PROJECT DEVELOPMENT PROJECT
a. Pre-investment phase
1.Identification of investment
2.Preliminary project selection and definition
3. Project formulation
4. The final evaluation and investment decision
b. Investment
1. Project and engineering designs
2. Negotiations and contracting
3. Construction
4. Training
5. Plant commissioning
c. Operational Phase
relates to the commencement of actual production,
marketing and distribution of goods to achieve the
projected goals and objectives of the firm
CATEGORIES OF PRE-INVESTMENT STUDIES
1.Identification- general or project opportunity studies
a. identify opportunity
b. determine critical areas
c. determine area for pre-feasibility study
2. Preliminary analysis
Support studies
a. Determine which of the possible choices is the more
viable
b. Identify the choice of project criteria
Pre-feasibility study
a. Determine provisional viability of the project
b. Appraise if the feasibility study should be launched
3. Final Analysis
Support studies
a.Investigate in detail selected criteria requiring in depth
study.
Feasibility study
a. Make the final choice of project
b. Determine the feasibility of the projected and selected
criteria
4. Project Evaluation- Evaluation study
Make the final investment decision
IDENTIFICATION OF INVESTMENT OPPORTUNITY STUDIES
-identifies investment opportunities or project ideas, which
will be further scrutinized once the proposition has been
proven viable.
a. Natural resources
b. Existing agricultural pattern
c. Future demand of certain consumer goods
d. Imports in order to identify areas for import substitution
e. Manufacturing sectors successfully in other countries
with similar levels of development, capital, labor, natural
resources and economic background
f. Possible extension of existing lines of manufacture by
backward or forward integration.
g. Possible expansion of existing industrial capacity to attain
economies of scale
h. Possibilities for diversification
I. The genera investment climate
j. export possibilities
k. Cost and availability of production factors
PRELIMINARY PROJECT SELECTION AND DEFINITION
a. The investment opportunity is so promising that an
investment decision can be taken on the basis of the
information elaborated at the pre-feasibility
b. The project concept justifies a detailed analysis by a
feasibility study.
c. An aspects of the project are critical to its feasibility and
require in-depth investigation.
d. The information is adequate to decide that the project is
not either a viable proportion or attractive enough for a
particular investor or investor group.
A pre-feasibility study should be viewed as an intermediate
stage between a project opportunity study and a detailed
feasibility study
a. Market and plant capacity demand and market study,
sales, and marketing, production program, and plant
capacity.
b. Raw material
c. Location and site
d. Project engineering: technologies and equipment, and
civil engineering works.
IMMEDIATE CAUSES OF BUSINESS FAILURES
a. Undetected presence of a more superior competing
product
b. Failure to perfect the manufacturing process
c. failure to sell the goods at a reasonable price
d. failure to raise adequate working capital and many more
CHAP 22 PROJECT FEASIBILITY STUDY
BENEFITS DERIVED FROM PREPARATION OF FS
A. To the Promoters or proponents of new projects
1. To ascertain viability of new projects
2. To choose from among the alternative projects or project
to be pushed through
B. To Shareholders
1. To evaluate if an investment on a project or existing
enterprise should be made or not
2. To decide to sell an existing company and if so, at what
price
C. To management of existing enterprise
1. To determine feasibility of expansion programs
2. To determine a reasonable price of an existing business
it is considering taking over
D. To lending institution
1. To ascertain whether financial assistance should be
extended or not
2. To determine the terms and conditions should the loan
be given
E. To the Government Agencies
1. To determine if a project is entitled to government
incentives and level of such incentives.
2. To assess the social desirability of the project
3. To determine whether provisions for environmental
protection have been made
LIMITATIONS
1.Certain necessary and required information may not be
available
2.Error in judgment by the person making the study either 5. The technical competence of the client in negotiating
due to his incompetence or inexperience may result in with the consultant and providing strong support that could
formulating wrong conclusions recommendations facilitate the consultant’s task and also lower his cost
3. The study is basically a forecast. Any significant change in AREAS COVERED IN A PROJECT STUDY
actual business conditions as compared to the assumptions 1.Organization and Management 2. marketing 3.technical
used in making the forecast will render the study useless. 4.taxation 5. financing 6. Financial projections 7.
Investment cost estimates are made by Profitability 8. social desirability
1.Calling for bids based on specifications and bills of STEPS IN THE PREPARATION OF A PROJECT STUDY
quantities 1.Gatherig and collections of data trough research work
2.Using prices from similar projects which are necessary and relevant to all aspects of the
3. Using the unit cost parameters derived from comparable undertaking
operational projects 2. evaluation and analysis of the data obtained
4. Estimating the totals for groups of equipment or 3. Formulation of conclusions and recommendations
functional projects parts based on the costs of comparable OUTLINE OF A FEASIBILITY STUDY
existing project 1.Executive Summary
Investment cost estimates based on cost parameters 2.project Background and History
1.Annual inflation rates 3.Economic Aspect
2. Changes in foreign exchange rates 4. Technical Aspect
3. Differences in local conditions 5. management
4. Different laws and regulations 6.Manpower
5. Accessibility of the construction site 7. Financial aspect
Production cost estimates will depend upon the 8. Social desirability aspect
availability of data on such input requirements material,
manpower, overhead
1.Quotations from suppliers for materials and other
supplies
2.Prevailing labor laws
3. Reference data published by industrial associations,
equipment, manufacturers, development banks and
international organization
PROJECT TEAM
1.One industrial economist
2.One market analyst
3.One or more technologist/engineer specialized in the
appropriate industry
4.One civil engineer if needed
5. One management expert
6. One acctg. expert
COST OF STUDIES
1.The magnitude and nature of the project
2.The type, scope and depth of the pre-investment study
3. The agencies commissioning and undertaking the study
4. The time and effort required to collect and assess the
necessary material
Team Leader’s responsibility
Specialist, plan, organize, direct and supervise all activities
Costs per man-month
Calculated in each case and cover salaries. Travel, living
allowances, drawings, writing, printing and overheads
ACTUAL FEES CHARGED BY CONSULTING FIRMS
1.Experience of the consultant
2. Scope of the work
3. Complexity of the project
4. Consultant’s interest in further work on the project which
could prompt him to submit a low bid for the initial
feasibility study