Chapter Two.

Ex-ante Project Analysis

Outlines
• Situation Analysis/Feasibility Study in Project
• Concept of Ex-ante Project Analysis
• Market Analysis
• Socio-economic Analysis
• Environmental Analysis
• Financial Analysis
• Risk Analysis
 Definition
• Ex-ante is a broad initial assessment aimed at identifying alternatives that will yield
the greatest benefit from an intended investment.

• Ex-ante project analysis is a method used to evaluate the potential impacts and
benefits of a project before it is implemented.

• This type of analysis helps stakeholders make informed decisions by assessing

various factors such as economic feasibility, social implications, environmental
effects, and financial viability.

• It is a form of financial analysis that uses forecasting or predictions for future events.

• In the financial world, the ex-ante return is the expected return of an investment
portfolio.
 What is a Feasibility Study in Project?
• A feasibility study- is an analysis of the viability of an
idea through a disciplined and documented process of
thinking through the idea from its logical beginning to its
logical end.

• A feasibility study- provides an investigating function

that helps answer “Should we proceed with the proposed
project idea? Is it a viable project idea?”

• A feasibility study - should be conducted to determine

the viability of an idea BEFORE proceeding with the
investment decision.
 Key Components of Ex-Ante Project Analysis
• Objective Definition: Clearly outline the goals and objectives of the project.
• Cost-Benefit Analysis: Estimate the costs and benefits associated with the
project, including direct and indirect impacts (Negative and Positive
externalities).
• Feasibility Study: Assess the technical, economic, legal, and operational
feasibility of the project.
• Risk Assessment: Identify potential risks that could affect the project's success.
• Stakeholder Analysis: Evaluate the interests and influences of various
stakeholders involved or affected by the project.
• Alternative Scenarios: Consider different project approaches or scenarios to
determine the best option.
• Regulatory Compliance: Ensure that the project meets all relevant legal and
regulatory requirements.
 Why Project Preparation(Feasibility Study?)

• To find out if a proposed project idea can be done:

• ...is it possible? , ...is it justified?
• To provide quality information for decision making- a “go/no-go”
decision
• Provide a thorough examination of all issues and assessment of
probability of project success;
• Identify reasons NOT to proceed;
• Enhance the probability of success by addressing and mitigating
factors early on that could affect the project;
• Provide documentation that the proposed project was thoroughly
investigated;
• Help in securing funding from lending institutions and other
monetary sources.
 Benefits of Ex-Ante Analysis
• Informed Decision-Making: Provides a comprehensive understanding
of the project’s implications.

• Resource Allocation: Helps in prioritizing projects based on their

potential return on investment.

• Risk Mitigation: Identifies risks early, allowing for strategies to

mitigate them.

• Stakeholder Engagement: Facilitates discussions with stakeholders

and incorporates their feedback
The major aspects (core elements in Ex-ante project
Analysis

 Market aspects/demand

Technical aspects

 Institutional-organizational -managerial aspects

 Financial aspects

 Economic aspects

 Social aspects

 Environmental aspects
a) Demand and Market Analysis
• The study of this aspect need to ensure:
• the existence of effective demand at remunerative
price;
• the size of market which will absorb the output

• Market analysis is basically concerned with two

questions:
1. What would be the aggregate demand of the
proposed product/service in future?
2. What would be the market share of the project
under appraisal?
• To answer the above two questions the project analyst
requires ( managers) a wide variety of information and
appropriate forecasting methods.
 Demand and Market Analysis….cont
The kind of information required is:
1. Consumption trends: the past and the present
consumption level.

2. Past and present supply positions.

3. Production possibilities and constraints.

4. Imports and exports analysis.

5. Market starcture Structure and competition.

Demand and Market Analysis….cont
6. Cost structure
7 Elasticity of demand
8 Consumer behavior, intentions, attitudes,
preferences, and requirements.
9. Distribution channels and marketing policies in
use
10. Administrative, technical, and legal constraints
Demand and Market Analysis….cont
• Market demand analysis in project analysis should
be carried out in an orderly and systematic
manner.
The key steps in such analysis are as follows.
1. Situational analysis and specification of objectives
2. Collection of secondary information
3. Conduct of market survey
4. Characterization of the market
5. Demand forecasting
6. Market planning
1. Situational analysis and specification of objectives
• In order to get a feel for the relationship between the
product and its market, the project analyst may talk to
consumers, competitors, middlemen, and the
industry.
• He/she may also look at the preferences and
purchasing power of consumer’s actions and
strategies of competition and practices of the
middlemen.
2. Collection of Secondary Information
• Information may be obtained form secondary or
primary sources.
• Secondary information provides the base and the
starting point for market and demand analysis.
• Induces what is known and often provides/clues for
gathering primary information required for further
analysis.
• Several sources of information including census data,
national sample survey reports, plan reports, statistical
abstracts, industry specific sources of data etc.
3. Conducting Market Survey
• Secondary information though useful, often does not
provide a comprehensive basis for market (perfect Mkt,
monopoly, Oligopoly) and demand analysis.
• The market survey may be a census or a sample survey.
• The information sought in market survey may relate to one
or more of the following.
Total demand and rate of growth of demand
Demand in different segments of the market
Income and price elasticity of demand
Motives for buying
Purchasing plans and interventions
Satisfaction with existing products
Attitudes towards various products
Socio economic characterization of buyers
4. Characterization of the Market
• Based on the secondary sources and through the
market surveys the market for the product /service
may be described in terms of the following:
Effective demand in the past and present
Breakdown of demand due to shocks.
Prices
Methods of distribution and sales promotion
Consumers
Supply and competition
Government policy
 5. Demand Forecasting
After gathering information about various aspects of
the market and demand from primary and secondary
sources, an attempt may be made to estimate future
demand.
A wide variety of forecasting methods is available to
the market analyst.

The methods may be divided into qualitative methods,

time series projection methods and causal methods.
6. Market Planning
• Market planning in a project refers to the process of defining
a strategy to target and reach potential customers effectively.

• To enable the product to reach a desired level of market

penetration, a suitable plan should be developed.

• Broadly it should cover pricing, distribution, promotion and

services.
 B. Technical Aspects
• Technical aspects in a project refer to the specific technical details,
requirements, and considerations that are crucial for the successful
execution and delivery of the project.

• These aspects encompass various elements that ensure the project is

feasible, efficient, and meets the desired performance standards.
 Technical Aspects…
• This aspect may include the works of
 Engineers,
Economists
Soil scientists and
Agronomists in case of, say, agricultural projects.
• The technical analysis is concerned with the projects
inputs (supplies) and outputs of real goods and
services and the technology of production and
processing.
• Analysis of the technical and engineering aspects of a
project to be done continuously when a project is
formulated.
Technical Aspects…cont
• Technical analysis seeks to determine whether
reasonably good choices have been made with respect
to
 Location,
Size,
Process, etc.
• This is crucial because the rest of the project analysis
cannot be conducted without information form the
technical study.
Technical Aspects…cont
In general the technical analysis is primarily concerned
with:
• Material inputs and utilities
• Manufacturing process and technology
• Product mix
• Plant capacity
• Location and site
• Machines and equipment
• Structure and civil works
• Project charts and layouts
• Work schedule
 Key Components of Technical Aspects
• Technical Specifications: Detailed descriptions of the materials, components, and
systems required.
• Design and Engineering: Architectural and engineering plans that dictate how the
project will be constructed or developed.
• Technology Requirements: Identification of necessary technologies, tools, and software
for project execution.
• Process and Methodology: Outline of the processes and methodologies to be employed
(e.g., Agile, Waterfall).
• Resource Allocation: Assessment of technical skills and expertise needed from team
members.
• Implementation Plan: Detailed plan that outlines how technical elements will be
executed.
• Testing and Quality Assurance: Procedures for testing systems and components to
ensure they meet specifications.
• Compliance and Regulations: Adherence to industry standards, legal requirements, and
safety regulations.
 Importance of Technical Aspects

• Feasibility: Determines whether the project can be successfully

completed with the available technology and resources.
• Efficiency: Ensures processes are efficient and resources are used
effectively, minimizing waste.
• Quality Assurance: Guarantees that the final product meets required
specifications and quality standards.
• Risk Management: Identifies potential technical risks and develops
mitigation strategies early in the project lifecycle.
c). Institutional-Organizational-Managerial Aspects
• This incorporates the socio-cultural patterns and
institutions or the population that the project is
believed to serve.

We have to see structure of the project in that:

 Is it dependent on other organization or

independent?.
 Can we find competent managers in the local
market?.
Institutional-Aspects….
Does the project takes into account the cultural
setup and customs of the beneficiaries?
 Or will disturb the accepted pattern? If so how
should this be included as part of the project design?
 What are the institutions involved in the project
and the responsibility of each organizations?
 Who is responsible to which activity?

 What are the incentives mechanism?, Etc..

Institutional-Aspects….
• A project must related properly to the institutional
structure of the country or region where the project
is to be carried.
• Examples include the land tenure system, use of
local institutions such as Idir or Debbo.
• Similarly, managerial issues are critical for
successful completion of projects.
• Thus, the project analyst must examine the ability of
available staff to identify whether they have the
capacity to carry out the managerial needs of the
project.
d. Social aspect
• Project analysts are expected to examine the broader
social implications of the proposed project.
• This is particularly related to the
Income distribution,
Employment creation,
Balanced regional development and integration,
The displacement impact of the project (the Wonji-Methara
sugar plantations displacement is a good case in point);
 The gender implication of the adopted technology; etc.
Our fundamental objective is economic growth
(national income).

• E.g. If a project get 10 million birr/year, results in

addition of this amount of value to the country’s
economy.

• Again we say that 10 million birr will add to the

social benefits of the country (gender, equity,
employment).
e) Financial Aspects
 Financial aspects in a project refer to the monetary considerations and
implications that influence the planning, execution, and evaluation of a project.
Need to determine /assess:
 The cost of investment (the quantity of each input in
future term)

 Operation costs

 Benefit that will be obtained from the project

 The source of finance and credit term

 The credit worthiness of the project

 The financial efficiency

 Breakeven point

 Level of the financial risks involved in the project

f) Economic Aspects
• They focus on overall benefits and costs, including externalities that
may affect the community or environment.

In financial analysis we use market prices as a measuring rode and

responsible groups are Accountants.

 In economic analysis we need to adjust market price in to

economic price or ‘efficiency price’, ‘shadow price’ to better
approximate the opportunity cost of an input.

 To value projects out put, economic analysis uses the marginal

value of that output to approximate the real value.

 The responsible groups are economists.

 g. Environmental Aspect Analysis
Environmental aspect analysis in a project involves evaluating the potential
environmental impacts and implications of the project throughout its
lifecycle.
In recent years environmental concerns have assumed a great deal of
significance.
This is the analysis of the effect (positive or negative) of
project on the world of animals, human being, plant,
natural resources (water, soil, air,…).
 It is specially a pre- requisite for a project financed by
foreign donors such as World bank, IMF,…
 The benefit of project sometimes may be counter
balanced by undesirable environmental effects.
 The problem with the assessment of environmental effect
is to measure the effect of a project in monetary value.
 h) Ecological analysis
• Ecological analysis refers to the study and evaluation of
the relationships between living organisms and their
environment, particularly in the context of a specific
project or development.
The key questions raised in ecological analysis are:

• 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?
 Risk Analysis

• It is unrealistic to assume that project performance will happen

without the possibility (or the distinct likelihood) that something
will not work.

• Common types of risks in project among others: fraud and

Corruption, cost, quality and delivery risks.

• Risk management attempts to deal with adverse threats in an

organized and systematic manner.

• Not all risks will impact all projects, but the cumulative effect of
several risk occurring in conjunction may well be more severe than
examination of individual risk events might suggest.
 Risk Analysis…

• Risk analysis is a planning stage which seeks to identify the origin,

probability and magnitude of the risks. It helps direct attention to
which risks warrant close attention and have the greatest potential
for reducing exposure.

• Risk analysis should form part of each stage of procurement

planning and be regularly updated.

• Risk Management is process of assessing, quantifying, analyzing,

and planning for the abatement (the closure) of risks, or at least
bringing such risks down to levels which are acceptable to the
project.

• Risk management is the art and science of identifying, analyzing

and responding to risk factors throughout the life of a project and in
the best interests of its objectives (PMBOK, 2000).