The study of pre-feasibility It is an analysis in the preliminary stage of a potential project, which is carried out to determine if it would be worthwhile to proceed to the feasibility study stage. This is done in large projects, and generally of joint ventures or multinationals.
This study is carried out by a small work team and is designed to give the company's stakeholders the basic information they need to give the green light to a project or choose between possible investments, selecting the best business scenarios..
Usually provides an overview of logistics, capital requirements, key challenges, and any other information deemed important to a project's decision-making process..
The pre-feasibility study can be requested as a standalone work or as an integral part of the project development process. Either way, it is a vital study that determines whether or not a full feasibility study should be conducted, which is significantly more expensive..
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This study assumes that you have more than one business scenario, then you want to know which one is the best, both technically and financially. In pre-feasibility, the best idea is selected from several ideas.
It will be difficult and time consuming if each scenario is deeply explored. Therefore, the shortcut is considered acceptable at this preliminary stage and can be used to determine the minor components of investment and cost of production..
If the selected scenario is considered feasible, it is recommended to continue with the study to obtain a more in-depth analysis of the selected project scenario..
The pre-feasibility study acts as one of the first explorations of a possible investment, after a preliminary resource report and the creation of a model have been made..
This study can occur based on the data obtained by various evaluations. Companies use these studies to gather information before investing millions of dollars in tasks such as obtaining permits or investigating teams..
In addition to the information related to the design of the models, the pre-feasibility studies also take into account the factors that can affect or interfere with the final project. That can involve community issues, obstacles, challenges, and more..
A comprehensive pre-feasibility study should include detailed designs and descriptions of the operation, as well as cost estimates, project risks, safety issues, and other important information..
There should also be multiple options included in the study to address different issues, as this will provide organizations with more ways to overcome potential challenges..
If a pre-feasibility study results in a positive base case scenario, the company will likely move on to the next stage: a feasibility study..
If the study is negative, an organization may return to the evaluation board or abandon the potential project entirely..
The pre-feasibility study will generally not provide a direct answer on how to guarantee the debt and capital necessary to execute the project..
However, the study can advise the most likely avenues to seek financing or highlight inherent difficulties, which require further attention before approaching financial institutions..
Pre-feasibility studies can provide investors with useful updates on a company's project progress. These studies help create a more concrete picture of a company's milestones and challenges to move forward.
The main purpose of preliminary analysis is to analyze project ideas before investing time, effort and money. Two sets of activities are involved.
Outline as specifically as possible the planned services, the target markets, and the unique characteristics of the services by answering these questions:
- Does exercise serve a currently unmet need?
- Does the exercise serve an existing market where demand exceeds supply?
- Can the exercise compete successfully with existing practices due to a "win-win" situation, such as better design, price, location, or availability??
A “yes” answer to the following indicates that the idea has little chance of success:
- Are capital requirements for continuing operations unaffordable or unavailable??
- Is there any factor that prevents the effective marketing of any of the sources in reference?
If the information collected so far indicates that the idea has potential, a detailed feasibility study is continued.
A good market survey is crucial. If the planner cannot carry out this survey, an external company should be hired. The main objective of a market survey is to have a realistic projection of income. The main steps include:
- Define geographic influence on the market.
- Review population trends, demographics, cultural factors, and purchasing power in the community.
- Analyze competing services in the community to determine their main strengths and weaknesses. Factors to consider include pricing, product lines, referral sources, location, promotional activities, quality of service, loyalty, and consumer satisfaction..
- Determine the total volume in the market area and estimate the expected market share.
- Estimate the opportunities for market expansion. For example, responsiveness to new or improved services.
At this point, both the organization and the business operations must be planned in sufficient depth to determine the technical feasibility and the costs involved in the start-up and operations. A great effort is required to develop detailed plans to:
- Equipment.
- Marketing methods.
- Facility location and layout.
- Availability and cost of personnel.
- Availability of supply. For example, vendors, pricing programs, exclusive products, or franchisees.
- General expenses. For example, utilities, taxes, insurance.
This review is crucial. The planner must determine if any data or analysis performed should change any of the previous analyzes. Basically, taking this step means "going back and reflecting one more time".
- All reports made must be re-examined, taking into account all the observations indicated.
- Analyze risks and contingencies. Consider the possibility of significant changes in the current market that could alter projections.
All the previous steps have been aimed at providing data and analysis for the “go / no go” decision..
If the analysis indicates that the business must produce at least the minimum desired income and has growth potential, the decision to "go" is appropriate. Anything less demands a "no go" decision. Other additional considerations are:
- Is there a commitment to make the necessary sacrifices in time, effort and money?
- Will the activity satisfy long-term aspirations?
The objective of carrying out the pre-feasibility study is to have information about the project to be executed, exposing the conditions that surround the project and the options that are available. An example of the pre-feasibility study consists of:
This study seeks to project the values in the future. It seeks to forecast the levels of increase in sales, changes in demand for a product, number of customers in a given time, potential future markets, coming from the competition, etc..
As in any predictive study, elements such as the decrease or increase in the level of income, changes in market distributions, historical behavior of demand must be taken into account..
It is the determination and analysis of demand and supply. Likewise, many operating costs can be established by defining the policies and procedures that will be used as an advertising strategy and simulating the future situation..
This study provides information to measure operating costs and the amount of investments corresponding to this area..
It is normally considered that the most modern technologies and procedures should be applied, resources that from a technical point of view may be optimal, although not from a financial point of view.
One of the derivations of this study will be to define the function of the manufacture of the product or the requirements of capital, material resources and labor, both in the start-up and in the subsequent operation of the project..
The technological study must be useful to find the best way to achieve the production of the service or, and contain both basic and detailed engineering.
- Quantify the requirements and production that the project has of the services or goods.
- Size.
- Location.
- Process.
- Schedule.
- Organization.
- Physical works.
It is the evaluation and analysis of raw materials, as well as auxiliary services and inputs that are needed for the production of a service or.
It helps to know the requirements, location, characteristics, costs, availability and other important aspects for the investment project.
The specification of raw materials comes as a result of the required volume, the type of product to be achieved, as well as the degree of use of the installed capacity.
At this stage, the objective is to systematize and order the monetary information provided by previous studies..
The previous history will also be evaluated to verify its profitability. In addition, analytical tables and additional background will be obtained to evaluate the project.
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