Feasibility Report

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 Project : Characteristics

z Singleness of Purpose
z Target date
z A definite life cycle
z Pre determined & fixed
resources
z Complex interdependencies

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Broad
B dC Categories
t i off Project
P j t

z Manufacturing
Projects
z Infrastructure Projects
z Service Sector
Projects
j
z Developmental
Projects

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 Phase of Project
Cycle/Development Phase
Pre--investment
Pre Investment Operating Phase
Identification Negotiation/ Commissioning
(Opportunity Study) Constraint Start
Start--up
Pre-selection
Pre- Engg.. Design
Engg Replacement
(Pre--feasibility Study)
(Pre Rehabilitations
Preparation Construction Expansion/
(Feasibility
(F ibilit St Study)
d ) i
innovation
ti
Support Studies Pre-
Pre-prodn.
prodn.
marketing
Appraisal
pp
(Appraisal Report)

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 Project Feasibility &
Management
g Stages
g
[1] Identification of Project
[2] Pre-Feasibility Report
[3] Feasibility Report
…Project
Project Appraisal
[4] Project Finance Tie up

[5] Project Implementation

[6] Co
Consolidation
so dat o
[7] Expansion and Modernization

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z Some phases may overlap

z The pre-investment phase is the most

important because the success or failure
of a project depends on its findings and
interpretation

z Cost of such study should not act as

hindrance

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 Pre-feasibility Study : Objectives

To determine whether…
9All possible project alternatives of a
Project
j have been examined
9Project concept justifies a detailed
analysis by a feasibility study
9Any specific aspect to be covered in
f
feasibility
ibilit study
t d
9Specific investor / target group
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 Pre-feasibility
f Study
S (cont.)

z It is an intermediate stage
z Difference is in degree of details
z Can be skipped
pp if there is better
clarity

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 Project Report / Feasibility Report:
In estment Decisions By
Investment B Investors
In estors

z Feasibility Reports (DPR,

(DPR TEFR,
TEFR etc.)
etc )
traditionally are prepared by investors (their
consultants)
z These are basically proposals to the funding
agencies,
g outside investors, etc.
z Studies/analyses the project from investor’s
point of view
z Seeks finances, incentives, etc.
z Al ttermed
Also dBBankable
k bl Reports
R t
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 Project Report for Soliciting Funds

z Should be as per the requirement of the concerned

funding agency
z It should be such which is acceptable by other funding
agencies
i also
l with
ith small
ll changes
h
z Important to know
9 the desired coverage & norms by the funding agencies’ in
general

9 Relative
R l ti importance
i t off these
th aspects
t off the
th Project
P j t Report
R t

9 How to get the data & prepare report based on the same

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 Main Components :
Business Plan / Feasibility Study

I. Introduction
II. Promoters Background & Past
Performance
III. Market Assessment
IV. Technical Feasibility Analysis
V. C t off P
Cost Project
j t & Means
M off Fi
Finance
VI. Financial Viability Analysis
VII. Key Elements & Concluding Observations

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 Al tto iinclude...
Also l d

z Project at a glance
z Annexures
z Support Documents
z Executive Summary

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 M k tF
Market Feasibility
ibilit

D Marketing is the Key Component for Success

of an Enterprise
D Study of “Market”
Market / “Marketing”
Marketing is to
understand
¾ The Customers
¾ The Competitors
¾ The Environment
D Market Feasibility / Assessment is a
Systematic Approach

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 Market Feasibility (Contd.)

Advantages

D Provides preliminary inputs for marketing

strategy and Programme formulations

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 Market Feasibility (Contd.)

FOCUS

z Focuses on gross market demand -

present and future
z Highlights gap : between expected
demand and supply (quantum &
Characteristics) for a given product
z Gap could be positive or negative

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 Market Feasibility (Contd.)

Market Feasibility Through:

9Desk Based Study
9Field Work
9Use of Research and
Analytical Techniques

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 Market Feasibility (C
(Contd.)
)

Approaches to Information Collection

Talk : To Customers, Traders, competitors

Observe: Competitors and traders in action

Talk : To knowledgeable people

Refer : To published information

Surf : The Net

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Key Steps in Market and Demand
A l i
Analysis

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 Market Feasibility (Contd.)
(Contd )

Major Information Gathering Methods

9Secondary Source Research

9 Primary Data Collection
9 Test Marketing

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 TECHNICAL FEASIBILITY

z Is it feasible to Execute/ Manufacture

¾ The Product(s)
¾ The Service

z Components/Factors which have to be

considered

z Significance of each of these components

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 Technical Feasibility
o Product Mix
z Capacity
z Equipments & accessories :
¾Requirement
¾Specifications/Availability
¾C
¾Comparative
ti Analysis
A l i
z Consumables/Materials
z Technical
T h i l arrangements/site
t / it technical
t h i l
details/technical know-how
z Infrastructure
Infrastr ct re and Utilities
z Manpower/Resources
z Location
z Compliance to Statutory & project Specific Norms
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TECHNICAL FEASIBILITY (Contd.)
(Contd )

Infrastructure & Utilities

V Power
V Fuel
V Water
V Environment Protection
V Safety Measures

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 TECHNICAL FEASIBILITY (Contd.)

The Technical Feasibility

Analysis helps in
deciding:
g

H Output levels (Quantity)

H Quality / Nature of Output
H Cost
H Pricing

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Fi
Financial
i l Viability
Vi bilit

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 Fi
Financial
i l Viability
Vi bilit

9 Cost of Project

9 Means of Finance

z Financial Returns

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 Cost of Project
j

z Main components
i. Land & its development
ii
ii. Building
iii. Plant and Machineries
iv. Technology
v
v. Other Assets
vi. P&P
Expenses(eg;IPO’s,Marketing,Adv
ertising)
g)
vii. Contingencies
viii. Working Capital Margin

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 Cost of Project
Description Cost ( In Cr. Remarks
Rs. )

Land Cost 2.5 Additional Land bought

Building and Civil Works 115 All Subcontracting costs included

Technical Knowhow Fees 10 Includes Costs for Architects,

( Consultant Fees) Structural Designer and other
Agencies

AMC Clearance Fees 0.5

Pre-Operative Expenses 31.5 Electricityy bills, In-house Engineer

g
Salaries, Interest Costs, Insurance

Marketing Expenses 05
0.5 Print Media Advertising
Print-Media

Total 160 Crores 27

Sources of Finance

zDebt
zEquity

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 M
Means off Fi
Finance
Description
p Amount of Capital
p (In
( Remarks
Crores Rs.)

Internal Sources 42 Developers Internal

accruals

Bank Loans 75 Loan from SBI

Private Financing 18 3-4 Private Investors

y
Initial Payments from Sales 25 Flat Units Advance
payments Received

Total 160 Crores

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 Financial Returns Analysis

z Projected profitability statement

z Cash-cum-Fund
C h F d Flow
Fl statement
t t t
z Projected Balance sheet
¾ Working Capital statement
¾ Break-even point
¾ Ratios
¾ Sensitivity Analysis

z Relating to the kind of

industry/project
z Considering a few assumptions

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The Final Chapter
p

z Key Elements

z Conclusions &
Recommendations

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 Documents
To support key Assumptions & Parameters

¾ Financial Tie-ups & Resources

¾ Cost of Fixed Assets & Variables
¾ Installed Capacity basis
¾ Market
M k t TiTie-up Claims
Cl i & Pricing
Pi i
¾ Investment done so far
¾ Required Clearances & Registrations
¾ Implementation Schedule

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 Common Errors in Feasibility Report
Preparation

z Report Format and coverage

z Ignoring Aspects of promoters
b k
background,
d pastt performance,
f macro
factors
z Market
M k tF
Feasibility
ibilit : Relying
R l i excessively
i l
on secondary sources
z Technical Feasibility : Machine capacity
capacity,
utilities and importance of technology

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Contd...
Contd

z Project cost : an underestimate or

overestimate
z Selecting
g the Locations: Some temptations
p
z Selling Price : unfounded optimizing
z Cash flow in initial y
years: Poor detail
¾ Initial years, promoters are expected to pay
from their own resources
¾ institutions may pay directly to machinery
suppliers and reduce flexibility.

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 Some Tips
p on Report
p Writing
g
(Informal !!)

n Write less! - i.e.

i e write to the point
n Prepare schedule of chapters
n Prepare all tables
tables, charts,
charts projections
projections, etc.
etc
n Note down important points for each of the chapter
n Write in the form of points
points, observations
n Provide as much hard data as possible
n Give/indicate sources of such statistics
n Give basis for computations, projections

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