Feasibility study-Lecture 4.ppt

7/24/2019 Feasibility study-Lecture 4.ppt

1/23

Feasibility study

Lecture 4

11/02/15 1Dr. Joshua Onono


2/23

Feasibility study

This is the study of a proposed proect to indicate!hether the proposal is attracti"e enou#h to

ustify $ore detailed preparation

% feasibility study is part of the process of proectidenti&cation' preparation and selection

(t in"ol"e the process of appraisin# proects or#roup of proects and then choosin# to i$ple$entso$e of the$

This is an e)tre$ely i$portant sta#e in proect$ana#e$ent



3/23

Feasibility study

*ey factors loo+ed at in a feasibility study, %"ailability of ade-uate $ar+et

ro!th potential of the proect

(n"est$ent' operation and distribution costs

De$and and supply factors

ocial and en"iron$ental conditions

11/02/15 Dr. Joshua Onono


4/23

Feasibility study

% feasibility study should contain the follo!in#analyses,

o$$ercial /$ar+et analysis

Technical analysis

Or#aniation/ad$inistrati"e analysis Financial analysis

3n"iron$ental analysis

3cono$ic analysis

ociopolitical analysis



5/23

o$$ercial/$ar+et analysis

The co$$ercial aspects of a proect include thearran#e$ent for $ar+etin# output produced by the proect'and the arran#e$ents for the supply of inputs needed tobuilt and operate the proect

On the output side' careful analysis of the proposed $ar+et

for the proects production is essential to ensure that there!ill be an eecti"e de$and at a re$unerati"e price e.#-uestions to be as+ed include, !here !ill the products besold6' is the $ar+et lar#e enou#h to absorb the ne!production !ithout aectin# the price6' if the price is li+ely

to be aected' by ho! $uch6' !hat share of the total$ar+et !ill the proposed proect supply6' are thereappropriate facilities for handlin# the ne! production.



6/23

o$$ercial/$ar+et analysis

On the input side' appropriate arran#e$ent $ustbe $ade for far$ers to secure the supplies offertiliers' pesticides' and hi#h yieldin# seedsthey need to adopt ne! technolo#y or croppin#patterns' or ne! ani$al husbandry practices.

The -uestions to be as+ed include, do $ar+etchannels for inputs e)ist6' and do they ha"eenou#h capacity to supply ne! inputs on ti$e67hat about the &nancin# of suppliers of inputs

and credit for the far$ers to purchase thesesupplies6



7/23

o$$ercial/ $ar+et analysis

The co$$ercial aspects of the proect also includearran#e$ents for procure$ent of e-uip$ent9s andsupplies.

The -uestions to be as+ed include, are procure$entprocedures such that undue delays can be a"oided 6' are

there procedures for co$petiti"e biddin# to ensure fairprices6 7ho !ill dra! up the speci&cations for theprocure$ent6

The co$$ercial aspects also include distributionarran#e$ents includin# !arehousin# and stora#e

arran#e$ents Market analysis can be achie"ed throu#h, descripti"e

approach' price e:ciency techni-ue or industrialor#aniation techni-ue

11/02/15 ;Dr. Joshua Onono


8/23

Technical analysis

The technical analysis concern proects inputs


9/23

Technical analysis

Technical analysis #i"es an indication of thecapacity of operations !ithin the proect

(t also include the -uality of $achinery ande-uip$ent9s

There should be pro"ision for $aintenance of the$achinery and e-uip$ent9s

The location and layout of the proect is also partof the technical analysis

This also include appropriateness of technolo#y ?this !ill depend on the le"el of de"elop$ent inthe co$$unity

11/02/15 @Dr. Joshua Onono


10/23

Technical analysis

Technolo#y should be e)a$ined at t!ole"els,

The technolo#y used $ust be suitable for therealiation for a speci&c obecti"e of a #i"en

proectThe technolo#y $ust also be e)a$ined for

suitability accordin# to the pre"ailin# socioecono$ical en"iron$ent



11/23

Or#aniational analysis % !hole ran#e of issues in proect preparation re"ol"es

around the o"erlappin# institutional' or#aniational'and $ana#erial aspects of proects

This factors clearly ha"e an i$portant eect on theproect i$ple$entation

Fre-uent -uestions as+ed is !hether the institutionalsettin# of the proect is appropriate and' !hether thesociocultural patterns and institutions of thoseco$$unities that the proect !ill ser"e $ust beconsidered

3.# does the proect desi#n ta+e into account thecusto$s and culture of the far$ers !ho !illparticipate6 Or !ill the proect in"ol"e disruption of the!ays in !hich far$ers are accusto$ed to !or+in#6



12/23

Or#aniational analysis

For proects to be carried out successfully' they needto relate properly to the institutional structure of thecountry and re#ion

This $ay include structure of co$panies' partnership

and other or#aniational set up Other factors $ay include the proects $anpo!er

re-uire$ents' transportation of $achinery'$aintenance and co$$issionin# e.# for the turn +eyproects

Ter$s and conditions !hich are adhered to bycontactors $ust be carefully !ei#hed to ensure thatthey are in line !ith the o"erall proect obecti"es



13/23

Financial analysis

The &nancial aspects of proect preparation andanalysis include the &nancial eects of a proposedproect on each of its "arious participant.

(n a#ricultural proects' the participants includefar$ers' pri"ate sector &r$s' public corporations'proect a#encies and perhaps the national treasury.

% $aor obecti"e of the &nancial analysis of far$s isto ud#e ho! $uch far$ fa$ilies !ho areparticipatin# in the proect !ill ha"e to li"e on.



14/23

Financial analysis The analyst !ill need bud#et proections that esti$ate year by

year future #ross receipts and e)penditures' this should

include the costs associated !ith production and the creditrepay$ents far$ fa$ilies $ust $a+e to deter$ine !hatre$ains to co$pensate the fa$ily for its labour' $ana#e$ents+ills and capital.

The analyst of far$ inco$e !ill also per$it assess$ent of

incenti"es for far$ers to participate in the proect6' !hat !illbe the probable chan#e in far$ inco$e6' !hat !ill be theti$in# of this chan#e6' ho! li+ely are price chan#es orAuctuations that could aect far$ inco$e se"erely enou#hthat far$ers !ill refuse to run the ris+ of participatin# in the

proect6' !hat !ill be the eect of subsidies arran#e$ents onfar$ inco$e' and !hat chan#es in #o"ern$ent policy $i#htaect the inco$e earned by far$ers6 !ill ne! subsidies beneeded to pro"ide su:cient incenti"es for the proect toproceed.



15/23

Financial analysis

%n analysis of the &nancial aspect of the proectad$inistration !ill also be needed. The -uestions to beas+ed include, !hat in"est$ent funds !ill the proectneed and !hen6' !hat !ill be the operatin# e)penses!hen the proect is under!ay6' !ill these e)penses

depend on bud#et allocations or !ill the proect producesu:cient re"enue to co"er for its ad$inistration costs6

There $ust be a clear e"idence that the proect !illha"e a net #ain if it has to be feasible

%ll the initial proect costs as !ell as the operation costsshould be carefully considered



16/23

3cono$ic analysis

3cono$ic analysis is basically concerned !ith thefollo!in#,

Bo! to identify eects of a proposed proect to thesociety

Cuanti&cation of the eects of the proposed proect

ricin# of costs and bene&ts to reAect their "alues tothe society

(n econo$ic analysis' shado! prices are used !hilein &nancial analysis the $ar+et prices are used



17/23

3cono$ic analysis The econo$ic aspects of proect preparation and analysis

re-uire a deter$ination of the li+elihood that a proposed

proect !ill contribute si#ni&cantly to the de"elop$ent of thetotal econo$y and that its contribution !ill be bi# enou#h toustify usin# the scarce national resources it !ill need

The point of "ie! ta+en by econo$ic analysis is that of thesociety as a !hole

The &nancial and econo$ic analysis are thus co$ple$entary? the &nancial analysis ta+es the "ie!point of the indi"idualparticipants !hile the econo$ic analysis ta+e the "ie!pointof society

Bo!e"er' because the sa$e discounted cash Ao! $easuresare used in &nancial analysis to esti$ate returns to a proectparticipant and in the econo$ic analysis to esti$ate returnsto society' confusion bet!een the t!o analysis al!ays arises'but there are three i$portant distinctions bet!een the t!oanalyses approaches11/02/15 1;Dr. Joshua Onono


18/23

3cono$ic analysis First in econo$ic analysis' ta)es and subsidies are

treated as transfer pay$ents i.e the ne! inco$e#enerated by a proect include ta)es the proect canbear durin# production' and any sale ta)es buyers are!illin# to pay !hen they purchase the proects products

These ta)es ' !hich are part of the total proects bene&t

are transferred to the #o"ern$ent !hich acts on behalfof the society as a !hole and are not treated as costs

on"ersely' a #o"ern$ent subsidy to the proect is acost to the society' since subsidy is an e)penditure of

resources that the econo$y incurs to operate the proect (n &nancial analysis' such adust$ents are nor$ally

unnecessary' since ta)es are usually treated as a costand subsidies as a return

11/02/15 1>Dr. Joshua Onono


19/23

3cono$ic analysis

(n &nancial analysis' $ar+et prices are nor$ally

used.

These ta+es into account ta)es and subsidies andfro$ these $ar+et prices' co$es the data used inthe econo$ic analysis

(n econo$ic analysis' ho!e"er' so$e $ar+etprices $ay be chan#ed so that they $oreaccurately reAect the social or econo$ic "alues

These adusted prices are called as shado! or

accountin# prices

11/02/15 1@Dr. Joshua Onono


20/23

3cono$ic analysis

(n econo$ic analysis' interest on capital is ne"er

separated and deducted fro$ the #ross return because itis part of the total return to the capital a"ailable to thesociety as a !hole' and additionally' it is this total returnincludin# interest that the econo$ic analysis is desi#nedto esti$ate

(n &nancial analysis' interest paid to e)ternal suppliers of$oney $ay be deducted to deri"e the bene&t strea$a"ailable to the o!ners of capital' but interest paid to theentity fro$ !hose point of "ie! the &nancial analysis is

bein# done is not treated as a cost' because the interest ispart of the total return to the e-uity capital contributed bythe entity' and hence it is part of the &nancial return thatentity recei"es



21/23

ocial analysis

7e ha"e $entioned that proects should consider thesocial patterns and practices of the clientele the proect!ill ser"e

Eore fre-uently' proect analysts are e)pected toe)a$ine carefully the broader social i$plications of

proposed in"est$ents ocial consideration should be carefully considered to

deter$ine is a proposed proect is responsi"e to nationalobecti"es e.# the case of creatin# e$ploy$ent

opportunities ' and also issues that are dealin# !ithinco$e distribution !ithin the society

For social reasons' !hen #o"ern$ents !hat to e$phasieon #ro!th in particular re#ions' they !ould encoura#eproects that can be i$ple$ented in these areas11/02/15 21Dr. Joshua Onono


22/23

3n"iron$ental analysis

ollution 3n"iron$ental de#radation



23/23

Further readin#

3cono$ic analysis of %#ricultural proectssecond edition, J. rice ittin#er


Feasibility study-Lecture 4.ppt

Documents

Transcript of Feasibility study-Lecture 4.ppt