Chapter 3

Chapter 3: Project
Design/Preparation

Lectured:
by
Bersisa Kacho (PhD)
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 Contents and session objectives

Contents
◦ Pre-feasibility study
◦ Feasibility study
◦ Formats of Feasibility Study Report
Objectives: After the session, you will
be able to
◦ Identify feasibility study components
◦ Prepare feasibility Study report.
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 Pre-feasibility study
 A preliminary selection stage of a project on
the basis of:
 Availability of an adequate market
 Project growth potential
 Investment costs, operational costs and
distribution costs
 Demand and supply factors and
 Social and environmental considerations

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 Pre-feasibility study
 Objectives of pre-feasibility study are to determine
whether:
◦ All project alternatives have been considered.
◦ A detailed analysis through feasibility study is required.
◦ The investment opportunity is viable or not.
◦ the environmental situation at the planned site and the
potential impact is inline with the national standards
 If the opportunity study [problem identification
stage] is well-prepared and comprehensive enough,
the pre-feasibility stage could be by-passed.
 Hence, it is not always necessary to undertake the

pre-feasibility study.
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 Feasibility study
 Feasibility study provides a detailed review of all aspects of
the project and lays the foundation for implementing the
project and evaluating it when completed.
 A feasibility study should form the core of the proposal
preparation process. Its purpose is to provide stakeholders
with the basis for deciding whether or not to proceed with
the project and for choosing the most desirable options.
 Who Conducts the Feasibility Study?
◦ The government,
◦ Donor agencies.
◦ Consultants or
◦ Any interested person who can afford to do it

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 Feasibility Study…
 The feasibility study must provide answers to the following
basic questions:
◦ Does the project conform to the development and environmental
objectives and priorities of the specific country and or region?
◦ Is the project technically and scientifically sound, and is the
methodology the best among the available alternatives?
◦ Is the project administratively manageable?
◦ Is there adequate demand for the project’s outputs?
◦ Is the project financially justifiable and feasible?
◦ Is the project compatible with the customs and traditions of the
beneficiaries?
◦ Is the project likely to be sustained beyond the intervention period?

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Elements of feasibility study
 Market analysis
 Technical analysis
 Organizational analysis
 Political-legal analysis
 Financial analysis
 Economic analysis
 Social analysis, and
 Environmental analysis
 Cross –cutting issues
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Market analysis
 Market analysis should address the following questions:
◦ Is the product for domestic or export consumption?
◦ Are there other producers (competitors) in the area (supply
analysis)
◦ Is the market large-enough to absorb the new product without
affecting the price?
◦ What share of the total market will the proposed product have?
◦ What marketing strategies and distribution channels are
required?
 breakeven analysis is one of the techniques used in
demand and supply analysis of a project

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Social analysis

 Examine the social implication of the project:

◦ income distribution to the low income group
◦ adverse effects of a project on particular groups of
people
◦ The impact of the project on improving the quality
of life.
◦ Considering the contribution of alternative projects
in furthering the same objectives.
◦ Demographic, social values and norms

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Technical analysis
 Is concerned with the projects inputs (supplies) and
outputs of goods and services and the technology of
production and processing
 Its objective is to evaluate:

◦ The type of technology and its capacity,

◦ degree of integration (flexibility of manufacturing system),
◦ the production processes involved,
◦ the inputs and infrastructure facilities
◦ The capacity of the organization to use the technology

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 Organizational analysis
 Institutional/ organizational structure
 Management of the project:
 Is focused on the following questions:

◦ Are authority and responsibility properly linked?

◦ Does the organizational design encourage delegation of
authority or do too many people report directly to the
project director?
◦ Does the project have sufficient authority to keep its
accounts in order and to make disbursements promptly?
◦ Does the project have capable employees
◦ is the project manageable? Team building, motivation of
employees and managers etc
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Environmental analysis
 The impact of the project on nature and its habitat
such as plants (forests), water, air, wild and domestic
animals, human beings, etc.
 Some of the examples of the questions to be asked

are:
◦ What chemicals and wastes are emitted from the
project that will pollute air and water?
◦ What hazardous chemicals are used that will harm
the health of employees and the people living
around the project area?

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 Political-legal Analysis
  A politically feasible project may be referred to as a
"politically correct project."  Political considerations
often dictate direction for a proposed project.  This is
particularly true for large projects with national
visibility that may have significant government inputs
and political implications.  
 Political feasibility analysis requires an evaluation of

the compatibility of project goals with the prevailing

goals of the political system. All projects must also face
legal scrutiny.

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 Financial analysis
 Financial viability of the project is analyzed based
on:
◦ Sources of funds/ estimates of cost of the project,
◦ Return of the project /profitability,
 Financial analysis is based on market price of goods
and services
 It aims to see the feasibility from the view point of

entrepreneurs, investors and financiers (from private

costs and benefits)

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 Economic analysis
 Economic analysis is basically concerned with
the following:
◦ What is the contribution of the project to the
national economy? E.g. employment opportunity,
benefits to the local people.
◦ pricing of costs and benefits to reflect their values
to society, shadow price

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 Preparation of feasibility study report
1. Executive Summary
 An overview of the basic project ideas

 The main results of the study

 Conclusions and recommendations

2. Project Background
 The rationale for the project i.e., how it addresses the existing

gap.
 Project objective and strategy.

 Project location.

 Economic and sectoral policies supporting the project

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feasibility study report
3. Marketing analysis
 Demand and supply of products (quantity and prices) and

estimate of projected revenues

 Distribution, warehousing and storage arrangements

 Promotion and marketing strategies and their projected costs

4. Raw materials and Supplies: -

 Description, type and availability of raw materials,

processed materials, components, factory supplies, spare

parts, etc. needed for production.
 Estimate of annual requirements of material inputs and

estimate of their costs.

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 feasibility study report continued
5. Location, Site and Environment
 Justification of choice of location and site.

 Infrastructure conditions.

 Environment impact of the project,

 Estimated costs related to the choice of location, site and

environment.
6. Engineering and Technology
 Selection of technology and equipment

 Outline of production program & plant capacity.

 Layout and civil engineering works.

 Estimated costs for procurement of the technology and

engineering works.

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 Feasibility study report continued
7. Organization, Human Resource and Estimate of OH Costs
 Describes the basic organizational design and management

 Estimates of overhead costs.

 Human Resource

◦ Manpower availability, Recruitment and training needs.

◦ Need for expatriate staff (if any).
◦ Costs of employment including wages, salaries, etc.
8. Financial Analysis
 Summary of total revenue of the project

 Estimate of total investment costs.

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 Feasibility study report continued
8. Financial Analysis (continued)
 Estimate of operational costs.

 Strategies for project financing.

 Analysis of risk factors and developing risk mitigation

strategies.
9. Economic analysis
 The economic contribution of the project to the national

economy, to the local community

 Impact on income distribution

 Assured prices to farmers and suppliers of inputs;

 savings in foreign exchange;

10. Conclusions and Recommendations

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