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Facets of project analysis

Market analysis Technical analysis Financial analysis Economic Analysis Ecological Analysis

Market Analysis
Aggregate demand in future Market share? For the above 2 questions we require Consumption trend past/present Production possibilities and constraints Imports and exports Cost structure Elasticity of demand Consumer behavior, intentions, attitudes, preferences and requirements Distribution channels and marketing policies in use Administrative , technical and legal constraints

Technical Analysis
Preliminary tests and studies and provided for? Raw material, power and other inputs tied up? Scale of operation optimal? Chooses prodn process suitable? Equipment and machinery suitable? Treatment of affluents? Layout, plan sound? Work schedules realisitic? Technology is appropriate in societal view?

Financial Analys
Investment outlay and cost of project Means of financing Cost of Capital Projected profitability Break-even point Cash flows of project Investment worthwhileness Projected financial position Level of risk

Economic analysis
Direct economic benefit and costs ? Impact of the distribution of income in society? Impact on savings and investment in society? Contribution towards self sufficiency? Employment and social order?

Ecological Analysis
Damage caused by project to environemnt? Cost of restoration within acceptable limits?

Key Issues in Project Analysis


Potential Market

Market Analysis
Market Share Technical Viability Technical Analysis Sensible Choices

Key Issues in Project Analysis


Risk

Financial Analysis
Return Benefits and cost in shadow price Other Impacts

Economic Analysis

Key Issues in Project Analysis


Ecological analysis
Environmental Damages Restoration measures

Key Issues
Major investment decisions:

Risks DCF Value Financing Impact on Short term EPS Options : DCF do not capture the value of the project and does not reflect the value options embedded.
option to delay Option to expand Change inputs or outputs Option to contract or abandon

The real options are:

Common Weakness in Capital Budgeting


Value creation or destroying depends on quality of investment decisions. Investment decisions are often impaired due to deficiencies in capital budgeting. Common weaknesses are :
Poor alignment between Strategy and Capital budgeting Deficiency in Analytical Technique Base case poorly identified Risk is treated inadequately Options not properly evaluated Lack of uniformity in assumptions Side effects ignored