What are the most crucial assumptions feasibility studies we should consider?

A feasibility study is an evolving, dynamic process.
While it is used to justify what is developed and at what cost (the investment decision) it is also used throughout the procurement phase to check that the project is being developed in accordance with the original assumptions and, where change is necessary, it is also used to manage the change.
Identify and analyse the available budget(s) Project Due diligences assumptions including legal and financial assumptions.
Technical Assumptions such as: Construct the project cost model   Provide a technical definition of the project Calculate direct costs ·         Capital Cost ·         Maintenance costs ·         Operating costs   Explain in detail all assumptions the model makes about the inflation rate, the discount rate, depreciation, treatment of assets, available budget(s), and the government’s Medium-Term Expenditure Framework (MTEF).
  ·         Inflation   ·         The discount rate ·         Depreciation   Risk assumptions:  Calculate the project Risk and include in the project cost model ·         Identify the risks   ·         Identify the impacts of each risk ·         Estimate the likelihood of the risks occurring   Estimating probabilities is not an exact science, and assumptions have to be made.
Ensure that assumptions are reasonable and fully documented, as they may be open to being challenged in the procurement process or be subject to an audit.
There are some risks whose probability is low, but the risk cannot be dismissed as negligible because the impact will be high (for example the collapse of a bridge).
In this case a small change in the assumed probability can have a major effect on the expected value of the risks.
If there is doubt about making meaningful estimates of probability, it is best practice to itemise the risk using a subjective estimate of probability rather than to ignore it.
Institutions should also be prepared to revisit initial estimates, if they learn something new that affects the initial estimate.
Together with estimating the probability of a risk occurring, it is also necessary to estimate whether the probability is likely to change over the term of the project.
Estimate the cost of each risk Estimate the cost of each sub-risk individually by multiplying the cost and the likelihood.
Assess the timing of each sub-risk.
Cost the sub-risk for each period of the project term.
Construct a nominal cash flow for each risk to arrive at its net present value.
     Identify strategies for mitigating the risks Construct the risk-adjusted project cost model Testing sensitivity   assumptions: The institution and its advisors should test the sensitivity of key variables to test their impact on affordability, and risk, such as: ·         inflation rate ·         discount rate ·         construction costs ·         total operating costs ·         BEE costs ·         service demand ·         third-party revenue, if any   A statement from the institution and its advisors on the reasonableness of the information collected, assumptions made and Cost carried out.
All advisors and technical consultants should sign off on their design and Cost as professionals using their best endeavours. 
For complex projects or projects where there is little precedent, it is strongly recommended that an independent party checks that the assumptions are reasonable and confirms that they have been correctly incorporated into the model to produce an accurate result (arithmetic and logic).
This may have cost and time implications ECONOMIC VALUATION   An economic valuation is warranted in: greunified projects capital projects of significant capital spend (say R100 Million) projects that warrant an analysis of externalities (such as major rail, port, airport projects).
   

Production and Sales Plans are the base for a good feasibility study.

 

 

1- Basic Assumptions ( tax rate, time duration, social security, capial assets, human recources needed)

2- Revenue Assumptions ( capacit and utlaization assumptions, market study  ( demand) figures, revenues, direc cost of sales assumptions

3- fixed assets ( value, depreciation rates)

4- General and Admin expenses assumptions 

5- startup capital ( fixed assets, pre operating cost needed, additional surplus ( all compound into the starup capital) 

6- capital structure ( debt/ equity  ratio, intrest rates, terms of debt..)

7- financial assumptions ( WACC assumptions- risk free rate, market risk premium, Beta)