Every CEO and banker would like to assess the risk and returns associated with large investment decisions prior to committing capital in the proposed project. Undertaking feasibility study is the only objective measure available to identify and size various risks and rewards in a potential project so that informed decision can be taken to mitigate risks. Given the many intangible and unknown factors coming into play in setting up of a project, it is necessary for all the decision makers to get a handle about the future probabilities. Feasibility has three main components: –
Market potential assessment: What is the total market size and what is the opportunity available?
Capital Cost assessment – What is the total cost required for setting up the plant?
Financial Feasibility and Monetary Returns – How many years to pay back investment? What is the total returns expected?
Feasibility assessment is both an art and science. It requires experience, calculated risk as well as tact to approach the issues of unknown future. A misstep can result in big losses so multiple scenarios are built in on the way to handle evolving scenario.
It is necessary to comprehend the project magnitude and role of multiple stakeholders involved in the execution stage as well as in the steady state of the project life cycle. It is equally important to grasp the ground reality for assessing demand supply scenario and how it is likely to evolve in the future. It is in this stage where domain understanding and experience comes into play. Using inputs from other modules, financial analyst needs to deploy creativity and tact to simulate multiple scenarios and develop cost effective yet practical capital structure. This is critical to ensure the project is financially bankable, profitable, sustainable so as to provide adequate risk adjusted returns to all those stakeholders involved in the project. Multiple financial metrics and valuation approaches are used to objectively define and measure potential risk and returns so as to guide financiers on what should be the interest rate to be charged for the risk and for securing the principal. Similarly, promoters would be able to assess whether the returns commensurate the risk and effort and should he proceed ahead in committing his investment. AGR’s domain and financial experts use proprietary framework to assess project viability in a comprehensive manner thereby prepare promoters and bankers to anticipate surprise and not taken by surprise.