Assessing the Viability: A Feasibility Study of Residential Building (Private dwellings)

Development

Abstract
Investors anticipate receiving benefits from each construction project. In every construction project
financial risk is involved. So the Feasibility study analysis gives information about the value of
investment and benefits that investors will get.
Assessing the viability of an investment requires considering various factors to decide whether it
should proceed. Commonly used criteria for determining project feasibility include Net Present Value
(NPV), Internal Rate of Return (IRR), and Benefit Cost Analysis. To ensure the successful execution of
a residential project, it's crucial to examine its financial feasibility. This paper aims to evaluate the
feasibility of a residential project in the Dagupan area to ascertain its viability

1. INTRODUCTION

Initial assessments, known as feasibility studies, are conducted at the project's outset, especially when
it involves considerable complexity or scale, requiring substantial investment. These profits often
materialize over time, requiring precise investment forecasts to maintain investor confidence.
Feasibility analysis provides insights into the investment's value and potential returns. Investors
typically use metrics like Net Present Value (NPV), Internal Rate of Return (IRR), and Benefit-Cost
Ratio to evaluate feasibility. Risks inherent in the project can impact potential profits and thus affect its
investment appeal. Therefore, it's essential to anticipate and incorporate these risks into the feasibility
analysis.

Venturing into construction projects offers the possibility of substantial gains despite encountering
notable uncertainty. t's imperative to thoroughly assess and quantify the impact of identified risks on
the project's feasibility. Before committing to an investment, conducting a comprehensive feasibility
study is essential to project the cash flow of the venture, aiding in determining its viability. This often
involves consulting various stakeholders, authorities, and other relevant parties. +

Assessing the financial feasibility is crucial in feasibility studies, as projects lacking profitability for
their stakeholders are often disregarded. The accuracy and reliability of financial feasibility analyses
depend on the quality of information utilized. When assessing a project's financial feasibility, it's
necessary to select appropriate criteria. Relying solely on one criterion may lead to inaccurate
conclusions. Therefore, a holistic approach, incorporating metrics like Net Present Value, and Internal
Rate of Return is employed to evaluate the project's financial viability.

1.1 STATEMENT OF THE PROBLEM

Initiating any construction project within a region entails a substantial capital investment. Given the
inherent unpredictability of the construction industry, conducting a feasibility study prior to project
initiation is essential.

1.2 OBJECTIVES

1. Establishing the benefit-cost ratio involves evaluating the anticipated benefits of the project against
its costs. This analysis helps in understanding whether the expected benefits outweigh the investment
required, providing a quantitative measure of the project's economic viability.
Benefit-Cost Ratio (BCR) Evaluation:
 When establishing the benefit-cost ratio, the aim is to compare the expected benefits a project will
generate over its lifespan against the costs incurred to execute it. This analysis is crucial in
determining whether the potential benefits outweigh the investment required, providing a
quantitative measure of the project's economic viability.
 By calculating the BCR, decision-makers can assess the project's potential return on investment
and make informed decisions about its feasibility. A BCR greater than 1 indicates that the benefits
outweigh the costs, suggesting that the project is economically viable
2. Calculating the Net Present Value (NPV) and Internal Rate of Return (IRR) provides insights into
the project's financial performance over time. NPV assesses the project's profitability by discounting
future cash flows to their present value, indicating whether the project is expected to generate positive
returns. IRR, on the other hand, represents the project's rate of return, showing the percentage at which
the project's cash flows break even.
Net Present Value (NPV) and Internal Rate of Return (IRR) Analysis:
 NPV is a financial metric that evaluates the profitability of a project by discounting all future cash
flows to their present value using a predetermined discount rate. A positive NPV suggests that the
project is expected to generate more cash inflows than outflows and is therefore financially
beneficial.
 IRR, on the other hand, represents the discount rate at which the NPV of a project becomes zero.
It indicates the project's rate of return and helps stakeholders understand the percentage at which
the project's cash flows break even.
 These analyses provide critical insights into the financial performance of the project over time,
enabling stakeholders to assess its viability and make decisions regarding investment allocation .

3. Analyzing various parameters involves assessing factors such as market demand, competition,
regulatory requirements, technical feasibility, and environmental impact. These parameters help in
determining the overall feasibility of the proposed project, considering its potential risks and benefits
within the context of the broader economic and social landscape.
Comprehensive Parameter Analysis:
 Analyzing various parameters involves a thorough assessment of multiple factors that could
influence the success of the project. These factors include market demand, competition, regulatory
requirements, technical feasibility, and environmental impact.
 Market demand analysis helps gauge the potential customer base and the level of interest in the
project's offerings, while assessing competition provides insights into the project's market
positioning and potential challenges.
 Regulatory requirements must be carefully evaluated to ensure compliance with laws and
regulations, as non-compliance could lead to legal and financial repercussions.
 Technical feasibility analysis assesses whether the project can be realistically implemented with
the available resources and technology.
 Environmental impact assessment evaluates the potential effects of the project on the surrounding
environment and communities.
 By considering these parameters comprehensively, stakeholders can better understand the
potential risks and benefits associated with the project and make well-informed decisions
regarding its feasibility and implementation

1.2 LIMITATIONS OF STUDY

This analysis does not serve as a business plan, which is usually crafted at a later stage in the project's
development and outlines the operational strategies for a company's execution. Unlike a business plan,
the feasibility study does not aim to generate novel ideas or concepts for the project; these concepts
should already be established before conducting the study. Moreover, it's crucial to understand that the
feasibility study does not guarantee the commencement of the project, as the decision lies with the
project owners who will be investing in it.

3. METHODOLOGY

The project's methodology and scope include the following components:

Data Collection: This involves gathering all the information and resources necessary for the project.
This could include market research, technical specifications, financial data, and any other relevant
information.
Project Schedule Preparation: Creating a detailed timeline or schedule for the project helps in
organizing tasks, allocating resources, and estimating the overall duration of the project. It outlines
when each task or activity will be performed and helps in tracking progress.

Preliminary Cost Estimate: Before starting the project, it's important to have an initial estimation of
the costs involved. This includes expenses such as materials, labor, equipment, and overhead costs. A
preliminary cost estimate provides an overview of the financial resources required for the project.

Revenue Calculation: Understanding the potential revenue generated by the project upon its
completion is crucial for assessing its profitability. This involves forecasting the income expected from
sales, services, or other revenue streams associated with the project.

Financial Metrics Analysis: Benefit-Cost Ratio (BCR): This ratio compares the benefits of a project
to its costs, providing insight into its economic viability. A BCR greater than 1 indicates that the
benefits outweigh the costs.

 Net Present Value (NPV): NPV calculates the present value of all cash inflows and outflows
associated with the project. A positive NPV indicates that the project is expected to generate
value.

 Internal Rate of Return (IRR): IRR represents the discount rate at which the net present value
of all cash flows from the project equals zero. It helps in assessing the potential profitability of the
project.

 Feasibility Assessment: Based on the analysis of data, costs, revenues, and financial metrics, a
recommendation is made regarding the feasibility of the project. Factors such as market
conditions, resource availability, technical constraints, and potential risks are considered to
determine whether the project is viable and worth pursuing.

4. PROJECT RATIONALE
This rationale elucidates the critical need for the project and outlines its potential benefits.

1. Addressing Data Collection Challenges:

 Data serves as the backbone of informed decision-making and project planning. However, the
absence of a structured approach for data collection often leads to inefficiencies and inaccuracies.

 By prioritizing systematic data collection methods, we ensure access to reliable information

essential for project success.

2. Optimizing Project Schedule Development:

 Inadequate scheduling can result in project delays, resource mismanagement, and cost overruns.
Establishing a robust project schedule mitigates these risks.
 Through meticulous planning and scheduling, we aim to streamline project activities, enhance
resource utilization, and meet stakeholder expectations within predefined timelines.

3. Enhancing Cost Estimation Accuracy:

 Accurate cost estimation is pivotal for budgetary planning and resource allocation. However,
traditional estimation approaches often overlook critical cost drivers, leading to budgetary
discrepancies.
 By employing advanced estimation techniques, we strive to provide stakeholders with reliable
cost projections, facilitating prudent financial decision-making throughout the project lifecycle.

4. Maximizing Revenue Potential:

 Understanding the revenue-generating aspects of the project is imperative for assessing its
financial viability and sustainability.
 Through comprehensive revenue forecasting and analysis, we aim to identify potential revenue
streams, capitalize on market opportunities, and optimize revenue generation post-project
completion.
5. Financial Metrics for Informed Decision-Making:
 The calculation of financial metrics such as Benefit-Cost Ratio (BCR), Net Present Value (NPV),
and Internal Rate of Return (IRR) offers valuable insights into the project's economic feasibility
and profitability.
 By conducting thorough financial analyses, we empower stakeholders to make informed
decisions, align project objectives with organizational goals, and maximize return on investment.

6. Assessment of Project Feasibility:

 Evaluating the feasibility of the project is essential to determine its viability and potential risks.
 Through a comprehensive feasibility assessment, we aim to identify project constraints, mitigate
risks, and make well-informed recommendations regarding project execution.

In conclusion, the proposed project methodology and scope are strategically designed to address key
challenges, optimize resource utilization, and facilitate informed decision-making. By adhering to these
principles, we endeavor to ensure the successful execution and attainment of project objectives, thereby
delivering sustainable value to stakeholders.

5. ANALYSIS AND RESULTS

The project's cash flow is heavily contingent upon a critical variable: construction delays.

These delays, often beyond the control of project promoters, can significantly impact the project's timeline
and financial performance. Due to their unpredictable nature, the company must employ various financial
evaluation methods such as calculating the Benefit-Cost ratio, Net Present Value, and Internal Rate of
Return. These calculations serve as essential tools in making well-informed investment decisions, helping to
assess the project's feasibility and potential returns despite the challenges posed by construction delays.

Since this factor is often unpredictable and beyond the direct control of the project promoters or
stakeholders, it's crucial to assess their potential impact on the project's financial viability. To make
informed decisions about whether to invest in the project, the company conducts thorough financial
analyses. This typically involves calculating metrics such as the Benefit-Cost ratio, which compares the
expected benefits of the project to its costs, the Net Present Value (NPV), which evaluates the project's
profitability by discounting future cash flows to their present value, and the Internal Rate of Return (IRR),
which indicates the project's rate of return.

By evaluating this, the company can better understand the risks and rewards associated with the project and
determine whether it represents a sound investment opportunity despite the construction delays.

6. CONCLUSIONS