Organisation And Management - Feasibility Report On Investment Projects
The success of investment projects depend to a large extent on the the capability of those responsible for managing them. The feasibility analysis should investigate the legal status of the organisation, the level of staffing and the capability of the management and staff.
Credit institutions lend their funds to projects on trust that the individuals who promote or manage them have the character and integrity and would be able to manage the credit funds well. They ensure that project managers have a good objective, structure, human resource capabilities, and experience and that the key personnel of the borrowing institution have the integrity to invest the funds well and would repay as and when due.
Financial Analysis
This is concerned with project of cost and revenues and the matching of cost and revenue in order to determine the profitability and viability of the investment project.
Project (Capital) Cost
This should follow from a good technical analysis, cost of all items, including machnery, equipment, facilities, furniture and fittings and motor vehicles (if required) should be determined. This cost also covers working capital and contingencies. If the project cost is underestimated, the project may have cost over-run and may be abandoned halfway because there is no guarantee that additional funds can be obtained. If it is over estimated, there are a number of negative implications.
Project Funding
The funding plan indicates the level of funding that will be provided by the project promoters and the level of funding that may be required from external sources. Success in external funding usually depend on the financial commitment of the promoters and expected finacial returns from the project.
Estimate Of Operating Cost
The cost estimate here usually include raw materials, fuel, labour, maintenance, marketing and distribution, administrative overheads. Operating cost also include insurance, depreciation charges and interest on loans. Accurate cost estimate is particularly important for credit projects and funds as they are expected to be self-sustaining.
Revenue Estimates
Revenues come mainly from sales of products and charges for services.
Revenue should be sufficient to cover:
. Cost of operation
. interest on debit funds
. Loan repayment
. Maintenance of capital assets
. Expected profits on investments.
Revenue estimates needless to say, should be realistic.
Financial Statements
The financial analysis of the investment project entails the preparation of projected financial statements, as follows
. Pro forma cash flow statements
. Pro forma profit and loss (income) statements
. Pro forma Balance sheets
Types of Financial Analysis
. Turnover
. Break-even point
. Liquidity
. Profitability
. Cost benefit
. Sensitivity
Appraisal Criteria
. Pay Back Period PBP)
. Accounting Rate Of Return (ARR)
. Internal Rate Of Return (IRR)
. Net Present Value (NPV)
Conclusion
The project decision can be considerably enhanced by undertaking a feasibility study. It forms the basis of systematic gathering and analysis of data and provides an informed, independent and objective opinion on the new project. Feasibility studies is not a full proof guarantee that a particular project or investment venture will succeed.
