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Analyzing Project Viability
Analyzing Project Viability
Technical Feasibility
Economic Viability
Creditworthiness
A. Technical Feasibility:-
Does technological process and facility design is proper
Is technology new or proven?
Suitability of scale
Ability to scale up / accommodate future requirements
Impact of environment factor
Project can be completed in time
Project will be able to work at design capacity after its completion
Construction cost:-
Include all facilities required for project operation as free standing unit
Also included additional facility is cost is to be borne by project like road, schools, electric line
etc
Provision of Contingency cost sufficient to co possible design error or unforeseen circumstances.
(generally 10% is design is finalized)
B. Economic Viability
Market Study:-
Competitive products and relative cost of productions
Life cycle of project output
Analysis of potential impact of technology obsolescence
Potential impact of regulatory decision on production level, price and profitability
Operating Cost
Projection of operating cost is prepared once designing work has been completed.
Identification and quantification of cost elements
o Raw materials
o Labor
o Overhead
o Taxes
o Royalty
o Maintenance
Important of access reasonableness of the cost of estimate and extent of effect of inflation.
Cost of capital
1. Completion risk
2. Technological risk
3. Raw material supply risk
4. Economic risk-
a. Efficiency at which project work imp to determine
b. Hedging with forwards and futures
5. Financial risk
a. Interest rate hedging
i. Interest rate swap agreement
ii. Interest rate cap contract
6. Currency risk
a. Borrowing an appropriate portion of project debt in major currency
b. Hedging using currency forward and futures
c. Arranging one or more currency swaps
7. Political risk
8. Environmental risk
9. Force majeure risk