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Important question before undertaking the projects:1. What are the risks? 2. Who will bear them? 3. Weather returns are adequate to compensate the risk
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.
C. Creditworthiness
Depends on three factors in new projects Inherent value of asset included in the project o Adequate proven reserves o Proven technology to recover these resources o Assured market for the product Expected profitability of the project Amount of equity project sponsor have at risk Pledges of creditworthy third parties or sponsors involved in the project
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