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Project Feasibility Study Guide

The document outlines the essential components of a project feasibility study for setting up a new Small Scale Industry (SSI), including market, technical, financial, economic, and ecological analyses. Each analysis focuses on specific questions and factors that need to be evaluated to determine the viability and impact of the proposed project. The document emphasizes the importance of thorough research and assessment in various areas to ensure successful project implementation.

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Ritu Sam
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11 views4 pages

Project Feasibility Study Guide

The document outlines the essential components of a project feasibility study for setting up a new Small Scale Industry (SSI), including market, technical, financial, economic, and ecological analyses. Each analysis focuses on specific questions and factors that need to be evaluated to determine the viability and impact of the proposed project. The document emphasizes the importance of thorough research and assessment in various areas to ensure successful project implementation.

Uploaded by

Ritu Sam
Copyright
© All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd

Entrepreneurship Development

Vinulal V V

Module 5

Feasibility study in setting up a New SSI

Project Feasibility study

The important facets of a project feasibility study are as follows.

 Market analysis
 Technical analysis
 Financial analysis
 Economic analysis
 Ecological analysis

Market analysis

Market analysis is concerned primarily with two questions

 What would be the aggregate demand of the proposed product/service in


future?
 What would be the market share of the project under appraisal?

To answer the above questions, a market analyst requires a wide variety of


information and appropriate forecasting methods. The kinds of information required
are given below.

(a) Consumption trends in the past and the present consumption level
(b) Past and present supply position
(c) Production possibilities and constraints
(d) Imports and exports
(e) Structure of competition
(f) Cost structure
(g) Elasticity of demand
(h) Consumer behaviour, intentions, motivations, attitudes, preferences. and
requirements
(i) Distribution channels and marketing policies in use
(j) Administrative, technical. and legal constraints

Technical analysis

Analysis of the technical and engineering aspects of a project needs to be done


continually when a project is formulated. Technical analysis seeks to determine
whether the prerequisites for the successful commissioning of the project have
been considered and reasonably good choices have been made with respect to
location, size, process, and so on. The important questions raised in technical
analysis are given below.

 Have the preliminary tests and studies been done or provided for?
Entrepreneurship Development
Vinulal V V

 Has the availability of raw materials, power, and other inputs been
established?
 Is the selected scale of operation is optimal?
 Is the production process chosen suitable?
 Are the equipment and machines chosen appropriate?
o Have the auxiliary equipment and supplementary engineering works been
provided for?
o Has provision been made for the treatment of effluents?
o Is the proposed layout of the site, buildings, and plant sound?
o Have work schedules been drawn up realistically?
o Is the technology proposed to be employed appropriate from the social
point of view?

Financial analysis

Financial analysis seeks to ascertain whether the proposed project will be financially
viable in the sense of being able to meet the burden of servicing debt and whether
the proposed project will satisfy the return expectations of those who provide the
capital. The aspects which have to be looked into while conducting a financial
appraisal are as follows.

 Investment outlay and cost of project


 Means of financing
 Projected profitability
 Break-even point
 Cash flows of the project
 Investment worthiness judged in terms of various criteria of merit
 Projected financial position
 Level of risk

Economic analysis

Economic analysis, also referred to as social cost-benefit analysis, is concerned with


judging a project from the larger, social point of view. In such an evaluation the
focus is on the social costs and benefits of a project, which may often be different
from its monetary costs and benefits. The questions sought to be answered in social
cost- benefit analysis are as follows.

• What are the direct economic benefits and costs of the project measured in
terms of shadow (efficiency) prices and not in terms of market prices?
• What would be the impact of the project on the distribution of income in the
society?
• What would be the impact of the project on the level of savings and
investment in the society?
• What would be the contribution of the project towards the fulfillment of
certain criteria like self-sufficiency, employment and social order?

Ecological analysis
Entrepreneurship Development
Vinulal V V

In recent years, environmental concerns have assumed a great deal of significance.


Ecological analysis should be done, particularly for major projects which have
significant ecological implications like power plants and irrigation schemes, and for
environment - polluting industries (like bulk drugs, chemicals, and leather
processing). The key questions raised in ecological analysis are as follows.

• What is the likely damage caused by the project to the environment?


• What is the cost of restoration measures required to ensure that the damage
to the environment is contained within acceptable limits?
Entrepreneurship Development
Vinulal V V

Schematic diagram for a project feasibility study

Common questions

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Market analysis informs business strategy by revealing demand forecasts, competition landscape, consumer behavior, and price elasticity, helping managers tailor production scale, marketing strategies, and pricing models to capture market share effectively and ensure competitive positioning .

Financial analysis assesses investment worthiness by evaluating investment outlay, financing sources, projected profitability, break-even points, cash flows, and overall risk level. These components reveal if the project can fulfill debt service obligations and return expectations from capital providers .

Social cost-benefit analysis evaluates projects based on their social and economic impacts, guiding decision-makers on whether projects will contribute positively to societal goals like equity, employment, and sustainability. It uses shadow prices to assess true social benefits beyond financial returns .

Ecological analysis addresses potential environmental damage and the cost of restoration to mitigate this damage. It is crucial for projects with significant ecological impact like power plants and pollutant industries, ensuring that environmental harm remains within acceptable limits .

Market analysis seeks to determine the future aggregate demand for the proposed product or service and the potential market share of the project. To obtain this information, analysts examine consumption trends, supply positions, production possibilities, import/export data, competition structures, cost structures, demand elasticity, consumer behaviors, and existing marketing and legal constraints .

Ecological analysis extends the feasibility study by evaluating environmental impacts, which are often overlooked in financial and technical assessments. It ensures long-term project sustainability by addressing environmental restoration costs and mitigating potential damage to the ecosystem, which is crucial for responsible project development .

Technical analysis requires continuous evaluation of technical and engineering aspects such as the adequacy of preliminary tests, availability of essential inputs, optimal scale of operation, suitability of the production process, appropriateness of equipment, and plans for effluent treatment and facility layout. These ensure the successful commissioning of the project .

The potential financial position is projected by analyzing investment outlay, financing means, cash flows, profitability forecasts, break-even analysis, and the level of associated risks . These factors collectively indicate the project's sustainability and viability in financial terms.

Economic analysis evaluates projects from a social perspective by considering benefits and costs at shadow prices, rather than market prices, to reflect the true economic impact. It assesses income distribution effects, the project's impact on societal savings and investments, as well as contributions to self-sufficiency, employment, and social order .

Technical analysis evaluates the suitability of technologies by assessing factors such as the scale of operation, availability of inputs, and appropriateness of equipment and processes. It ensures the chosen technology aligns with the project's goals, social considerations, and environmental constraints .

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