Mendoza, Rona May S.

CBET 01-901 E

WRITTEN REPORT

PFS: PROJECT BACKGROUND AND ECONOMIC ASPECT

Project Background and History

 The economic conditions of the factors affecting the project idea should be clearly understood and be considered by
the management to ensure the success of the feasibility study.
 The project should be described in detail and the sponsors identified together with the reasons for their interest in
the project.
Presentation of the Project
a) Project Background
b) Project promoter and/or initiator
c) Project History
d) Feasibility Study
e) Cost of preparatory studies and related investigations
1. Pre-investment studies
1. Preparatory investigations

Economic Aspect: Market Analysis

 Before the project is made, the size and composition of the present effective market demand, by segment, should be
determined.
 The income from sales should be projected taking into account the following:
I. Technology
II. Plant capacity
III. Production program
IV. Marketing strategy
 A detailed production program should be formulated.
 The plant capacity must be determined to start the molding of the feasibility study.

Outline for the Economic Aspect: Market Analysis

A. Demand and market study
a. Data and alternative projection methods
b. Determination of demand and market size of the products as well as by-products, if any
1. Evaluate data and present final
B. Sales forecast and marketing of products and by-products
a. Data and alternative
b. Selection of sales programs and marketing strategy
c. State reasons for selection of sales program
d. State reasons for selecting of marketing strategy
e. Estimate of sales revenues
f. Estimate of sales and distribution costs

Notes on the Economic Aspect

1. Effective demand represents the total quantity of a specific product purchased at a given price in a particular market
over a given period.

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 2. The first step in project analysis is a detailed estimate of the size, structure and demand characteristics of the product
to be manufactured.
3. The size of demand during the life span of the proposed project.

Demand projection and Sensitivity analysis

 A critical factor for determining both the viability of a project and the appropriate plant capacity. Techniques used
are:
1) The trend ( extrapolation) method
2) The consumption level method
3) The end-use ( consumption coefficient) method
4) The leading indicator method
5) Regression method

Demand Forecasting Techniques

1. Trend (extrapolation) method
 is a complicated but useful way to look at past sales or market growth, determine possible trends from that
data and use the information to extrapolate what could happen in the future. Marketing experts typically
use trend forecasting to help determine potential future sales growth.
https://smallbusiness.chron.com/trend-forecasting-61347.html
 Based on the extrapolation of the past data and involves:
a. The determination of a trend
b. The identification of its parameters
Arithmetic (Linear) Trend which uses the following equation:
𝑦− 𝑦1 𝑦2− 𝑦1
Y = a + bx and =𝑥
𝑥− 𝑥1 2− 𝑥1

Where: y = dependent variable being estimated

x = independent variable
2. Regression Models
 Forecast are made on the basis of a relationship estimated between the forecast (or dependent) variable
and the explanatory (or independent) variables.
 Least square regression method – computes the unique line that minimizes the sum of the
squared distances between the true data and that line.
https://en.wikipedia.org/wiki/Regression_analysis
 It works by making the total of the square as small as possible (that is why it is called least square.
 Simple regression analysis – uses one independent variable to predict the dependent variable.
Multiple regression – two or more independent variables are used to predict the dependent
variable. Raiborn, C. A., Carter, C. K., Kinney, M. R. (2016). Cost Accounting.

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