies


53

Target

By completing this chapter, the reader becomes familiar with the general

framework of project feasibility studies and its dimensions and stages,

starting with the project definition stage, passing through the initial

selection stage, then the analysis stage, the final evaluation stage, and then

the project implementation and completion stage.

This enables the student to learn about the various reasons for the failure

of feasibility studies. He learns about the objectives of private and public

investment projects and how to classify feasibility studies, whether in

terms of the functions they perform or in terms of their utility, and finally

the applied fields of feasibility studies.

Introduction to feasibility studies

In light of the continuous and accelerating development in which we live,

in which work is characterized by specialization and division, and in light

of the great accumulation of knowledge so that it is impossible for every

single individual, regardless of his abilities, to be fully acquainted with

one of its branches, and in light of the complexity of practical problems

in general to the degree that they are generally addressed to the degree

that they are addressed. You need an integrated work team. We find that

all of this is reflected in particular in the field of research, feasibility

studies and evaluation of investment projects, where the success of these

projects depends on accurate, comprehensive and objective studies of

these projects so that the available resources can be used in the best

possible way. This is achieved through a set of studies that are conducted

on the investment project from the marketing, technical, engineering,

financial, economic and social aspects and ends with a report on the extent

of the project's success in achieving the objectives required of it, whether

they are economic or social returns.


54

In this context, the feasibility studies of the investment project aim to

determine its validity from several legal, social, marketing, technical and

financial aspects, whether from the point of view of the private or public

investor, or from the point of view of the investment host community.

These studies depend on an integrated set of scientific foundations and

rules derived from the sciences of economics, management, accounting

and operations research, all of which are used to collect, study and analyze

data related to the project in order to evaluate the investment in it from

the point of view of both commercial profitability and national

profitability.

It should be noted that the emergence and development of the investment

project is an integrated process that is implemented in successive stages

that can be focused in three basic stages: the project preparation stage, the

evaluation stage and the implementation stage. These three stages are

closely related to each other, and achieving maximum success ultimately

depends on all these stages to the same extent.

We have agreed that the project is in fact a financial investment for a

relative financing in which the benefits are deferred in exchange for

expenditures or costs or the allocation of part or all of the available

resources in order to realize these benefits in the future and in a

satisfactory manner characterized by maximizing the return. Accordingly,

the project feasibility study is a process of measuring the viability of

investing in that project and the percentage of the benefits it achieves.

It can be said that any attempt to formulate a specific method that can be

followed to study the feasibility of investment is considered out of the


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question due to the multiplicity of the nature of investment projects and

the difference between each of them from the other, due to the different

sources of information and research centers. In practice, however, it

follows mainly the preparation, classification and classification of

investment data. Then the use of this data in evaluating the investment

and making a decision on it.

Also, the larger the size of the investment project and the greater the

amount of invested capital, the more this requires conducting a feasibility

study in a formal manner, while if the project is small, the feasibility study

may be limited to a set of facts and reports on similar activities to the same

project activity. Therefore, the preparation of the investment project can

be seen as a series of activities that lead to a set of studies and reports that

ultimately enable the investment decision-maker to make his decision to

invest in the project.

The main steps and analytical studies required "in particular" for the

evaluation of the investment project will be explained.

First: Identification stage

The correct starting point in any investment project is to determine the

goal to be reached. As this goal can in itself be evidence of the need to

add or produce a specific product or group of products, or use certain

resources that have not been addressed before, or the necessity of using

certain types of investment. Machines, devices, etc., as well as

determining the goal of the project represents the initial nucleus of a series

of descriptive and quantitative analyzes to explore the dimensions and

effects of investment in the project. In fact, the project begins with

defining its idea, which is at the beginning of a general idea of the

possibility or Desire for specific production or use of certain resources.


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Project ideas may arise from studies of consumption and production

patterns in the country, market studies, and lists of imports and local

resources.

Sources of ideas for projects

In practice, project ideas often arise from:

1- Demand for some goods and/or services and unsaturated needs that

are required to be produced to meet these needs.

2- The existence of unused financial / or human resources and there are

opportunities or possibilities to use them for productive purposes.

3- Some problems encountering the development process generate

ideas for new projects.

4- Lack of marketing facilities for goods such as transportation,

storage, manufacturing or packaging facilities. These points suggest

to the investor project ideas.

After identifying the project ideas, one or more ideas are selected from

among them, and this naturally requires a quick preliminary sorting of the

available ideas or the preparation of new, better ideas to be chosen among

them.

Here, a question is asked about the difference between “the beginning and

the definition of the project.” The answer to this question is that “the

beginning” is the collection of multiple information, while the

“definition” is the process of transforming this information into something

more than hope and security. Therefore, allocating sufficient time for this

process is very important, and failure to allocate this time leads to a bad

or at least inaccurate definition of the project, which leads to reducing the

chances of its success.


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Second: Pre-selection stage

At this stage, the decision is taken to either complete the studies related to

the investment project or to stop doing that and regardless of the

investment idea in that project. If the result is positive, we move on to

determining the costs of the following studies, as both the investor and the

planner want to make sure that the project is suitable. Technically, and

that an appropriate decision can be taken, in addition to that the project is

in line with the objectives of the national plan set by the state and does

not contradict it. And engineering or market study stage and forecasting

the volume of demand for the project’s products...etc.

The results obtained at this stage usually lead to what is known as the pre-

feasibility study for investment. These studies are conducted by the

investor or the party inviting the investment based on the data available in

a published form or that can be collected and prepared in different ways.

These preliminary studies end with the initial selection. For the proposed

projects for investment, and to refine the ideas of projects that promise

success among them.

In other words, the preparation of initial feasibility studies is sufficient to

justify the justifications for choosing the project and arranging the

proposed projects for investment. There are general criteria for selecting

a project from among a number of projects, or quickly excluding projects

in certain cases, such as:

- Being technologically inappropriate.

- Lack of availability of raw materials and technical skills enough.

- The idea of the project involves a high degree of risk.

- The project has significant social and environmental costs.


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If the advantage of the project idea becomes clear, it sometimes requires

obtaining other additional information about the project, such as:

- A more detailed study of the market.

- The availability of the technical skills necessary for the project.

- Studies evaluating the results of similar projects to benefit from.

- The economic and social characteristics of the residents of the area

in which the project will be established.

Third: Analysis stage

At this stage, the various alternatives are studied, with priorities and

controls set for these alternatives for all the elements necessary for

feasibility studies, such as the technology used, raw materials, market

studies and the rest of the other elements, bearing in mind that there may

be more than one element that can be analyzed and evaluated in some

projects, such as the optimal size. For the project, the capital used, the raw

materials, the skilled labour, the production systems used or the

technology used...etc.

This stage of analysis includes all or some of the following studies:

A- Technical study

The technical study (technical analysis) is useful in clarifying whether the

project is feasible from the technical point of view or not. This analysis is

also an opportunity to study the impact of different technical alternatives

on the project activity, production, quantity and quality, workers and their

quality, and capital. As well as their impact on other similar activities and

the environment.


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B- Market Study:

Market analysis is useful in identifying the main features of the market in

which the proposed investment project will operate. There is no doubt that

one of the main features of the market stems from the clear identification

of the extent of the vitality of the market. The market may be restricted to

some goods and services, or it may enjoy complete freedom without any

restrictions. The market may be regulated by official rules or procedures

by the state to the extent that it is restricted to the proposed project.

Accordingly, the conditions of competition differ from another market,

but what is generally observed at the present time is the existence of some

kind of imperfect competition, and what can be called a market of perfect

competition or complete monopoly is rare.

Market analysis includes defining the limits of this market, and whether

it is a consumer market or a market for capital goods or Intermediate

Goods products, as well as the consumer's knowledge of the project's

products and services, determining the quality of the main consumer ...

and determining the size of the total demand for the products and services

of the proposed project.

C- Monetary and financial study

In this study, the preparation of financial reports is emphasized so that the

project can be evaluated using the various measurement elements. Thus,

it is possible to determine the amount of the necessary financing that

meets the requirements of the schedule for the various activities of the

loans used, their size, the type of these loans, their expenditure and the

method of repayment. The monetary study also includes the cost of

production, management, selling, sales volume, storage levels, and sales

method, and it may be necessary to conduct a sensitivity test to show the


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most important elements that have a significant impact on financial

profitability, and it may even have to conduct a risk study as well.

Fourth: Evaluation stage and final decision making

At this stage, detailed studies of the project are conducted, whether

financial profitability studies (financial evaluation), taking into account

the national social profitability (economic evaluation), taking into account

the priorities set by the state and giving it importance in its development

plan, and the extent of the project’s compatibility with these priorities. It

also studies, at this stage, all possible alternative ways to implement the

purpose of the project idea from all technical, financial, economic and

administrative aspects, with presentation of the results and supporting

data in a systematic and logical form. When the final positive result is

reached, the final decision is taken to start implementing the project after

preparing the official documents for that, in order to submit to the

competent authorities a request for approval to start implementation.

Fifth: The stage of implementation and completion of the project

This stage includes contracting, project design and construction.

Contracts, of course, include negotiations with financial institutions such

as lending banks, or sometimes governments, in addition to contacting

suppliers of raw materials and technology needed for the project. Then the

tendering phase begins, and the bids submitted are evaluated in terms of

price and technical levels, and finally, contracts are signed.


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Evaluation stage before implementation

The project is evaluated before its implementation by the project

financing bodies, whether they are national bodies or local or foreign

banks that provide loans.

Implementation stage

It includes defining the stages of implementation, their timing, the bodies

to supervise them, and recording what has been implemented.

Experiences have proven that if the implementation is bad, it leads to the

failure of the project despite its proven feasibility before implementation.

Evaluation stage after implementation

It included the financial, commercial, economic, social and environmental

evaluation of the project after implementation. Evaluation after

implementation differs from evaluation before implementation although

the metrics used are the same - in the evaluation process after

implementation we use actual values while before implementation we use

estimated values.

Thus, we have identified the weaknesses or the causes of the problems

that could face the project and we are working to solve them, and take

advantage of them to improve the chances of success of the project.

Reasons for the failure of project feasibility studies

1- The feasibility study should be weak/accurate.

2- The project costs should be estimated at less than the actual value.

3- To set a very optimistic timetable for the implementation of the

project that does not take into account the possibility of delay in the

implementation of the project.

4- Forecasting project outputs or price estimates.


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5- Overestimating the return on investment.

Objectives of investment projects

The economic theory of the project assumes that achieving the maximum

profit is one of the main objectives of the project. The profit sought by the

enterprise is the difference between sales proceeds and production costs.

Production costs in this sense include all expenses incurred by the project.

But despite the fact that making a profit is necessary for the continuation

and growth of the project, it is the only goal that the owner of the

investment project seeks, as we find besides achieving profits many other

goals that are the subject of the interest of the original projects, the most

important of which are:

Achieving the maximum possible amount of sales as a way for the project

to gain wide fame and great confidence in the markets.

The objective of the investment expenditure of an existing project may be

to protect its main activity from the risk of production interruption.

Achieving a high degree of self-gratification as a result of doing a work

that is favorable to the same owner of the project, which makes the profit

factor come second.


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Project General Objectives

The matter is very different in public projects than in private projects,

where we find that realizing a direct financial profit from the

establishment of this project or not. The public benefit here has multiple

forms, it may be represented in the establishment of projects that improve

the level of production of goods or provide services at their cost price or

even at the lowest cost But it should not be understood from this that

public projects are also not concerned with profit. This is not true only,

provided that this is done at the expense of achieving the goals for which

the public project was established.

The following are the most important objectives for which public projects

are established:

The establishment of some national projects related to the national

security of the state, such as the manufacture of weapons and ammunition,

or economic considerations, such as the establishment by the oil-

producing state of refineries or a naval fleet to transport it, or the

establishment of a base of heavy industries as a basis for development....

The state may establish projects to sell its products at less than the cost of

production, for social considerations estimated by governments, as in the

case of bread, textiles and medicines...

The purpose of the state's establishment of productive projects may be to

obtain financial resources to finance its expenditures instead of resorting

to imposing new taxes - the cigarette industry, for example, is one of the

public projects of this kind in many countries of the world.


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Public utility projects that produce basic services and infrastructure (such

as transportation, transportation, roads, bridges, electricity...).

Classification of feasibility studies for investment projects

It is possible to classify the feasibility studies of investment projects from

several aspects, but all of these aspects can be traced back to two basic

classifications. The point of view of the national economy or the society

in which this same feasibility will exist, in the sense of distinguishing the

feasibility studies from each other according to the function of each study,

such as the technical feasibility study, financial feasibility, or economic

feasibility ... etc.

In addition to the previous two categories

First: the utilitarian classification of feasibility studies

(1) Feasibility studies at the level of the project - the concept of private

profitability, which expresses the private profitability of the project or the

subjective profitability, which is the amount of benefit that the project

achieves for its owners or investors without considering the effects of this

subjective profitability on the profitability of other projects owned by

others. Or its effects on the national economy of the country in which the

project is located. In order to measure this profitability, it is necessary to

prepare a feasibility study of the project in a special way that enables

feeding the investment evaluation stage with indicators on the basis of

which it is possible to measure the extent of the project's benefit to its

owners. The subjective profitability of the investment project is expressed

as the net return on investment from the point of view of the project

owners. This is calculated either by traditional measures such as the


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concept of accounting profit, which is the difference between current costs

and revenues, or it is expressed by a financial scale represented by the

difference between the cash inputs and outputs of the total project for the

investment that generates this surplus.

(2) Feasibility studies at the level of the national economy - the concept

of social profitability The general goal differs from the private goal, it

may be the welfare of the community as a whole regardless of the

weakness of private profitability or even its absence. Feasibility studies at

the level of the national economy become necessary in the case of

Investment projects that the society as a whole bears the burden of

financing, such as utility projects and public utilities. They are also

necessary in the case of private projects, where the establishment of

private projects may have positive or negative effects on the national

economy as a whole, and therefore it becomes necessary to measure and

evaluate these effects. This measurement and evaluation It is what leads

to the calculation of social profitability, that is, a measure of the extent to

which the community as a whole derives from the establishment of the

proposed investment project.

Measuring national profitability is not an easy matter in all cases due to

the presence of some national effects that are difficult to express

quantitatively, such as the effects of environmental pollution and others,

but it can be said - in general - that social profitability consists in

identifying the benefits achieved by the project at the level of the national

economy and comparing them with the burdens that It is imposed by the

same project on the same level. In other words, it is a direct balancing

process between these benefits and those burdens.


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The importance of feasibility studies for private investment projects at the

national level increases in countries whose public policy requires a

specific amount of intervention to direct investments, even private ones,

and of course also in those countries that adopt the method of central

planning. As well as in cases where investment projects are granted some

advantages and tax exemptions and others As is the case in the Arab

Republic of Egypt at the present time, because approval of the

establishment of such projects means the loss of financial proceeds or

resources at the national level.

Second: Functional classification of feasibility studies

Feasibility studies are also classified according to the basic function that

each study achieves. If the investment decision-making process in the

project requires an extensive research on the market in which the products

and services of the proposed project are spent, and this results in the

unloading of this research in the form of a report on the market, the

marketing process and the main customers. The term marketing feasibility

study could be used for this report. Likewise, if it required an extensive

research of the legal aspects of the proposed investment project and it

resulted in arriving at a comprehensive report on the legal aspects related

to the project, the term legal feasibility study could be called this report.

And so when preparing a technical and engineering feasibility study for

the project, or when studying the social feasibility. This culminates the

previous feasibility studies with the study of the financial feasibility and

economic feasibility of the project, whether these studies were carried out

by the owners of the project or were carried out with the aim of measuring

the social profitability of the project at the national level

In comparison with the above, feasibility studies can be classified

functionally into the following sections:


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(1) Legal feasibility study.

(2) Technical and engineering feasibility study.

(3) Social feasibility study.

(4) Environmental feasibility study.

(5) Marketing feasibility study.

(6) Financial feasibility study.

(7) Economic feasibility study.

Some observations may be made on this classification, including the

following:

(1) Each investment project has its own characteristics that distinguish it

from other projects, and each project has its own circumstances, meaning

that it may not require conducting all previous studies on all projects, for

example, it may not require a legal feasibility study in the case of similar

projects working in the same field And the same circumstances or when

the legal aspects of investment are clear, specific and stable for a long

time horizon.

(2) Likewise, it is not required to conduct a marketing feasibility study for

the proposed project when the marketing aspects are completely clear, as

in the case of studying an investment project for the production of popular

bread in a densely populated country, and the average annual income per

capita is low. Therefore, we can say that all previous feasibility studies

may not be required To reach the decision to invest in a project.

(3) It should also be noted that the previous arrangement of feasibility

studies does not follow the previous picture, meaning that the technical


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feasibility study must precede the marketing feasibility, but each project

has its own circumstances and characteristics as previously said, in

addition to that it is often required to conduct feasibility studies in parallel

at the same time Marketing feasibility studies and technical and

engineering feasibility studies may be conducted with each other, where

determining the market segment of the proposed investment project,

which is reached within the framework of the marketing feasibility study,

can be one of the important factors by which the determinants of the

production capacity of the project are set, and it is at the same time It

represents an important aspect of the technical and engineering feasibility

study. We also note that the study of alternatives to the proposed

investment project site is analyzed within the framework of the marketing

feasibility study to find out the suitability of each site in terms of its

proximity or distance from the markets for the disposal of the products

and services of the project, and at the same time the site is studied within

the framework of the technical and engineering feasibility study to find

out the technical viability of the site to establish Construction of the

project through soil tests and other technical and engineering factors for

the site.

(4) Functional feasibility studies may take different names, although all

of these names lead to the same functional content and aim for the same

purpose. Sometimes we meet the term commercial feasibility study,

which means the study of financial feasibility, and sometimes it is called

the study of financial and economic feasibility together. The term

evaluation of projects may also be used. Project Evaluation or Investment

Appraisal on all functional feasibility studies. In many cases, all these

studies are referred to by one term, which is the feasibility study.

Therefore, what is important is the content of the study, not its name.


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(5) The functional classification of feasibility studies necessarily refers to

a set of practical and practical specializations that are required to complete

the investment feasibility studies. The legal feasibility study needs legal

experts who are able to examine the aspects of the project from a legal

point of view, as well as for the marketing feasibility study that needs

Experts in marketing and so on with regard to the technical and

engineering feasibility study, financial feasibility, economic feasibility ...

etc. To the extent that it is correct to say that the feasibility study is the

product of the effort of a specialized and integrated team. Therefore, it is

rare for a single expert to undertake all aspects of the investment

feasibility study without accompanying omission or weakness of the study

or analysis of one or more aspects of the feasibility study.

Applied areas of feasibility study

Feasibility studies occupy a prominent place among the interests of public

project planners, and the subject of feasibility studies has become one of

the basic topics in the curricula of university studies, research institutes

and international financial institutions in the United Nations and others.

International projects on basic and heavy industry and infrastructure

projects such as roads, transportation, communications, utilities..etc, new

investment projects, investment expansion projects, capital replacement

projects, technological development projects and improving operating

economics...etc.


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Chapter Five Initial Feasibility Studies


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Target

In this chapter, the preliminary feasibility studies of the projects will be

dealt with, identification of their objectives and stages, testing information

on the initial feasibility studies and analysis of the investment climate of

the project, including the social environment, economic environment,

political environment, legal environment, technical environment and

technology for the project under study.

Introduction

In order for the investor, whether he is an individual or a specific entity,

to take the good and appropriate investment decision in a project, he must

carry out extensive studies of the feasibility of that project in order to be

sure that it will achieve the objectives required of him, which are the

economic and social benefits and returns, as well as taking into account

the development goals in the country in which it will be established. The

project This is because the establishment of any project requires the

allocation of part of the human, material and financial resources that can

be used to create another better project.

However, these extensive feasibility studies require high costs and a

longer time and may result in refusal to implement the proposed project.

Therefore, preliminary feasibility studies are conducted to judge the

possibility of implementing the project or not, and the extent to which it

can achieve the desired goals. In addition, the preliminary studies aim at

differentiating between the proposed projects for investment in order to

choose one or more of them to conduct detailed feasibility studies on it at

a later stage.

With the intent of preliminary feasibility studies to examine the aspects

and effects of the proposed investment project in general in the light of all


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the information that can be available at that early stage in the life of the

project. Therefore, these studies do not require in-depth analyzes of the

proposed project, but are merely outlines or approximate numbers only to

guide them in rejecting or deciding to continue with the detailed studies

of the project.

In order to achieve this, the decision maker must have the data and

information that will enable him to make the right decision, whether to

accept the project to conduct detailed studies on it or to reject it

completely. Therefore, these studies must be as accurate as possible, as

the fate of the proposed project depends on them.

The objectives of the initial feasibility studies

The initial feasibility study or the previous feasibility study does not

require careful and detailed examination, as is the case in detailed

feasibility studies, which leads to the inability of those undertaking it to

bear large expenses. The initial feasibility study tends to clarify the

following information or some of them:

The preliminary feasibility studies aim in particular at the following:

(1) Justify conducting preliminary feasibility studies, if this is

approved.

(2) Determining the matters that need greater attention or special

focus in the detailed feasibility study, such as the marketing

feasibility study, either the technical feasibility study, or the

financial feasibility study (commercial profitability) or any other

studies whose importance shows the initial feasibility studies of

the project.

(3) Estimating the costs and time capacity needed to carry out

detailed feasibility studies.


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(4) Studying the legal aspects of the project to determine the

possibility of avoiding any legal obstacles, or taking into account

certain legal considerations to benefit from certain advantages

provided by law in the host country for investment.

(5) Determining the main characteristics of the project's products,

and whether they are products for export, alternative products for

imports, or products for local consumption, with an indication of

the available alternatives for the same products in the local

market.

(6) Study and characterize the local and expected market for the

project's products and determine the possible marketing segment

in light of the current and expected competition for the project's

products, and the nature of this competition.

(7) A study to estimate the size and trends of local consumption,

prevailing prices, and consumer tastes.

(8) Statement of the availability of the basic production factors and

methods of obtaining them, especially raw materials, driving

forces and skilled labor, and this requires a study of the raw

materials that the project will need in terms of their continuous

availability and quality, as well as the employment on which the

project will depend in terms of their efficiency and wage levels.

(9) Studying possible technological alternatives for project

production.

(10) Preparing initial estimates of the fixed investment cost as well as

the annual operating costs of the proposed project.

(11) An initial estimate of the expected profits from the project

compared to estimates of the profits of existing competing

projects.

(12) A summary of the problems that may face the project, and the

types of risks that may result from its establishment. This requires

studying the economic, social and political environment in which

the project will be established.


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In addition to this information shown by the initial feasibility study, all

information that helps to establish the acceptance or exclusion of the

proposed investment must be clarified. Such information can be obtained

from several sources, the most important of which are:

1- Field sources

Such as personal receptions with salesmen, potential customers and

officials in the government, chambers of commerce, trade unions...etc.

2- Library resources

It is represented in the data and statistics published in the bulletins

issued by government bodies and agencies such as the Ministry of

Planning, the Central Agency for Mobilization and Statistics, the

Information and Decision Support Center, the Central Bank and

commercial banks, in addition to scientific research and studies.

As is the case in detailed feasibility studies, preliminary feasibility studies

must take into account the element of time in cash inflows and outflows

alike due to changing environmental conditions and marketing

opportunity and others with the passage of time. Therefore, investment

feasibility studies are affected by environmental factors and conditions in

which all elements and environmental variables interact. Also, this

environment interacts with other environments, whether neighboring or

far from it, in addition to the fact that the environment itself is subject to

change from one period to another, as it is also affected by the factor of

time. This means that the passage of long periods of time between the

completion of feasibility studies and the start of project implementation


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may It leads to a change in environmental conditions, and thus affects the

extent to which the project can achieve its planned objectives.

To clarify the above, we mention the following three possibilities that may

occur in the market for the exchange of goods and products after a certain

period of time from conducting feasibility studies:

A- That the market opportunity remains to the same degree.

B - That the market opportunity remains, but to a lesser degree.

B- Completely lost market opportunity.

Analysis of the investment climate

It is preferable for the aforementioned reasons to conduct an investment

climate analysis before entering into any feasibility studies to accurately

identify the investment environment in which the project will be born and

grow. The importance of the investment climate for the project or the

proposed projects for investment stems from the fact that the project will

inevitably be affected by the environment in which it will be established,

and also that it may affect it, and also it affects it - so such a study usually

includes an analysis of a set of variables and factors that can be divided

into the following :

a) Environmental factors related to society and what it contains of

individuals, organizations, sectors, and political, economic and

social trends.

b) The announced government policies, including their political,

economic and social trends and indicators.


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It is difficult to separate from a scientific point of view all the elements

and components of each group of these variables, although it is possible

to distinguish the basic elements from them only, because each investment

environment has its own specifications, although these specifications are

also subject to change from one period to another.

The following is an explanation of the most important elements contained

in the investment climate study, whose study helps to understand and

analyze the important environment for the project:

Studying the general and environmental factors external to the project.

Study the special factors and environment of the project.

In order to study the previous factors, it is necessary to analyze the various

environments affecting the project, the most important of which are:

First: social environment

It includes the social values, customs and traditions prevailing in society

and the possibilities of their change, as well as language, education and

the behavior of individuals. The importance of this environment stems

from the fact that it affects the intellectual and moral formation of

individuals and determines their behavior. It will also provide the project

with experts, technicians, workers...etc. It is known that there is a direct

relationship between the level of education and between the work force of

the school and the high technical expertise. On the other hand, this

environment shows the extent of society's acceptance of the goods and

services produced by the project. As consumption is mostly related to

social customs and values. Therefore, the study of the social environment

accurately determines the level of manpower that is required for the

project, and the extent of its availability, whether from ordinary or skilled


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workers or from specialized expertise, as well as affecting the type of

proposed production and its specifications.

Second: Economic environment

It includes the study of the basic features of the existing economic system,

as this element strongly affects the degree of investment risk to which the

project is exposed. The economic environment includes natural resources,

capital, financial, monetary and economic policies...etc. The study of the

economic environment aims to identify:

General economic level

This is based on estimating the size of the national product, the size of the

national income, the average per capita income and the size of total and

sectoral investments..etc.

Distribution of prices and well fare Policies

Since setting minimum wages in a country makes it necessary to take this

into account when calculating the profitability of the project. But in the

absence of such limits, it would be socially inappropriate to create types

of distinction in the level of wages compared to other projects within the

same investment environment.

Pricing policies and operating subsidies:

This element directly affects the degree of the investment project. Forced

pricing policies may relate to project inputs and outputs, as well as the

cost of lending from local banks, and these policies may impose subsidies

on project products in the form of direct cash, export subsidies,

exemptions from customs duties or Various taxes...etc.


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Monitoring systems and granting working permits Policies

Since the strictness of the monetary and control bodies in completing the

procedures of dealing in foreign exchange through complex

administrative regulations and procedures may hinder the movement of

investment, the same can be said about the bodies for granting project

approvals and giving production licenses, quality and specifications

inspection, and industrial and health inspection. And control over the

movement of import and export .... etc.

Political environment

It includes a study of the basic features of the existing political system and

the degree of its stability, as this element strongly affects the degree of

investment risk to which the project may be exposed. Shifting towards

public ownership It may be inappropriate for a private investor to flood

all of his resources in that cycle, thus placing them vulnerable to

nationalization or expropriation.

Legal environment

It includes an extensive study of the legal validity of the proposed

investment project in an environment in all its aspects, in the light of

public and private laws, republican and ministerial decisions and

regulations regulating investments. The term "special laws" refers to any

laws regulating investment in forms, templates, or special legal situations,

in contrast to what is stated in general laws. Private laws may have priority

in implementation over general laws. The matter is not limited to

examining the legal environment for investment in the scope of the laws

related to industrial and commercial transactions and others, but also goes

beyond that scope to studying and analyzing any laws, regulations and


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other decisions related to investment such as tax laws and the employment

of workers.......etc.

The following is a brief reference to the most important elements of the

study of the legal environment:

A - Incentives and restrictions on investment

Investment Incentives &Restrictions

When conducting a legal feasibility study, the legal researcher must

recognize in his study the legal logic behind granting incentives,

exemptions and exceptions for investment, while comparing the

incentives stipulated in special laws with the incentives affiliated with the

investor himself (such as his desire to approach sources of raw materials,

or his desire to contain the market, etc.)

And make a balance between them to find out whether the final outcome

of this comparison is in the interest of the host country for investment or

in the interest of the private investor. It is also preferable that the legal

feasibility study include balancing the final outcome of investment

incentives with the restrictions offered on investment (and this may be

imposed to control the investor’s behavior so that his investments do not

lead to events An imbalance in the local market, the usual prices, or the

effect on the economic exploitation of the host country, etc.).

One of the most important things that the study of this item should focus

on is the careful analysis of all requirements and restrictions imposed on

investment, especially those directly related to the following aspects.


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1) Restrictions imposed on the practice of certain activities, or which

exclude any foreign (or private local) investment from the practice

of certain activities. Outright Exclusion From Certain Sectors.

2) Restrictions that determine the acceptance of private investment

projects when these projects represent an economic benefit at the

national level as a result of using criteria for matching social cost

with social return.

3) Restrictions imposed on prices, monopolistic conditions from an

economic and political point of view, restrictions on preventing

pollution and preventing social disruption in the classes of

society...etc.

4) Restrictions imposed on technology and the form of local

participation with foreign investment, and on the components of

local production and employment and their percentage in the final

society of the investment project, as well as restrictions on the use

of foreign labor and the employment of local labor.

5) Restrictions imposed on dealing in foreign exchange, as well as

restrictions and local and foreign investments, and the specific

restrictions on accepting or rejecting foreign investments in light of

a country's general policy towards its dealings with certain foreign

political regimes.

6) Restrictions imposed on investment operation and exploitation by

general government agencies or limited professional bodies under

the investment law (such as the intervention of regulatory and

accounting bodies...).


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B - Allowances and tax exemptions

The tax allowances receive the attention of many experts, whether in the

legal feasibility study or the financial or economic feasibility of

investment projects, and the interest has extended to the global level so

that the United Nations organizations sought to come up with specific

rules for the conditions of use of tax allowances, as well as the capabilities

of tax holidays as an incentive for investment incentives. major in

developing countries.

Tax exemptions are also used as an encouraging factor to attract foreign

investment and encourage domestic investment as well. However, this

factor is considered a double-edged sword. On the one hand, it results in

a loss of public financial proceeds at the state level, and consequently a

decrease in the financial resources of the state, which necessarily affects

public spending in traditional service projects such as education, health,

public utilities and infrastructure projects, and on the one hand, Other tax

exemptions may result in the flow of investments and thus create an

investment boom that would reform or develop the existing economic

conditions. Therefore, a careful balance must be made between the

negative and positive effects of tax exemptions granted to investment

projects according to their relative importance to the national economy.

The tax incentives go beyond mere exemption or reduction of tax rates

and rates on income and net profits to giving other tax advantages such as

full exemption or partial exemption from customs duties and taxes, or

postponement or installments. These advantages may be withdrawn only

on investment imports, or they may also be applied to projects' imports of

raw materials, operating requirements, and others. In all cases, it is

necessary to determine the validity of the proposed project to enjoy such

benefits and exemptions.


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C- Direct and indirect investment incentives

Direct incentives are represented in direct financial support for investment

projects by the host country for investment, as well as in exemptions and

tax benefits of various kinds. As for the indirect incentives, they are often

in the form of indirect reductions in the costs of establishing and operating

investment projects, such as the host country bearing the burden of public

utilities and infrastructure in the area of the proposed investment project.

Or the host country increasing the customs tariff on imports of similar

products produced by the project to form a kind of market and economic

protection for the project’s products. In practice, thanks to the owners of

investment projects, direct incentives over indirect incentives due to the

difficulty of measuring the effects of indirect incentives on the proposed

investment projects. Likewise, the owners of investment projects prefer

direct financial support over tax exemptions and allowances.

D- Laws and rules regulating the conditions of foreign investment in

the countries hosting the investment

These laws are, in fact, nothing but general policies intended to direct

foreign investments so that the investment-hosting country (whether it is

a developing country or a developed country) achieves its national

economic goals.

In general, the components of these laws can be presented into four main

groups as follows


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The first group: Making decisions regarding foreign investment

Foreign Investment Decision Making

We often see the texts of investment laws in most developing countries

on investment projects, whether they are financed with foreign, local or

joint capital. These countries often examine investment applications

before their approval to enjoy the investment incentives established

locally - and some investment laws specify fixed criteria for accepting or

rejecting investment projects, as well as specifying the official authorities

that specialize in examining investment applications and making a

decision on them.

The investment laws also regulate the restrictions that limit the foreign

investment’s control over the existing establishments locally through its

incorporation into them, and therefore through prevention measures on

the merger, Control of Takeovers. and strategy such as steel, energy,

mining, transportation, communications, media and public utilities .... etc.

It is also noticed in many developing countries now that there is a growing

fear of foreign investment dominating the banking and insurance sectors,

otherwise foreign investment is encouraged.

The second group: Form of ownership, management and employment

Ownership, Management and Employment

Most of the investment laws in developing countries in particular and also

in some developed countries such as Japan allow the establishment of

joint projects, while other laws prevent even mere foreign participation in

certain projects. In some former socialist countries, the investment laws


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stipulated the necessity of the participation of the local administration

from the host countries of the foreign administration at the level of the

senior administrations of the board of directors, as well as the lack of the

necessity of using local labor at all administrative levels, as is the practice

of most developing countries. On the other hand, investment laws in

developing countries are concerned with the foreign investor training

local workers, but these requirements are not strictly limited in most cases,

with the exception of some individual cases that take place as a result of

direct negotiations with the foreign investor.

The third group: Taxes and remittances

Taxes and Financial Conversion

Although the investment laws recognize and define the principle of tax

accounting for foreign investment activities, these laws often overlook

how to conduct this accounting for the mutual transactions between the

foreign parent company and the subsidiary company provided by the host

country for investment. Therefore, we find that some developing countries

overcome this defect by following other undeclared policies, such as

pricing the reciprocal transactions between the parent company and its

subsidiaries using current market prices, or using the cost basis plus an

estimated profit margin, or pricing in a way that achieves a reasonable

amount of return on the invested capital.

The process of developing countries, through the monetary control bodies,

organizes the transfer of foreign capital invested in a country abroad. Or

even transferring the profits of foreign financial investments abroad,

through the general laws for the control of money, or through the special

rules for the control of money towards foreign investments. These


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regulations also specify how investment projects can obtain foreign loans,

as well as the amount of permitted financial transfers, the time period

during which these transfers are made, and the maximum interest rates for

foreign loans.....etc.

It should be noted that such matters are not limited to developing countries

only, but extend to all countries that host investments, only the

requirements set by each country vary in line with its interests. Therefore,

these requirements are subject to change from one period to another

according to the general economic situation and from one stage to another

stage of development.

Fourth group: Management and supervision

Administration and Supervision

In most developing countries, it undertakes the implementation of laws

and the management of the processes of accepting or rejecting investment

projects, either by ministerial committees or high investment councils, or

government bodies and agencies specialized in the technical, financial,

marketing and economic aspects of investment projects, and central banks

also contribute to this task, especially in the field of monetary control. the

alien.

The position of developing countries in general towards determining the

conditions of foreign investment’s contribution to national economy

projects stems from seeking to find acceptable methods to meet the

objectives of international companies that often have comprehensive

investment strategies around the world in a way that maximizes their

overall gains. These companies may not stop at maximizing gains only It


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may even extend to the desire to control the sources of raw materials, and

sometimes to ensure the establishment of good political relations with

developing countries, whereby international companies can benefit in the

long term.

For the previous reasons, we find that the criteria for accepting foreign

investment differ from their counterpart for local investment, whether

public or private, because it is dangerous to leave foreign investments in

developing countries at work without controls that are at least parallel to

the investment incentives they enjoy. And not only that, but we find that

developing countries' view and evaluation of foreign investments differ

according to the political ideology and the existing economic and social

system in each of them.

It should be noted here that it is not correct to generalize in saying that

bringing modern technology from industrially and economically

advanced countries is always in the interest of developing countries

economically and politically. Although modern technology is considered

a hallmark of foreign investments. These are also reasons that lead to the

different rules of foreign investment in developing countries from one

country to another.

E- Arbitration of investment disputes

In view of the possibilities of one or more changes in future conditions

during the life of the project, whether in terms of laws, rules, procedures,

flows, etc., in the light of which the choices of legal validity were made,

it becomes necessary to study the decision to withdraw the investment,

whether this withdrawal is due to me The investor himself or was his

reference to the host country for the investment.


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In order for the investor to withdraw the investment decision, this

withdrawal must be based on strong practical justifications, such as the

deterioration of the market situation and a severe decline in the investor’s

profitability, or a difference in the financing structure of the investor,

which makes it difficult for him to obtain banking facilities on acceptable

terms, or the occurrence of changes The investor is forced to reconsider

his investments.

The host country may be the reason for withdrawing the investment

decision when it faces certain difficulties, such as the difficulties related

to the balance of payments, especially in cases where the currency of the

host country for investment declines. Or in cases of increasing the costs

of what the investor imports from abroad. Or any other laws such as local

labor protection laws, to other legal, social, political and economic

reasons.

On the third hand, a dispute may arise between the partners in the

investment projects, and the focus of the dispute may be on the

interpretation of one of the articles of the agreement concluded between

them or in the contracts due to the impossibility of defining and defining

some of the articles contained in the contracts precisely because it is

practically impossible to do so. This is what is often referred to as major

force. Therefore, joint investment project contracts usually stipulate some

aspects of force majeure that can stop or prevent the practice of project

activities, such as revolutions and wars, or the occurrence of natural

disasters such as earthquakes and floods. Or even in the event that

governments issue decisions that prevent implementation or its

continuation, etc., and all that can be called Act of Got.


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In the event of a dispute over the definition and determination of force

majeure between the contracting parties, the disputants resort to the local

judiciary to settle their disputes, or the contracting parties may agree to

settle these disputes in other ways such as the agreed-upon arbitration, or

through informal internal settlement.

F- Legal documents for investment projects

The documents required to document projects differ according to the

nature of the project's activity, the size of its business, and the identity of

the parties involved, directly or indirectly. The beginning of legal

correspondence may be in the form of letters of intent, and these letters

are usually formulated so that they do not explicitly constitute any legal

obligations towards the parties to the letter. At other times, he means a

certain amount of legal or contractual obligations, as in the case of the

sender of the letter undertaking to complete a certain matter in the event

that other matters proceed as required.

It is common practice to use letters of intent in the case of the participation

of foreign investment with local investment, as an official entry before

preparing more specific legal documents such as contracts of various

types. On the international level, it is customary when a local economic

authority or unit participates with the other global one in an investment

project that a set of official discussions is first conducted. If the

discussions resulted in encouraging prospects for further study of the

proposed project, a so-called protocol shall be prepared, which is a

specific preliminary agreement for the framework of joint cooperation,

with defining the initial form of ownership of the proposed project, its

general administrative structure, the foundations of investment financing,

and the time period during which feasibility studies are carried out.


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Q- Technical and technological environment

The study of the technical and technological environment includes

identifying the applied technical methods and processes and reviewing the

scientific heritage of the environment in which the project is proposed, as

the technical and technological progress of this environment is measured

by the development of applied, engineering and industrial sciences in it.

The main objective of studying this environment is to identify the

following:

- The technical methods used in the production of goods and services

in the environment.

- The operational sequence of industrial processes with identification

of the various technical alternatives that can be used.

- The availability of technical and practical knowledge of these

methods, the cost of obtaining them, the possibility of developing

them, and their relationship to the nature of the goods and services

produced by the proposed project.

- The availability of raw materials and the technical possibility of

obtaining them, and the identification of their natural, chemical and

mechanical properties.

- The type and quantity of waste and the operating products that must

be disposed of, and the technical methods used in that.

- The location of the project and its suitability to the sources of raw

materials and markets for the disposal of products, and the possible

alternatives for this site.

This topic is dealt with in detail when studying the technical feasibility of

the investment project.


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Initial financial feasibility study (Top-Down feasibility study)

First: Defining the project objectives

• Features of government projects

1) Not aiming for profit

2) The need for it is measured on social / demographic / geographical

grounds / ....

3) Investment decisions are made on an economic basis (the added

value of the national economy).

• Features of Private Projects

1) Mainly aimed at profit

2) Market needs determine the need for them

3) Investment decisions are made on a financial basis (rate of return on

investment)

• Features of service projects

1) Not mainly for profit

2) The need for it is measured on the basis of social / local / needs of

the population in the area.

3) The decision to invest in it is taken on a service / religious / social

basis ......

Engineering data for the financial feasibility study of the project

1) The optimal project size according to the required service or

services.

2) The expected initial cost.

3) The time required for the expected construction.


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Determining the optimal project size according to the required service or

services, by referring to:

1) Building percentage of the total land surface Foot Print area

2) The maximum height allowed according to the requirements of the

administrative authority granting the license

3) Architectural design code and administrative authority requirements

4) The needs of the architectural design of the facility in terms of area

and height

Make an initial estimate of the cost of the project and the time required

for its implementation:

A preliminary estimate of the cost of the project and the time required to

implement it is made in one of the following ways:

1) Referring to similar projects that have been implemented while

adjusting the numbers in proportion and proportion.

2) Use a repeating unit of measure (residential, commercial or

industrial square metre, hotel room, school classroom, hospital

bed,.....) to estimate cost and time.

3) Analyzing the project elements for approximate quantities,

calculating their cost, and estimating the time required for their

implementation.

4) The use of previous experience in similar projects.

5) Using more than one of the previous methods of calculation to verify

the accuracy of the numbers.


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Always take into account when estimating cost and time:

1) The project-specific factors affecting the cost and time that

distinguish it from similar projects (location, nature of the land and

the surrounding area, ........)

2) The effect of inflation on the prices used at the time of the study.

Make an initial estimate of the return from the project and the extent to

which it has achieved the required objectives

The return from the project is estimated in several ways depending on the

nature of the project:

• Governmental projects

- The return is estimated as an added value to the national economy

from the implementation of the project.

• Private and service projects

- The financial return is estimated according to the inputs that were

used when calculating the cost of the project

- The estimation of the return is carried out according to studies of

market needs

- Financial considerations are taken into account when measuring

market needs (present value of money)


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Deciding whether the project is feasible or not

• First: government projects

In it, the ratio of the economic return of the project to the cost of its

establishment is calculated only to determine the priorities of the

projects. As for making investment decisions in the projects, it is

subject to social, geographical or demographic determinants ... etc.

• Second: Private projects

There are three indicators that are used to measure the feasibility of

investing in a particular project or not, and they are:

1. Pay Back Period

It is the period required to recover the original investment value of the

project. This method is used in the case of projects that generate a fixed

annual income

𝑃𝑎𝑦 𝐵𝑎𝑐𝑘 𝑃𝑒𝑟𝑖𝑑 (𝑖𝑛 𝑦𝑒𝑎𝑟𝑠) = 𝑃𝑟𝑜𝑗𝑒𝑐𝑡 𝐶𝑜𝑠𝑡 (𝐼𝑛𝑣𝑒𝑠𝑡𝑚𝑒𝑛𝑡 𝑉𝑎𝑙𝑢𝑒)

𝐴𝑛𝑛𝑢𝑎𝑙 𝑅𝑒𝑣𝑒𝑛𝑢𝑒

Net Present value

Net Present value of an amount (x) after (n) years based on an interest rate

(discount rate)

𝑌% = 𝑥 ∗ 1

(1 + 𝑝%)𝑛


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The amount 1 / (1 + p%)n is called the discount coefficient, and there are

tables prepared in advance for each discount rate at (n) years.

The criterion for acceptance or rejection is the value of the difference

between the benefit to the cost. The project in which the value is greater

than zero is accepted and the project in which the value is less than zero

(the value is negative) is rejected.

Example:

The present value of EGP 1,000 after three years based on an interest rate

of 10% can be calculated as follows:

Interest Rate = p = 10% = 0.1

Number of years = n = 3

The discount factor = 1/(1+p)n = 1/ (1+0.1)3 = 0.7513

Present value of EGP 1,000 after three years = 1,000 x 0.7513

= EGP 751.3

2. Benefit / Cost Ratio

This method is one of the methods that depends on calculating the present

value of cash flows over the life of the investment.

Benefit-Cost Ratio

= 𝑃𝑟𝑒𝑠𝑒𝑛𝑡 𝑉𝑎𝑙𝑢𝑒 𝑜𝑓 𝑎𝑙𝑙 𝑏𝑒𝑛𝑒𝑓𝑖𝑡𝑠 𝑠𝑢𝑚 (𝑖𝑛𝑐𝑜𝑚𝑒 𝑜𝑟 𝑟𝑒𝑣𝑒𝑛𝑢𝑒)

𝑃𝑟𝑒𝑠𝑒𝑛𝑡 𝑉𝑎𝑙𝑢𝑒 𝑜𝑓 𝑎𝑙𝑙 𝑡ℎ𝑒 𝑝𝑟𝑗𝑒𝑐𝑡 𝑐𝑜𝑠𝑡


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The criterion for acceptance or rejection is the value of the benefit-cost

ratio. The project in which the ratio is more than one is accepted and the

project in which the ratio is less than one is rejected.

3. Internal Rate of Return (IRR)

It is the interest rate (discount) at which the sum of the present values of

the project's revenues over the life of the investment equals the present

value of the project cost


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Example:

One of the projects costs 100,000 pounds and generates an annual net

income for four years as follows:

40,000 EGP in the first year

30,000 EGP in the second year

50,000 pounds in the third year

20,000 pounds in the fourth year

Assuming that the interest rate (discount rate) = 10%, it is required to

study the feasibility of the project

Solution:

Present value of project revenue

Year Net Value Discount Rate Present Value

First 40,000 0.909 36,360 L.E.

Second 30,000 0.826 24.780 L.E.

Third 50,000 0.751 37.550 L.E.

Fourth 20,000 0.683 13,600 L.E.

Total 112,350 L.E.

First; the net present value method

Net Present Value = 112,350 – 100,000

= 12,350 (Possible accept the project)


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Second, the cost-benefit ratio method

Ratio = 112,350/100,000 = 1.1235 (greater than “1”project is accepted)

Third, the internal rate of return (IRR) method

In this method, an attempt is made by trial and error to reach the interest

rate at which the current values of revenue are equal to the value of the

cost (investment). For example, by experimenting with the interest value

12%, the present value of the revenue is 107,950, which means that the

internal rate of return (IRR) is greater than 12%.

The attempt is repeated until the internal interest rate (IRR) can be

reached, and its value is the criterion for acceptance or rejection


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Estimate preparation • request made by management to estimate the cost of a project • The first task for the estimator is to study and interpret the project

scope and produce an estimating plan • The next task is to collect historical data related to similar past

projects • It is very important to describe in detail all the information,

assumptions and adjustments considered in the estimate • The outputs from this stage are the project conceptual cost estimate

Estimate Basics

Unit cost should be determined as an average of previous projects data not depending on one project • UC = (A + 4B + C) / 6 • UC = forecast unit cost • A = minimum unit cost of previous projects • B = average unit cost of previous project • C = maximum unit cost of previous projects


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Example • Use the weighted unit cost to determine the conceptual cost

estimate for a proposed parking that is to contain 135 parked cars Project No. Cost (LE) No. of Cars

1 466,580 150 2 290,304 80 3 525,096 120 4 349,920 90 5 259,290 60 6 657,206 220 7 291,718 70 8 711,414 180


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Project No. Unit Cost (LE/car) 1 3,110.4 2 3,628.8 3 4,375.8 4 3,888.0 5 4,321.5 6 2,978.3 7 4,167.4 8 3,952.3

• Unit cost per car • the average unit cost = 30,431.5 / 8 = LE3,803.94 / car • The forecast unit cost =

(2,987.3 + 4 × 3,803.94 + 4,375.8) / 6 = 3,763.14. • The cost estimate for 135-cars parking = 135 × 3,763.14 = LE

508,023 Time adjustment

• The adjustment should represent the relative inflation or deflation of costs with respect to time due to factors such as labor rates, material costs, interest rates

• Time of value of money


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• Index numbers are used to reflect changes in money values • Various organizations publish indices that show the economic

trends of the construction industry with respect to time


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Example • The indices for building projects these economic trends. It is

required to use the cost of a LE843,500 project completed last year to prepare a conceptual estimate for a project proposed for construction 3 years from now.

Year Index 3 years ago 358 2 years ago 359 1 year ago 367 Current year 378

• The equivalent interest rate can be calculated based on the change

in the cost index during the 3-year period as follow: • (378/358) = (1 + i)3 • Then i = 1.83% • Accordingly, the cost of the project should be adjusted for time as

follows: • Cost = LE843,500 × (1 + 0.0183)4 = LE906,960


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Location adjustment • Tender price levels vary according to the region of the country

where the work is carried out • the use of cost information from a previous project should be

adjusted to represent the difference in cost between the locations of the two projects

• The adjustment should represent the relative difference in costs material, equipment and labor of the two locations

• Indices that show the relative difference in construction costs with respect to location is published by many organizations

Example

• The indices for different location of construction costs are shown below. The construction cost of a project comple ted at city A is LE387,200, it is required to prepare a conceptual estimate for a similar project proposed in city D

• The cost of the proposed project • Cost = LE387,200 × (1.105 / 1.025)

= LE417,420


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Size adjustment • In general, the cost of a project is directly proportional to its size • The use of cost information from a previous project to forecast the

cost of a future project will not be reliable unless an adjustment is made that represents the difference in size of the two projects

• The adjustment is generally a simple ratio of the size of the proposed project to the size of the previous project from which the cost data are obtained

Combined adjustment: Example

• Prepare the conceptual cost estimate for a building with 62,700 m2 of floor area. The building is to be constructed 3 years from now in city B. A similar type of building that cost LE2,197,540 and contained 38,500 m2 completed 2 years ago in city E. Estimate the probable cost of the proposed building

• The Original building: Area: 38500 Year: 2 years ago City: E (1.24)

• Proposed building: Area: 62700 Year: 3 years from now

City: B (index 1.17) Inflation: 1.83%


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Location Index City A 1.025 City B 1.170 City C 1.260 City D 1.105 City E 1.240

Proposed cost = Previous cost × Time adjustment × Location adjustment × Size adjustment = LE2,179,540 × (1 + 0.0183)5 × (1.17/1.24) × (62,700/38,500) = LE3,700,360 Without time and location adjustment

= Previous cost × Size adjustment = LE2,179,540 × (62,700 / 38,500) = LE3,549,537


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Unit cost adjustment

• Although the total cost of a project will increase with size, the cost per unit may decrease

• For example, the cost of an 1800-m2 house may be LE535/ m2 where the cost of a 2200 m2 house of comparable construction maybe only LE487/ m2

• certain items such as furniture, garage, etc., are independent of the size of the project

• The estimator must obtain cost records from previous projects to develop appropriate adjustments for new projects.


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Example Cost records from previous projects show below. Find the adjusted unit cost

Project No. Cost (LE) Size, No. of Units 1 2,250 100 2 1,485 60 3 2,467 120 4 2,730 150 5 3,401 190

Max. UC = 3401/190 = 17.9 & Min. UC1485/60 = 24.75 Unit cost = [(17.9 – 24.75) / (190 – 60)] x + 24.75

= - 0.0526 x + 24.75


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Where 60 < x < 190, then y = 24.75 – 0.0526 (S – 60)

• • • • •

• Using Excel curve fitting • Add trend line


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• Write the equation • Unit cost = - 0.056 x + 27.81

Interpolation

• It requires a good deal of skill and experience and is the process of adding in or deducting from the cost analysis to arrive at a budget for a new project

• Using data from previous projects • Add or deduct to adjust cost • Using unit cots, etc.

Unit method

• Depends on the cost per functional unit of the building, a functional unit being, for example, a hotel bedroom

• It is suitable for clients who specialize in one type of project; for example, hotel or supermarket chains

• Schools – cost per pupil • Hospitals – cost per bed • Note that, all other adjustments must be also made (time, location

and unit) Superficial method

• The superficial method is a single price rate method based on the cost per square meter of the building

• the most frequently used method of approximate estimating


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• quick and simple to use • Similar to the unit rate method


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Example

Gross floor area for office block = 10.0 x 25.0 - 2 x 3.0 x 7.50 = 205.0 m2 Area of 5 floors 205.0 x 5 = 1025.0 m2 x LE1100 /m2

= LE 1,127,500.0 Basement 7.00 x 25.0

= 175.0 m2 x LE1300 /m2 = LE 227,500.0

Estimate for block = LE1,355,000.0


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Approximate quantities

• Most accurate method of estimating, provided that there is sufficient information to work on

• group items corresponding to a given operations and relating them to a common unit of measurement

• Rates are built up for these items • All measurements are taken as gross

Parametric cost estimate The parametric model uses historical data as the basis of the model's predictive features

• Parametric models calculate the dependent variables of cost and duration based on one or more independent variables

• These independent variables are quantitative indices of performance and/or physical attributes

• The output of parametric models includes the cost of major phases, duration of project major phases, total project cost, and resource requirements

• A parametric model, for a construction project, would use the data provided by the user on any or all of the following characteristics: project type, frame material, exterior material, ground conditions, desired floor space, and roof type


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• Then, using the general relationships developed between these input and output variables, the model provides an estimate of some or all of the output variables

• Depending on the organizational environment and on the nature of targeted projects, these models use different statistically derived algorithms


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Some real life feasibility studies examples and cases

Case One: Feasibility study on approaches to aggregate OTC derivatives

data (19 September 2014);

This study was as G20 Leaders agreed in 2009 that all over-the-

counter (OTC) derivatives contracts should be reported to trade

repositories (TRs), as part of their commitments to reform OTC

derivatives markets in order to improve transparency, mitigate

systemic risk and protect against market abuse. To date, a total of

25 TRs in 11 jurisdictions are either operational or have announced

that they will be, and these numbers may increase. Aggregation of

the data being reported across these TRs is necessary to ensure

that authorities are able to obtain a comprehensive global view of

the OTC derivatives market and activity. The FSB therefore

requested a study of the feasibility of various options for a

mechanism to produce and share global aggregated data. The

feasibility study should take into account legal and technical issues

and the aggregated TR data that authorities need to fulfill their

mandates, this study responds to that request.

The contents of that study was as follows:

Executive Summery

Introduction

Chapter 1: Objectives, scope, and Approach

Chapter 2: Stocktake of Existing Trade Reporting


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Chapter 3: Authorities’ Requirements for Aggregated OTC Derivatives

Data

Chapter 4: Legal Considerations.

Chapter 5: Data & Technology Considerations

Chapter 6: Assessment of Data Aggregation Options

Appendices


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Case Two: Feasibility Analysis of Water Supply For Small Public Water

Systems (August 2010),

In this study, the University of Texas Bureau of Economic Geology

(BEG) and its subcontractor, Parson Transportation Group Inc.

(Parsons), was contracted by the Texas Commission on

Environmental Quality (TCEQ) to conduct a project to assist with

identifying and analyzing alternatives for use by Public Water

Systems (PWS) to meet and maintain Texas drinking water

standards.

The overall goal of this project was to promote compliance using

sound engineering and financial methods and data for PWSs with

recently recorded sample results exceeding maximum contaminant

levels (MCL). The primary objectives of this project were to provide

feasibility studies for PWSs and the TCEQ Water Supply Division

that evaluate water supply compliance options, and to suggest a

list of compliance alternatives that may be further investigated by

the subject PWS for future implementation.

This feasibility report provides an evaluation of water supply

alternatives for the Mirando City Water Supply Corporation (PWS

ID# 2400025, Certificate of Convenience and Necessity #12629), is


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located at 315 North Linder (also known as Farm-to-Market Road

649), Mirando City, Texas in eastern Webb County. The PWS is

approximately 34 miles east of Laredo and 12 miles west northwest

of Bruni. The Mirando City PWS is a community water system

serving a population of 500 with 250 active connections. The water

source for the Mirando City PWS comes from two groundwater

wells, Well #1 (G2400025A) completed to a depth of 540 feet, and

Well #2 (G2400025B), completed to a depth of 462 feet. Well #1 is

rated at 60 gallons per minute (gpm) and Well #2 is rated at 58 gpm.

The contents of this study was as follows:

Executive Summary

Section 1: Introduction

Section 2: Evaluation Method

Section 3: Understanding sources of Contaminants

Section 4: Analysis of the Mirando City PWS

Section 5: References

Appendices


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Case Three: BIOGAS PRODUCTION FROM AGRICULTURAL WASTES AND

FEASIBILITY STUDY TO ENRICH BIOGAS MANURES (2014)

This study was a Master of Science thesis, made by “Yerasi Kavya”

The experiment was conducted during 2013-14 at Department of

Agricultural Microbiology and Bioenergy, and Department of Soil

Science & Agricultural Chemistry, College of Agriculture,

Rajendranagar, ANGRAU, Hyderabad. Cow dung along with other

agricultural wastes (press mud, poultry litter, kitchen wastes, maize

stalks and fruit wastes) were used for the biogas production in lab

scale. Along with the estimation of biogas production different

parameters like Total Solids (TS) per cent, Total Volatile Solids (TVS)

per cent, Volatile Fatty Acids (VFA), pH, Nitrogen (N), Phosphorous (P),

Potassium (K), Organic carbon per cent, Biological Oxygen Demand

(BOD), Chemical Oxygen Demand (COD), Electrical Conductivity (EC)

and methane percentage was estimated.

This dissertation contents were:

Chapter 1 Introduction

Chapter 2 Review of Literature


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Chapter 3 Material and Methods

Chapter 4 Results and Discussion

Chapter 5 Summary and Conclusions

Then; Literature Cited, and Appendices


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Case Four: Feasibility Report on Delhi Ghaziabad – Meerut

This study backgrounf and target are; National Capital Region (NCR) is

a unique example for inter-state regional development planning for a

region with Nation Capital at its core. It is one of the largest National

Capital Region of the World and constitutes about 1.60% of the

country‟s land area. NCR is the home of 371 lakhs people living in 108

towns of which 17 are class I cities and more than 7500 rural

settlements.

The population of NCR is projected to be 641.38 lakhs by 2021. Based

on the projections & policies given in the Regional Plan-2021 for NCR,

it is expected that the population of NCT-Delhi Sub-region would be

225 lakhs by 2021 and 163.50 lakhs, 49.38 lakhs & 203.50 lakhs for

Haryana, Rajasthan Sub-region & Uttar Pradesh Subregions

respectively.

NCR Planning Board prepared a Regional Plan with the perspective for

year 2021 for the National Capital Region which was notified on

17.9.2005 for implementation. The Plan aims at promoting growth

and balanced development of the National Capital Region. In this

endeavor the effort is to harness the spread of the developmental


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impulse and agglomeration economies generated by Delhi. The above

objective is sought to be achieved.

The proposed RRTS corridor between Delhi, Ghaziabad and Meerut is

envisaged as part of the National Capital Region Planning Board‟s

Regional Transport Plan 2021 for a Mass Rapid Transit System that

could provide an effective, high-speed and world class solution to

benefit ridership between the cities of Ghaziabad, Meerut and towns

of Modi Nagar, Murad Nagar, Modi Puram, Guldhar and Duhai with

Delhi. The RRTS corridor has been proposed to create a cost-effective

yet world class transportation solution to provide a much needed

relief to the NCR commuters and to discourage congestion within

Delhi, a city bursting at its seams with inflow of population and

strained resources and infrastructure.

The contents of this study was:

Chapter 1: Introduction.

Chapter 2: Approach and Methodology.

Chapter 3: Recommendations from Travel Demand Forecast Study.


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Chapter 4: Review of Present Railway & NH Alignment

Chapter 5 Proposed Alignment

Chapter 6: Key Inputs From Engineering and Operations Report.

Chapter 7: Assumptions and Boundary Conditions

Chapter 8: Revenue Estimation

Chapter 9: Capital Cost Estimation

Chapter 10: Operation & Maintenance Cost Estimation

Chapter 11: Project Structuring & Viability

Chapter 12: Economic Evaluation of RRTS


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Case Five: PROPOSED EXPANSION PROJECT HAVING Ferro Alloys Plant,

Integrated Steel Plant, Captive Power Plant & Cement Grinding

Plant.(Feb. 2017)

This study is : The proposed expansion of Ferro Alloys Plant, Iron Ore

Beneficiation/Pellet Plant Integrated Steel Plant through secondary

route of steel manufacture and Cement Grinding Plant will be located

at village Nabagram, PO: Digha, Development Block: Neturia, Dist:

Puruliya, West Bengal. Total land acquired for this project by M/s Ispat

Damodar Pvt. Ltd. is 78 Acres in which a Sponge Iron Plant with 2 X

100 TPD kilns, SMS Plant with induction furnace of 2 X 4 T & 1 X 8 T

capacity, a Ferroalloy plant of 4 X 7.5 MVA capacity and a Waste Heat

Recovery based power plant of 8 MW capacity are already in

operation. The existing plant has been operating since 2006. The

company proposes to further acquire 25 acres of land for the

expansion purpose. The acquisition will involve mostly private land.

The site is accessible by Sarbari – Panchet Road which connects SH-5

(Purulia to Asansol via Dishergarh). Thus the site is having dvantages

of proximity to 2 Coalfields – i. e. Ranigunj Coal field of ECL on one side

and Dhanbad coalfields of BCCL on the other. Nearest Railway station


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is Madhukunda on S.E. Railway which is about 10 Km. from the site.

Nearest sea port is at Haldia at aerial distance of170 KM from the

project site. Nearest Air Port is at Andal at a distance of 75 KM and

Netaji Subhas Chandra Bose airport at Kolkota, at an aerial distance of

270KM from project site.

This study contains the following:

Chapter one: Excutive summary.

Chapter two: Introduction to the project and background information.

Chapter three: Project Description.

Chapter four: Site Analysis.

Chapter Five: Planning Brief.

Chapter six: Proposed Infrastructure.

Chapter seven: Rehabilitation and Resettlement (R & R) Plan

Chapter Eight: Project Schedule & Cost Estimate

Chapter Nine: Analysis of Proposal Final Recommendations.


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References:

- Ahmed Farid Mostafa, “Economic Feasibility Study for Investment

Projects”, University youth Foundation, Alexandria 2009.

- The League of Arab States, Industrial Development Center for Arab

Countries, “Evaluation and comparison guide between industrial

projects for Arab countries”, Issued by the Industrial Development

Center for Arab Countries and the United Nations Industrial

Development Center. June 1979.

- Abdel Muttalib Abdel Hamid, “Economic Feasibility Studies for

Making Investment Decisions”, University House, Alexandria,

2006.

- Abdel Qader Mohamed Abdel Qader Attia, “Commercial,

Economic and Social Feasibility Studies with Bot Projects, Second

Edition”, University House, Alexandria, 2008.

- Dr. Murad Ali Khalil, “Feasibility Studies and Evaluation of

Investment Projects”, 2007.

- Nabil Shaker, “Preparing feasibility studies and evaluating new

projects, second edition”, Ain Shams University, Egypt, 1996.

lectures notes of feasibility study

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