Project Evaluation: Key Aspects & Analysis

Posted on Sep 13, 2024 in Economy

UNIT 3: Analysis of Quantitative and Qualitative Variables

Commercial Aspects

These aspects involve studying market supply and demand and developing a marketing plan for a new product or service.

Market Analysis

Analyzing demand and supply involves studying the market. This allows for assessing the current market structure and sector prospects, considering economic, social, or cultural trends that may positively or negatively impact the sector and influence the entry of a new product.

Demand

Information on demand can be obtained from primary or secondary research. Consider the following:

  1. Who are the potential buyers of the product or service? What are their requirements?
  2. How much could each potential customer buy, and how much are they willing to pay?
  3. What are the customer’s priorities when making a purchase?
Supply

Analyzing the competition is crucial. Consider these aspects:

  1. Identify substitute or similar products in the market.
  2. Are there any gaps in the market?
  3. Identify major competitors and their market share.
  4. Analyze competitors’ operations, including their strengths and weaknesses.
  5. Analyze payment methods available to consumers.
  6. Analyze competitors’ promotional strategies and consumer reception.

Marketing Plan

Based on the company’s goals, which should be realistic and measurable (e.g., increasing sales by a certain percentage within a specific period), it’s crucial to develop strategies related to price, product, promotion, place (distribution), and sales projection.

Product
  1. Determine product characteristics (quality, price, delivery time, guarantees, services, etc.).
  2. Decide whether to enter the market with a single product or a product line.
  3. Determine how and when to offer the product.
  4. Develop a brand, logo, and slogan that is representative and memorable for consumers.
  5. Determine service policies, warranties, and customer service.
Price
  1. Establish a pricing criterion: based on competition, product attributes, expected profit margin, etc.
  2. Determine the criteria for price adjustments.
  3. Consider potential price changes to address a price war.
  4. Consider price discounts for volume or prompt payment.
  5. Assess if the expected price allows for rapid market entry.
  6. Evaluate payment methods to offer customers.
Place (Distribution)
  1. Identify distribution channels.
  2. Determine delivery and transportation methods.
  3. Analyze transportation and insurance costs.
  4. Address storage issues.
Promotion
  1. Identify mechanisms to promote the product to potential buyers (TV, radio, newspapers, magazines, leaflets, posters, etc.).
  2. Design a corporate image that represents the company, including colors, brand design, logo, and slogan across different media.
  3. Plan and schedule advertisements and their respective return on investment.

Technical Study

The technical study provides data to quantify the project’s technical feasibility, which directly impacts its credit risk. This study helps determine the cost structure, production, investment in equipment and machinery, maintenance costs, replacement of machinery and equipment, personnel requirements, physical infrastructure, machinery location, and plant and storage size.

Key Aspects

Production Process Stages

Specify the production process to maximize profitability based on available technological alternatives. The choice of technology determines the investment in machinery, equipment, and infrastructure. A flowchart of the production process and a layout of equipment and storage areas are essential.

Physical Investments

Include land costs, construction, utilities, roads, landscaping, renovations, and extensions. Decisions about buying or leasing office space should also be considered. Provide detailed information on production costs, useful life, salvage value, construction schedule, maintenance costs, and replacement costs for physical works.

Raw Materials and Supplies

Determine the requirements for raw materials and inputs for production and workers, expressed in monetary terms, considering suppliers, prices, and purchasing conditions.

Operational Staff

Specify the required engineers, technicians, supervisors, aides, and assistants, including the cost of relocating personnel if the plant is located outside urban centers.

Machinery, Equipment, and Facilities

Quantify the investment in machinery and equipment, including the cost required for optimal plant operation, useful life, salvage value, maintenance costs, repair costs, and renovation schedule.

Location

Specify and map the location of the company, production plants, sales outlets, and branches. The location and decor should align with the desired corporate image based on the business strategy.

Summarizing and evaluating these aspects translates technical information into economic terms, enabling project evaluation and determining the financial risk for capital providers.

Legal Aspects

Consider the following:

  1. Determine the legal form of the enterprise and the rationale for choosing it over other legal forms, considering taxation, partner selection, and the relationship between founding partners (e.g., type of company: Corporation, Limited Liability Company, Partnership, etc.).
  2. Attach copies of the memorandum and articles of association.
  3. Outline the legal structure, including the names and roles of partners or investors, their shareholdings, and their obligations and restrictions.
  4. Include details of required external consultancy services, specifying consultants, their expertise, and estimated costs.
  5. Outline all administrative and legal procedures for establishing the company (e.g., municipal permits, tax registration, activity code, licenses, etc.).
  6. Seek expert legal advice to define the legal form of the enterprise and the fiscal framework if lacking adequate legal expertise.

Organizational Aspects

Organizational Structure

  1. Define the organization, including the hierarchy and functions of each member.
  2. Determine staffing requirements (number of personnel) and minimum training requirements.
  3. Describe the functions, responsibilities, and salaries associated with each position.
  4. Determine the requirements for filling positions (physical, intellectual, personality, etc.).
  5. Identify training needs and objectives.
  6. Determine the type, conditions, frequency, and cost of training to assess its suitability.

Economic and Financial Aspects

These aspects are crucial for determining the project’s economic and financial viability. Consider the following:

Initial Investment

Common investments include physical works, equipment, furniture, and fixtures. Determine fixed asset investment and working capital (including labor and raw material costs during the pre-revenue stage). Include expenses for business implementation, such as patents, licenses, and procedures for starting operations.

Project Costs

Costs

Disbursements incurred to produce a product or service, which can be fixed or variable.

Fixed costs: rent, supplies, tools, taxes (excluding income tax), insurance, depreciation, tax deductions, selling and administrative expenses.

Variable costs: raw materials, labor, packaging, sales commissions, travel expenses, and costs that change with production volume.

Determine monthly and annual cost figures for cash flow projections.

Operating Income

Operating revenue: income generated exclusively from the company’s core business operations (i.e., sales).

Non-operating income: income from operations other than the core business, such as interest income, adjustments, sales of fixed assets, stock sales, etc.

The financial study summarizes information from previous stages (commercial, technical, legal, and organizational) in the project’s cash flow. This allows for calculating financial indicators (NPV, IRR, Payback Period) to determine the project’s feasibility.