Report Writing on Project Management: Feasibiliy study report : setting up of a co-operative
1.Introduction
It is always difficult developing an entirely new business from scratch .Developing an organization from an initial idea to the operational stage is always a complex time-consuming effort. Without a proper process mechanism most of the ideas fail to see through the light within the first 6 months of setting up of an organization. Moreover before the stakeholders start investing in an organization they should also look into whether the investment far outweighs the risk involved. Thus a feasibility study aids in such an endeavor by looking at the project through different perspectives.
Cooperative business projects become expensive to conduct and they involve operations which almost always differ from the participating members’ individual business. The risks involved are also of a different nature altogether. Thus time and effort should be invested in a feasibility study report to understand the risks and rewards associated with it. Not only from the financial point of view such reports also help to look at the operational, scheduling and technical feasibility as well for setting up of a business. Thus feasibility studies have always helper planners to outline ideas on paper much before implementing them. This thus reveals errors in project design much before its implementation negatively affects the project. Applying the lessons gained from a feasibility study can significantly lower the project costs.
Thus it is a kind of an analytical tool that is used during the project planning process which shows how a business should operate given a set of assumptions as in the technology used (the process, facilities, production, equipment, etc.) and the financial aspects namely capital needs, volume, cost of goods, wages etc.). Financial aspects (capital needs, volume, cost of goods, wages etc.). The study is the first time in a project development process that the pieces are assembled to see if they perform together
2. Body
2.1Economic Feasibility:
Financiers often require a feasibility study much before providing with loans. It is in fact a tool which enhances a banker’s ability to evaluate a project.
It is always a cardinal rule in the profession of banking to borrow from lenders who understand the business you; or, to put it conversely, not to lend money to a business project that one does not understand. Although most groups make sure to involve their banker very early in the process, it is a feasibility study that is often conducted with an eye toward explaining the project to potential financiers.
In our case of the given project the feasibility study report, the banker is to be apprised of the unique features of co-operatives. Bankers are always concerned on the repayment, the exposure of the giving business and the projects strengths and weaknesses. The tangibles and non-tangibles expected by them can be classified into the following category through a 5-C framework
_ Capacity—Ability to repay the loan. In the present case it is a safe option cause the cash flows looks promising
_ Capital—Assets to be financed by the loan and the amount requested. The cooperative in this case is looking into procuring milk and making milk products to sell in the market. The capital required would be mostly to purchase machinery for storage and also for transportation. A part of the capital will also be used to fund the administrative and distribution set up for the cooperative
_ Character-The principals involved in the project and their background. In the present case all of the individual are retired government servants of significant repute. Thus should not be a concern with the bank
_ Collateral—how is the loan being guaranteed? The loan is being guaranteed by the personal assets of the participating members .This includes their savings, investments in financial instruments as well their homes. The assets to be purchased for the running of the business will also be hypothecated to the bank to ensure the loan
_ Conditions—what other factors affect the loan
Thus bankers look for a financial blueprint which looks to address the following question
1) What is the given project’s funding potential and repayment terms? What is the rate of conversion to cash-liquidity?
2) The internal (yields, costs, etc.) and external (inflation, energy, etc.) project risks?
3) _ Evaluate the economic consequences involved. Do the present net reserves cover the involved capital cost? Does the given plan help to keep the project from capital erosion?
4) The projected balance sheets, cash flows and operating statements?
The present value of the business can be calculated after drawing a projected cash flow statement. One of the of the important criteria to find out the present value is in selecting the internal rate of return .In the present case of the business the internal rate of return as per the industry standard is chosen to be at approximately 11% which is common for all business of the given sector. An approximate cash flow of 30% of the entire equity invested by the banker from the second year onwards. Thus the break-even period is expected to be around four to five year of operation of the given business. A detailed projected cash flow statement can only be prepared after a couple of discussions with the bankers by looking into the interest rate that is to be negotiated out for the given situation. The given interest rate can only be accepted after looking into the Debt Coverage Ration that will emerge after the proposed interest rate.
2.2Technical Feasibility:
The technical feasibility in the present scenario looks into the following parameters for the given business
1. General Design and Technical Requirements: The general design is based upon supply aggregation format in which the farmers within a radius of 5-7 km of villages are called upon to give milk to the said cooperative. The only technical expertise required in our case is the storage of milk and converting it into the required products .The technical will also pertain into packaging of the product as milk products have a very small shelf life involved.
2. Comparing Design and Expected Performance with Existing Operations: Interestingly learning can be taken from a similar cooperative set up that has existed and prospered in the Indian Subcontinent of that being of AMUL. The design and the expected performance of the cooperative can be on exactly the similar lines as that of Maul. However the product lines and the distribution expanse will be much smaller as that of AMUL.
3. Proposed Sources of Supply and Method of
Acquisition: As discussed the proposed source of supply for the raw materials is to be expected from the farmers located with a radius of 5-7 kames for the given cooperative. Thus the it is mostly a source of supply that that of acquisition for the model
5. Proposed Procedures for Quality Control and
Construction Performance: Quality control is to be ensured by putting across a benchmark unit for the procured milk. Milk that does not suit the quality required is to be rejected. Proper quality control and hygiene condition inside the factory is to be also ensured through repeated checks and balances carried out in the factories involved.
6. Estimated Costs and Sources on Which
Estimates Are Based: After a due diligence and looking into other milk cooperatives that have been set up, it is estimated that around 10%-15% of the entire equity invested is require for running expenses of the factory
Operational Feasibility: The operational feasibility plan in the present case looks into the following set of issues.
1) Preparation of Facility-The preparation of the given facility for starting up of operations
2) Training employees: Training the employees to handle procurement and operation of the factories.
3) Monitoring of operation by appropriate engineers: Process control and process checks
4) Estimating Projected Total Demand in Markets to be
Served: Identifying total demand thus to tweak production of the given business
5) Changes in operating procedures if required any after a pilot survey for the market
6) Full operation of the plant and co operative
2.3Scheduling Feasibility:
We will analyze the given scheduling feasibility by first identifying the key flags in setting up of the business , giving them a time-line and thus looking at the bigger picture of the time required for the entire business to get started out
The key flags in setting up of the business are
A) Drawing a project plan-2 to 3 weeks
B) Drawing a financial plan-1 week
C) Scouting for bankers-2 weeks
D) Initial discussion with the bankers-1 weeks
E) Securing Loans-4 weeks
F) Machinery Procurement-5 weeks
G) Bringing the farmers on board-2 weeks
H) Pilot Market Survey-2 weeks
I) Setting up of Distribution Network-3 week
J) Full Fledged Business Start-2 weeks
The entire process can also be shown using a Gannt Chart as attached in the given excel sheet with the file
3.0Conclusion:
Using the given feasibility the various aspects of the business are analyzed as well as the aspects related to economics and feasibility is also studied. In the body of the essay a clear analysis was carried out into the various operation, technical and operational parameters required to make the report possible. It is of prime importance to develop a suitable framework in each of economic, technical and operational parameters discusses. This is turn will help to simplify the analysis of risks involved and thus adequate steps to counter the risks involved.
Thus the gives an important understanding to evaluate the risks and the rewards involved in opening up of a co-operative.
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