PROJECT FEASIBILITY ASSESSMENT (APPRAISAL)

A feasibility study considers the following aspects of a project proposal.

➢ Commercial Analysis (market analysis)
➢ Technical Analysis
➢ Financial Analysis
➢ Economic Analysis (SCBA)
➢ Environmental Analysis
This analysis helps the decision maker in making the right choice of the project.

MARKET APPRAISAL
• What would be the aggregate demand of the proposed product or service?
• What would be the market share of the project under appraisal? (How much of the demand would you be able
to capture?)
Issues in Market Analysis
• Past and current demand trends.
• Past and current supply position.
• Production possibilities and constraints.
• Likely imports and exports in this area.
• Nature of competition.
• Cost structure.
• Elasticity of demand
• Consumer behavior
• Motivations, attitudes, preferences, requirements
• Distribution channels
• Marketing policies
• Administrative, technical and legal constraints

TECHNICAL APPRAISAL
• Whether prerequisites for the success of projects have been considered?
• Good choices with regard to location, size, machines etc.
Issues in Technical Analysis
• Preliminary tests and studies
• Availability of raw materials, power and other inputs
• Optimal scale of operations
• Choice of suitable production process
• Choice of appropriate machinery and equipment.
• Effluents and waste disposal
• Proper layout of plant and building
• Realistic work schedule
• Socially acceptable technology

ECONOMIC APPRAISAL (Social Cost Benefit Analysis)

• Social Cost - Benefit Analysis
• Direct economic benefits and costs in terms of shadow prices
• Impact of project on distribution of income in society
• Impact on level of savings and investments in society
• Impact on fulfillment of national goals
• Self sufficiency
• Employment
• Social order

ENVIRONMENTAL APPRAISAL (Ecological appraisal)

• Impact of project on quality of
– Air, Water, Noise, Vegetation, Human life
• Major projects, such as these cause environmental damage
– Power plants, Irrigation schemes, Industries such as leather processing, bulk drugs, and chemicals
• Likely damage & cost of restoration

FINANCIAL APPRAISAL
 • Whether the project is financially viable?
– Servicing the debt that is taken?
– Meeting returns expectations?
(Appropriate return on investments)
• Investment and phasing of the total cost
• Means of financing
• Cost of capital
• Projected profitability
• Breakeven point
• Cash flows in the projects
• Investment worthwhile?
• Net present value
• Internal rate of return
• Payback period
• Loan returning capability of the project
• Debt service coverage ratio
• Level of risk

KEY ISSUES IN PROJECT ANALYSIS

• Market Analysis – Potential Market & Market Share

• Technical Analysis – Technical Viability and Location selection
• Financial Analysis – Investment - Risk and Return
• Economic Analysis – Economic benefits and costs in terms of shadow prices and contribution to national
objectives
• Environmental (Ecological) Analysis – Environmental Damage and Restoration Measures