pRoJeCt EvAluATiOn

& fInAnCiNg

KHURAM
IMS
Jan 2020

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An important work in project evaluation in
developing countries
Manual of industrial project analysis
For Little & Mirrlees 1969 & 1974
Project appraisal and planning for
developing countries , For Little &
Mirrlees 1982
UNIDO guideline for project
evaluation in 1972.
Manual for the preparation of the
industrial feasibility studies UNIDO
1991. including: Computer model for
feasibility analysis and reporting
(CMFAR III Expert) in 1995.
World Bank Guidelines in 1975.
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PE&F is related to analyses the -
viability of the identified project to
support decision making of
.investment
As its name implies, it is a study to -
decide whether the identified
project is attractive enough to go for
implementation
The study needs inputs from many -
professional disciplines for various
areas of the study
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 ? Why PE&F
To find if there is adequate demand for the -
.project’s output
To find if there is availability of suitable technology -
and inputs
To find the best options -
To answer if the project meets the environmental -
regulations and priority of the nations
To examine the project’s financial and economic -
viability

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Key factor

 A key factor in any feasibility study must

be ensuring that you are dealing with
correct facts, correct assumption, and up
to date financial data.

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Countless feasibility studies

 Any project which have passed a

countless feasibility studies, have been
sunk by unexpected events such as
flood.
 Many projects fail because of incorrect
assumptions or because assumptions
were based on incorrect facts.

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Preliminary investigation

 When complex problems or opportunities

are to be defined, it is generally
desirable to conduct a preliminary
investigation called a feasibility study.
 The primary objectives of the feasibility
study is to assess three types of
feasibility

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 Types of feasibility Study

1. Technical feasibility
can a solution be supported with the existing
technology or not?
2. Economic feasibility
is the existing technology cost effective?
3. Operational feasibility
Will the solution work in the organization if
implemented?
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 Initiating the Feasibility Study
Appointment of an experienced manager and 
Selection of study team members
Scope of the study 
External Advisers to support study team 
Plan and Schedule the Study 
Starting study as per plan and schedule 
Controlling study to complete as per per plan 
and schedule

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 Completing the Feasibility
study
The feasibility study should act as a
springboard for the next phase in the
project life cycle. – design and
appraisal –ensuring that it is able to
commence in a focused way. The end
product of Feasibility Study should
therefore comprise a clear, concise
report, called Feasibility Study Report
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business success

 Establishing a feasibility study of projects

is a critical factor in business success.
 Many factors can be involved and
invariably luck can and probably will play
a hand.

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 The Components of a
Feasibility Study
1. Description of the Business: The product or
services to be offered and how they will be
delivered.
2. Market Feasibility: Includes a description of the
industry, current market, anticipated future market
potential, competition, sales projections, potential
buyers, etc.
3. Technical Feasibility: Details how you will
deliver a product or service (i.e., materials, labor,
transportation, where your business will be
located, technology needed, etc.).
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 continue
4. Financial Feasibility: Projects how much start-up
capital is needed, sources of capital, returns on
investment, etc.
5. Organizational Feasibility: Defines the legal and
corporate structure of the business (may also
include professional background information about
the founders and what skills they can contribute to
the business).
6. Conclusions: Discusses how the business can
succeed. Be honest in your assessment because
investors won’t just look at your conclusions they
will also look at the data and will question your
conclusions if they are unrealistic.
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Feasibility Study

 A Feasibility Study is the analysis of a

problem to determine if it can be solved
effectively.
 The results determine whether the
solution should be implemented.
 This activity takes place during the
project initiation phase and is made
before significant expenses are
engaged.
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Definition of Feasibility
Studies
 A feasibility study is an evaluation of a
proposal designed to determine the
difficulty in carrying out a designated
task. Generally, a feasibility study
precedes technical development and
project implementation.

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Definition of Feasibility
Studies
 A feasibility study looks at the viability of
an idea with an emphasis on identifying
potential problems and attempts to
answer one main question: Will the idea
work and should you proceed with it?

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Identification and exploration of
business scenarios
 .Identify alternative scenarios or business
models of what the project will entail, how it will
be organized, and how it will generate profits.
These may come from the idea assessment or
market assessment that you may have already
completed.
 Eliminate scenarios that don’t make sense.
 Flesh-out the scenario(s) that appear to have
potential for further exploration.

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Define the project and
alternative scenarios
 Describe the type and quality of
product(s) or service(s) to be marketed.
 Outline the general business model (i.e.
how the business will make money).
 Include the technical processes including
size, location, kind of inputs, etc.
 Specify the time horizon from the time
the project is initiated until it is up and
running at capacity.

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Relationship to the surrounding
.geographical area

 Outline the economic and social impact

on local communities.
 Describe the environmental impact on
the surrounding area

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Feasibility includes
1. Project name
2. Problem or opportunity definition
3. Project description
4. Expected benefit
5. Consequence of rejection
6. Resource requirements
7. alternatives
8. Other consideration
9. Theorization

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Five common factors
(TELOS)
1. Technology and system feasibility
2. Economic feasibility
3. Legal feasibility
4. Operational feasibility
5. Schedule feasibility

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PE&F : A Schematic Diagram
P
r
e Generation of ideas
l
i
m Initial Screening
i
n
a
r
y
?Is the Idea Prima Facie Promising

w Yes No
o
r Plan Feasibility Analysis
k Terminate
A
n Conduct Conduct
a
Market Analysis Technical Analysis
l
y
s Conduct Financial
i E
Analysis
s v
a
l Conduct Economic and Ecological
u analysis
a
t ?Is the project Worthwhile No
i
o Yes
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n Prepare Funding
Proposal e
1. Technology and system
feasibility

 The assessment is based on an outline design

of system requirements in terms of Input,
Processes, Output, Fields, Programs, and
Procedures. This can be quantified in terms of
volumes of data, trends, frequency of updating,
etc. in order to estimate whether the new
system will perform adequately or not this
means that feasibility is the study of the based
in outline.

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 2. Economic feasibility
 Economic analysis is the most frequently used method
for evaluating the effectiveness of a new system. More
commonly known as cost/benefit analysis, the
procedure is to determine the benefits and savings
that are expected from a candidate system and
compare them with costs. If benefits outweigh costs,
then the decision is made to design and implement the
system. An entrepreneur must accurately weigh the
cost versus benefits before taking an action. Time
Based: Contrast to the manual system management
can generate any report just by single click .
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Legal feasibility .3

 Determines whether the proposed

system conflicts with legal requirements,
e.g. a data processing system must
comply with the local Data Protection
Acts.

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4. Operational feasibility

 Is a measure of how well a proposed

system solves the problems, and takes
advantages of the opportunities
identified during scope definition and
how it satisfies the requirements
identified in the requirements analysis
phase of system development.[1]

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 5.schedule feasibility
 A project will fail if it takes too long to be
completed before it is useful. Typically this
means estimating how long the system will
take to develop, and if it can be completed in a
given time period using some methods like
payback period. Schedule feasibility is a
measure of how reasonable the project
timetable is. Given our technical expertise, are
the project deadlines reasonable? Some
projects are initiated with specific deadlines.
You need to determine whether the deadlines
are mandatory or desirable.
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Other feasibility factors

 Market and real estate feasibility

 Resource feasibility
 Cultural feasibility

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Areas of Analysis in Feasibility
study
Demand/ Need and Market Analysis 
Technical Analysis 
Management Analysis 
Financial Analysis 
Economic Analysis 
Environmental Analysis 
Social Analysis 

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Market Feasibility

 This can be based on a market

assessment that you may have already
completed.

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 Market and Demand Analysis
:The analysis cover mainly
Aggregate demand for the product/service
The share of unfulfilled demand
Demand forecasting
Market price of product/service
Analysis of competitors, their strength weakness
Distribution mechanism

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Market and Demand Analysis
Market and demand analysis look at )1
the need of the project and help to
estimate demand
It is the key activity for determining the )2
scope of an investment, the possible
production programs, the technology
required and often the choice of
.location

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Demands

Should government made six lane fast 

?track road
Should proposed cement factory plant 
be able to produce 100 metric ton of
?cement per day
How many rooms to build in Sheration 
?Hotel

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Market potential
 Identify whether the product be sold into a commodity
market or a differentiated product/service market.
 Identify the demand and usage trends of the market or
market segment in which the product or service will
participate.
 Examine the potential for emerging, niche or segmented
market opportunities.
 Explore the opportunity and potential for a branded
product.
 Assess market usage and your potential share of the
market or market segment.

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Market and real estate
feasibility
 Market Feasibility Study typically involves testing
geographic locations for a real estate development
project, and usually involves parcels of real estate land.
Developers often conduct market studies to determine
the best location within a jurisdiction, and to test
alternative land uses for a given parcels. Jurisdictions
often require developers to complete feasibility studies
before they will approve a permit application for retail,
commercial, industrial, manufacturing, housing, office or
mixed-use project. Market Feasibility takes into account
the importance of the business in the selected area.

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Technical Feasibility

 Facility needs.
 Estimate the size and type of production
facilities.
 Investigate the need for related
buildings, equipment, rolling-stock, etc.

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 Technical Analysis
.Every project must be technically feasible 
Technical analysis is related to examine whether 
the project under study is technically feasible to
setup and operate to produce service/product.
For example, in agriculture project of Apple
farming, types of field, soil test, temperature
required in selected location, location selection,
plantation distance of between plants, variety
.etc needs to be analyzed

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 Technical Aspects to be
Considered
:Technology
Choice of technological process and/ or appropriate •
,technology
?Is the technology proven or tested •
Does the technology/ process/ equipment •
technically fit with the facility’s existing
?technology/process/ equipment & machinery
Equipment capacity & whether it is as per •
requirement
.List of recommended equipment suppliers •
Reputation of the suppliers and performance •
guarantees
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 Technical Aspects to be
.considered Cont
Investment cost and operational cost of different 
technology/process
Environmental aspects of different technology 
Location aspects of the project and availability of
infrastructural facilities with probable alternative
locations
Inputs: Availability of electricity, water, fuel, raw
materials
Size and scale of operations: based on the demand,
capital requirement, and technology, inputs
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Raw materials

 Estimate the amount of raw materials

needed.
 Investigate the current and future
availability and access to raw materials.
 Assess the quality and cost of raw
materials.

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Resource feasibility

 This involves questions such as how

much time is available to build the new
system, when it can be built, whether it
interferes with normal business
operations, type and amount of
resources required, dependencies, etc.
Contingency and mitigation plans should
also be stated here.

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Sales projection

 Estimate sales or usage.

 Carefully identify and assess the
accuracy of the underlying assumptions
in the sales projection.
 Project sales under various assumptions
(i.e. selling prices, services provided,
etc.).

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 Economic Analysis
Economic analysis estimate and analyze the 
project’s net contribution to the whole economy of
.the region or country
It helps determine whether the project increases the 
.net wealth of a region or country as a whole or not
Estimation of Economic Costs of Projects 
Estimation of Economic Benefits of Projects 
Comparing Costs and Benefits 

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 Economic Analysis
Calculation of Economic Net Present Value 
(ENPV), Economic Internal Rate of Return (EIRR)
and Economic Benefit Cost Ratio (EB/C Ratio)
:Decision 
If ENPV > 0, accept, if ENPV < 0, reject -
If EIRR > discount rate (cost of capital), accept -
project
If EB/C ratio > 1 accept, < 1 reject project -

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 Industry description

 Describe the size and scope of the industry, market

and/or market segment (s).
 Estimate the future direction of the industry, market
and/or market segment (s).
 Describe the nature of the industry, market and/or
market segment (s). Is it stable or going through rapid
change and restructuring?
 Identify the life-cycle of the industry, market and/or
market segment (s). Is it emerging, growing, mature,
declining?

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Industry competitiveness

 Describe the industry concentration. Are there just a few

large producers or many small producers?
 Describe the major competitors? Will you compete
directly against them?
 Analyze the barriers to entry of new competitors into the
market or industry. Can new competitive enter easily?
 Analyze the concentration and competitiveness of input
suppliers and product/service buyers.
 Describe the price competitiveness of your
product/service.

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Access to market outlets

 Identify the potential buyers of the

product/service and the associated
marketing costs.
 Investigate the product/service
distribution system and the costs
involved.

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Suitability of production
technology

 Investigate and compare technology

providers.
 Determine reliability and competitiveness
of technology (proven or unproven,
state-of-the-art, etc.).
 Identify limitations or constraints of the
technology.

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Availability and suitability of
site
1. Investigate access to:
2. raw materials
3. transportation
4. labor
5. production inputs (electricity, natural gas,
water, etc.)
6. Investigate potential emissions problems.
7. Analyze other environmental impacts.
8. Identify regulatory requirements.
9. Explore economic development incentives.
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Other inputs

 Investigate the availability of labor

including wage rates, skill level, etc.
 Assess the potential to access and
attract qualified management personnel.

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 Environmental Analysis
A project may causes environmental impacts in 
many ways
Identification and analysis of adverse effects on 
the environment
Identification of positive impacts 
Required Mitigation measures 
Designing environmental management plan 
Provision of fund for environment management 
plan
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 Social Analysis
A project may causes social impacts in many 
ways
Will the project have any adverse effects on the 
?society
What are positive and negative impacts 
Viable measures to address negative impacts 
Estimating cost for addressing social impacts 

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Cultural feasibility

 In this stage, the project's alternatives

are evaluated for their impact on the
local and general culture. For example,
environmental factors need to be
considered and these factors are to be
well known. Further an enterprise's own
culture can clash with the results of the
project.

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 Financial Analysis
The scope of financial appraisal varies considerably with the
nature of project and whether it is revenue producing (e.g.
.industry, agriculture) or not (e.g. roads, public schools)
:Financial analysis covers
Investment Cost Estimation -
Operating Cost Estimation -
Benefits Estimation -
Cost Benefits Comparison -
Project Selection Decision -

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Estimate the total capital
requirements
1. Assess the “seed capital” needs of the business project
during the investigation process and start-up, and how
these needs will be met.
2. Estimate capital requirements for facilities, equipment
and inventories.
3. Estimate working capital needs.
4. Estimate start-up capital needs until revenues are
realized at full capacity.
5. Estimate contingency capital needs due to construction
delays, technology malfunction, market access delays,
etc.
6. Estimate other capital needs.

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Estimate equity and credit
needs

 Estimate equity needs.

 Identify alternative equity sources and capital
availability - family, producers, local investors,
angle investors, venture capitalists, etc.
 Estimate credit needs.
 Identify and assess alternative credit sources -
banks, government (i.e. direct loans or loan
guarantees), grants and local and state
economic development incentives.

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 Budget expected costs and
returns of various alternatives
 Estimate the expected revenue, costs, profit
margin and expected net profit.
 Estimate the sales or usage needed to break-
even.
 Estimate the returns under various production,
price and sales levels. This may involve
identifying “best case”, “typical”, and “worst
case” scenarios or more sophisticated analysis
like a Monte Carlo simulation.

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continue
 Assess the reliability of the underlying assumptions of the
analysis (prices, production, efficiencies, market access,
market penetration, etc.)
 Benchmark against industry averages and/or competitors
(cost, margin, profits, ROI, etc.).
 Identify limitations or constraints of the economic
analysis.
 Calculate expected cash flows during the start-up period
and when the business reaches capacity.
 Prepare pro forma income statement, balance sheet, and
other statements of when the business is fully operating.

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Business structure

 Identify the proposed legal structure of the business.

 Outline the staffing and governance structure of the
business along with lines of authority and decision
making structure.
 Identify any potential joint venture partners, alliances or
other important stakeholders.
 Identify the availability of skilled and experienced
business managers.
 Identify the availability of consultants and service
providers with the skills needed to realize the project,
including legal, accounting, industry experts, etc.

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 Management Analysis
If the management is incompetent, even a good -
:project may fail. So it looks at
Types of organization -
Academic qualification, and experience of key -
persons
Availability of personnel required for project -
.execution
Assessment of other specific skills required for the -
project
.User’s role in case of development projects etc -
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Business founders
 Character matters - are the people involved of
outstanding character?
 Do the founders have the “fire in the belly”
required to take the project to completion?
 Do the founders have the skills and ability to
complete the project?
 What key individuals will lead the project?
 Is there a reward system for the founders? Is it
based on business performance?
 Have the founders organized other successful
businesses?

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Study Conclusions

 Identify and describe alternative

business scenarios and models.
 Compare and contrast scenarios based
on goals of the producer group.
 Outline criteria for decision making
among alternatives.

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Why Are Feasibility Studies
?so Important
1. The information you gather and present in
your feasibility study will help you:
2. List in detail all the things you need to make
the business work;
3. Identify logistical and other business-related
problems and solutions;
4. Develop marketing strategies to convince a
bank or investor that your business is worth
considering as an investment; and
5. Serve as a solid foundation for developing
your business plan.

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 continue
 Even if you have a great business idea you still have to
find a cost-effective way to market and sell your products
and services. This is especially important for store-front
retail businesses where location could make or break
your business.
 For example, most commercial space leases place
restrictions on businesses that can have a dramatic
impact on income. A lease may limit business
hours/days, parking spaces, restrict the product or
service you can offer, and in some cases, even limit the
number of customers a business can receive each day.

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Feasibility studies V
business plans
 A feasibility study is designed to discover if a
business is "feasible" or not. It will answer
questions such as "will your idea work?" [new
window] It is an essential first step before
spending money and time on more detailed
plans. The information gathered is not wasted
as it can be incorporated into the Business
Plan.
 On the other hand a Business Plan is a more
detailed and in depth document that
incorporates the information gained from a
feasibility study plus specific timelines, detailed
budgets with forecasts and a detailed financial
strategy.
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 Feasibility before business
plan
 Before you begin writing your business plan
you need to identify how, where, and to whom
you intend to sell a service or product. You
also need to assess your competition and
figure out how much money you need to start
your business and keep it running until it is
established.

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Feasibility is a tool for a
business plan
 Feasibility studies address things like
where and how the business will
operate. They provide in-depth details
about the business to determine if and
how it can succeed, and serve as a
valuable tool for developing a winning
business plan.

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...Before you get started
 Are you suited to working in a small
business environment? Answer this
checklist [new window 69 kb] or
take the business readiness quiz
[new window] to get an idea if this is
what you really want and whether
you have the personality, skills and
temperament to succeed.
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 The feasibility study
framework

 The document should include sections on:

 Personal details
 The Business Idea
 Critical factors
 Market analysis
 Resource requirements
 Financial viability
 Capital requirements

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Use this template to:
 Perform a preliminary study to determine a project's
viability.
 Analyze an existing system to see if it is worth upgrading.
 Determine if there is sufficient time to build the new
system, when it can be built, whether it interferes with
operations, type and amount of resources required,
dependencies, etc.
 Establish the cost-effectiveness of the proposed system.
 Determine if the system conflicts with legal requirements.

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Thank
You

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