project management lecture note 3 - feasibility study
DESCRIPTION
PROJECT MANAGEMENTTRANSCRIPT
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How to Conduct Feasibility Study from A to Z
by
Dr. Suntoro Tjoe
Feasibility Study for Project SuccessKuala Lumpur, 11th September 2001
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Feasibility Study - A process of thought
Conduct market analysis Conduct technical analysis
Conduct financial analysis
Analysi
s
Generation of ideas
Initial screening
Plan feasibility analysis
TerminateIs the idea prima faciepromising?
Preliminary
work
Yes
No
Prepare funding proposal
Conduct economic and ecological analysis
Is the projectworthwhile? Terminate
Evaluatio
n
Yes
No
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Generation of ideas
Brain storming
SWOT analysis
Analyze performance of existing schemes
Analyze economic and social trends
Study plan outlays and governmental guidelines
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Initial screening
Compatibility with the promoter
Consistency with governmental priorities
Availability of inputs
Adequacy of market
Reasonableness of cost
Acceptability of risk level
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Key Issues in Project Analysis
Market AnalysisPotential market
Market share
Technical AnalysisTechnical viability
Sensible choices
Financial AnalysisRisk
Return
Economic AnalysisSocial cost benefit
Other impact
Ecological AnalysisEnvironmental damage analysis
Restoration measures
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Market Analysis
1. Situational analysis and specification of objectives
2. Collection of secondary information
Obtain general market opinion Formulate the objectives clearly and comprehensively
National and economic information Industry-specific information
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3. Conduct of market survey
Total demand and rate of growth of demand
Demand in different segments of the market
Income and price elasticities of demand
Motives for buying
Purchasing plans and intentions
Satisfaction with existing products
Unsatisfied needs
Attitudes towards various products
Socio-economic characteristics of buyers
Market Analysis (con’t)
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4. Characterization of the market
Effective demand in the past and present
Breakdown of demand
Pricing
Method of sales and promotion
Customers
Supply and competition
Government policy
Market Analysis (con’t)
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5. Demand Forecasting
Qualitative methods
Time series projection methods
Market Analysis (con’t)
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6. Market planning
Basic pricing
Packaging
Promotion
Services
Market Analysis (con’t)
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Technical Analysis
proximity to key locations in metropolitan area,
quality of surrounding environment,
existing housing/other structures,
schools, parks and recreational facilities,
amenities,
shopping,
public improvements.
1. Location and neighborhood:
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slopes, vegetation, grading or fill required to build, existing structures, hydrology and drainage patterns, soil properties, sensitive land.
Technical Analysis (con’t)
2. Size and shape
3. Accessibility and visibility
4. Site Conditions:
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utility easements, private easements, deed restrictions, covenants that run with the land.
Technical Analysis (con’t)
5. Legal constraints:
6. Utility: water, sewer, electricity, gas, telephone, cable television.
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Technical Analysis (con’t)
development climate,
impact fee,
future taking,
future road,
approval needed,
citizen participation/opposition,
approval process.
7. Zoning and regulatory environment:
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Financial Analysis
1. Cost of project
Land Building and civil works Plant and machinery Marketing Permits and fees Professional fees Financing fees Overhead Commissions Provision for contingency
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2. Means of financing
Financial Analysis (con’t)
Share/equity capital
Term loans
Debenture capital
Deferred credit
Incentive sources
Miscellaneous sources
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Financial Analysis (con’t)
3. Estimates of sales
Setting-up correct pricing At pre-launch During launching Progress after launching
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Financial Analysis (con’t)
4. Working capital requirement and its sources
Calculate the amount of required working capital
Determine possible sources
5. Break-even Point
Break-even point = Fixed costs
Selling price - Variable cost
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6. Projected cash flow statements
7. Projected balance sheets
Financial Analysis (con’t)
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Economic Analysis
Social cost benefit analysis Other impact
Ecological Analysis
Environmental damage analysis
Restoration measures
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Appraisal Criteria
Payback period (PBP)
Net present value (NPV)
Internal rate of return (IRR)
Benefit cost ratio (BCR)
Criterion
PBP < target period
NPV > 0
IRR > cost of capital
BCR > 1
Accept
PBP > target period
NPV < 0
IRR < cost of capital
BCR < 1
Reject
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Thank YouThank You