Feasibility Study Chapter (3)

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Feasibility Study Chapter (3)
Technical analysis answer the following question
Is the project applicable from the technical prospective?
It provides estimations for the project cost drivers
1- initial investment: land, buildings, machines …..etc.
2- manufacturing cost: materials, direct labour, indirect cost
3- starting work cost: learning cost, preparing,….etc.

The depth of technical analysis depends on:

• Project size
• Product or service technology available
• Product complexity
• Number of the technical alternatives
• The required accuracy degree

Technical feasibility study :

Material and supplies

Location , site and environment

Engineering and technology

Human resources

Technical feasibility study answers the following questions

 Are enough material available of correct quality when needed for year round production ?
 Is the cost of raw material satisfactory ?
 Is the correct size and type of equi[ment available for the expected production level and
at a reasonable cost ?
 Are maintenance and repair costs affordable ?
 Are distribution procedures to retailer s or other sellers established ?
 Is a suitable building available and what modifications are needed ?
 Are services ( fuel , water , electricity ) available ?
 Are trained workers available and are their salaries available ?

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Feasibility Study Chapter (3)
1-Characteristics of raw material and factory supplies :

Specify list sources of material and inputs , classified into material

Processed industrial material , components , auxiliary material , factory supplies & utilities

2-supply program , you have to study the following :

Location , site and Environment

Includes the following

Re-selection , including if appropriate . an estimate of the cost of land

Preliminary environment impact assessment

Location:

Site :

Local conditions

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Feasibility Study Chapter (3)
Engineering and Technology

Technology and Equipment include the following

1-technology and processes that can be adopted

2-technology and description and forecast
3-Environmental impacts of technology
4-Rough estimate of costs of local and foreign technology
5-rough layout of proposed equipment ( major components )
- Production Equipment
- Auxiliary Equipment
- Service Equipment
- Spare parts , wear and tear parts , tools

Technology :

Equipment

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Feasibility Study Chapter (3)
Civil Engineering works include the following

Human Resources :

Estimated Human Resources requirements

Estimal annual human resources costs
Labor :
List and describe labor force
Describe skills and availability
State annual cost of labor at nominal feasible capacity , subdivide into production labor
(variable) and non production labor (fixed
Staff :
List and describe staff , show structure on manning tables
State annual staff cost
Capital Expenditures (CAPEX)

Are expenditures creating future benefits .

Is incurred when a business spends money either to buy fixed assets or to add value of an
existing fixed asset with a useful life extending beyond the taxable year

Includes :

- Acquiring fixed and some cases , intangible assets

- Repairing an existing asset so as to improve useful life
- Upgrading an existing asset
- Preparing an asset to be used in business
- Starting or acquiring a new business

Operational Expenditures (OPEX)

Ongoing cost for running a product , business or system

Includes the following
-license fees -maintenance and repairs -advertising
-supplies -office expenses - legal fees
- utilities - insurance -property tax
-travel and vehicle expenses

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Feasibility Study Chapter (3)
Example :
Suppose you have the following data related to chairs production project

Estimate the working capital according to monthly cash flow cycle ?

Solution

The required cash for working capital is the highest value which is 150