6 steps for preparing a detailed project feasibility study
In a previous article, we touched upon the feasibility study of a project, in terms of its definition, importance, and the aspects it focuses on. In this article, we will talk in some detail about the steps for a project feasibility study in detail, and the things that must be taken into account when carrying out them.
Steps for a project feasibility study
1. Choose a project idea:
If there is more than one idea, then it must be sifted and chosen, and all efforts focused on thinking about its suitability to the needs of the market, before moving on to the next steps. A particular idea is excluded because there is no actual need for it in the market, or because the size of the market that needs it is limited and insufficient to generate demand that leads to reasonable sales and profits. The goal of this step is to come up with one idea that deserves to devote time, effort and money to it, and to delve into its analysis and study.
2. Identify the prospects for purchasing the good or service intended to be introduced to the market;
This is done by identifying the needs of current or potential consumers, the size of the expected initial demand, and ensuring that consumers will accept the good or service that the project will produce. Several methods are used to obtain this information, the most important of which are questionnaires directed at a representative sample of consumers, retailers, or both.
3. Determine the method of operation of the project;
Here, some important decisions have to be made about the nature of the project; Is it commercial, industrial, or will it provide a specific service? Do the project owners have sufficient experience to operate and manage the project? What are the jobs and jobs required to operate the project? Is it possible to obtain labor from the local market at a reasonable cost? Do they have the necessary skills to do project work? Is there a need to bring in manpower from abroad?
4. Calculate project costs;
After determining all the requirements and needs of the project in terms of machinery, equipment, equipment, manpower, etc., it becomes possible to make approximate projections about the total costs of the project. Whether fixed or variable costs. Fixed costs consist of a group of items; The most important of them are: the salaries of the administrative staff, the rent of the buildings belonging to the project, the means of transportation, consumption premiums, health insurance for workers and others. The variable costs include a number of items. The most important of them are: raw materials, workers’ wages, maintenance costs, electricity, water and energy expenses, transportation costs, etc. It must be emphasized here that the cost is calculated with the highest degree of accuracy, and it is preferable that a financial analyst or accountant specializes and has experience in calculating costs.
5. Estimate project revenues;
In this step, the amount of products that can be sold is estimated over a period of time, and usually estimates are made for a number of years, which may be three, five years or more. As for how to calculate revenues, it is by multiplying the quantities expected to be sold by the selling price of one unit of the product, which must be determined based on costs, competition and consumer expectations. On the other hand, there may be other sources of project income through investing in stocks, bonds, real estate leasing, or others. We would like to emphasize here the importance of doing this step by a competent and experienced body (accountant or financial analyst) so that the estimates are as close as possible to reality.
Based on the previous two steps, the most important decision is reached, which is to continue implementing the project idea or stop. Naturally, this decision is taken on the basis of the expected profit percentage that results by subtracting the total expected costs from the expected revenues. In practice, a number of financial indicators are used to judge the viability of the project. Notable among them are: calculating cash flows for a time series (usually five years), and return on investment; Which expresses a percentage of the expected profits compared to the capital invested.
The return on investment is a basic criterion for deciding whether to proceed with the implementation of the project or to stop. Of course, the higher the return on investment, the greater the feasibility of the project. It is also possible to rely on another indicator, which is the internal rate of return, which expresses the minimum return on capital that makes the net present value of inflows equal to the investment cost of the project; It is the minimum return on capital that can be accepted for investment in the project.
And if the project is proven to be feasible, then it is possible to start taking practical steps to implement it, such as preparing a business plan, searching for a source of funding (a bank or an investor), and who will request access to a feasibility study to verify the feasibility of the project and the availability of its requirements, skills and experience necessary for its operation and continuation.
In conclusion, whatever the size of the project and the funds that will continue in it, it is better and safer to prepare a feasibility study for an economic project before taking any practical step to establish it. This is in order to increase the chances of success in the future, and to achieve the personal goals of the owners of the project, and to contribute to the achievement of general economic and social goals, the most important of which is providing opportunities for the unemployed.
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In the end, we have provided you with 6 detailed steps for a feasibility study. We hope that you have benefited from this article.
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