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ANALYSIS OF IMPACT FEASIBILITY/VIABILITY STUDY ON CAPITAL PROJECT DEVELOPMENT IN NIGERIA

ABSTRACT

The business of embarking investment  involves risk and as such, it requires systematic planning. The whole idea of feasibility studies revolve around conscious efforts at business planning, hence a feasibility study is a comprehensive and rigorous business planning process . Many investors especially in developing countries embark on industrial projects without pre-investment studies to across the viability of the venture. Even where investment decisions were preceded by pre-investment studies, the standard and depth of such studies are often not adequate The problem of improper identification of business opportunity resulting in wrong choice of project implied with wrong timing has led to many project failures The objective of the study is to highlight the importance of feasibility studies in the realization of project objectives.          The survey research method using questionnaires and hypothesis was adopted in eliciting data from the respondents for this study. The major findings are: Financial commitment to a project has something to do with the success or otherwise of the project. Feasibility study do assist in determining the viability of a project feasibility study is an excellent told in achieving project objectives. A project will not achieve optimal financial success unless it is properly,  efficiently and effectively planned and operated with respect to its technical, social, commercial and financial requirement. In meeting the above requirement, it is expected of an entrepreneur to endavour to carryout a feasibility of any project to be embarked upon so as to determine its viability.

 

 

 

 

                               

 

 

 

 

CHAPTER ONE

1.0 INTRODUCTION

1.1 BACKGROUND OF THE STUDY

Many definitions had been given to project by different authors, due to the fact that project is a multidisciplinary word that has different meaning from different perspective and orientations. Engineers, Architects, Managers and so on, have their definitions coined out from their experiences as far as their professions are concerned. Project according to Project Management Institute, PMI, (2000) cited in Pinto (2007) “is a temporary activity or endeavour undertaken purposely to create a unique output (product or service) within budget, time and standards. Turner and Muller (2003) in their own words defined project as “an organization of human materials and financial resources in a novel way, to undertake a unique scope of work, of given specification, within constraints of cost and time, defined by quantitative and qualitative objectives so as to achieve a beneficial change”.

The uniqueness of project is pointing to its genuine nature in the sense that there may not be a pre-existing blue print for the project’s execution and there may not be a need to repeat the project once completed. Standards is seen by Ajayi (2009) as institution of best practice in quality and consistency. And the keywords of any standards should therefore include; transparency, consistency, rationality, comparability and uniform performance measures.  At global level, the International Valuation Standards Council (IVSC) is the established international standard setter for valuation. Through the International Valuation Standards Board, the IVSC develops and maintains standards on how to undertake and report valuations, especially those that will be relied upon by investors and other third party stakeholders.

Globally, the drive for standards and harmonization which are commonly acceptable and applicable in professional practices has been the watchword for transparency, consistency, rationality, comparability and uniform performance measures Onuorah (2009). The word standard in its technical connotation entail quality control principles put forward by professional regulatory bodies on how best to undertake professional work to a global acceptable level. According to Ajayi (2009), such control principles include; mandatory rules, best practice guidance and related commentary.

Many governments and businesses, especially in developing countries, embark on industrial projects without necessary pre-investment studies to assess the viability of the venture. Even where investment decisions were preceded by pre-investment studies the standard and depth of such studies are often adequate. As a result of this deficiency, many industrial ventures had run into critical problems or even folded up within a short spatx of time after the start – up of operation.

The first positive step in project planning is feasibility study. To minimize the

rate of industrial mortality, it is absolutely important for prospective investors to seek the services of professionally qualified and experienced consultants to carry out a feasibility study on the proposed project to determine if it is a worthwhile venture. Feasibility study has been variously defined by authors, analyst and consultants.

In a nutshell, however, a feasibility study is a scientific investigation and analysis of a proposed project in order to determine its economic desirability, or value, technical feasibility, organisation and manpower requirement, financial logistics, commercial viability and profitability. Thus, a feasibility report is a comprehensive business plan.

Feasibility reports are highly valued world wide. Apart from their common use as project planning documents, these reports are put into various other related uses. For instance, owing to a very high poverty level, most prospective investors reply on feasibility reports as the basic document for finance sourcing. For project execution, monitoring and supervision, feasibility reports constitute authoritative referee materials. In fact, a project is ‘usually implemented in accordance with the provisions of its feasibility reports. It therefore serve as a guide for project monitors and supervisors.

          The IVSC also supports the need to develop a framework of guidance on best practice for valuations of the various classes of assets and liabilities and for the consistent delivery of the standards by properly trained professionals around the globe. In Nigeria, Nigerian Institution of Estate Surveyors and Valuers (NIESV) the professional body saddled with responsibility of estate surveying and valuation practice has its own standards and guidance notes published in 2006, though majorly a duplication of IVSC on valuation, there was not any noted standard structure set for members for preparation of the feasibility and viability study.

In addition to the 2006 standards and guidance notes, recently, precisely in June 2013, NIESV also came up with the pilot property data bank on Lagos property market with the aim of extending it to Abuja and subsequently the whole of Nigeria. Again, this is a mere emphasis towards having a valuation standards, it is not extended to feasibility and viability studies. Feasibility and viability studies is next to valuation because it also have element of appraisal like the valuation, and they both have some features in common, in fact feasibility and viability study is the foundation of real estate valuation and decision making Chegut et al (2013).

Standards adherence therefore distinguishes professional from non-professional in field of practice. Furthermore, the courts now prefers to rely on the published standards of professional bodies for guide in their judgments especially in a liability cases such as negligence, fraud, professional incompetence and breach of contract Sampton et al (1998). It is generally accepted that the preparation of a feasibility and viability study is an important element early in the life cycle of an investment development project  Laird, (2001); Amos, (2001). Typically, initial assessments of the development potential of a resource project are aimed at assessing the project’s key technical and economic characteristics, with subsequent assessments designed to confirm assumptions and reduce the uncertainty associated with the development to an acceptable level.

 

References to feasibility studies are often prefaced with ‘order of magnitude’, ‘preliminary’, ‘indicative’, ‘pre’, ‘final’, ‘bankable’, ‘definitive’, ‘detailed’ or other terms to indicate the level of detail investigated in a study. Resolution of technical issues is often seen as the primary focus of a feasibility and viability study, whereas in reality, these technical issues are the basis upon which a business plan is built. However, different people, different organisations and different situations inevitably give rise to different interpretations of what is to be investigated, what level of detail needs to be investigated, and even what is meant by technically feasible and economically viable in the context of a resource project development.

Although valuations as well as feasibility studies may be inaccurate because they are inexact science NIESV editorial (2009) and because of dissimilar bases and methods of valuation for the same valuation assignment (Ajayi, 2009). The range or gap or variation should however not be too wide especially if there is a standard set for the exercise. The professionals and their professional bodies are confronted with a new reality of changing value perceptions and systems among market participants, and offers practical recommendations on how to cope with this situation. Since an effort has been made towards ensuring standards in valuation task, this needs to be extended to feasibility and viability studies as well because both bothers on appraisal.

The feasibility study process must therefore demonstrate that not only have the technical issues been satisfactorily addressed, but also that the broader commercial, economic and social issues have been considered in the development of a comprehensive business plan, which includes an assessment of the risk-reward profile of the proposed development in a standard format. It is a characteristic feature of the resource industry that no two development projects – are the same. So these technical issues have to be addressed to a greater or lesser extent in evaluating any resource project’s development potential.

Not surprisingly then, technical issues tend to predominate when assessing the development potential of a project in the process typically referred to as ‘doing a feasibility study’. But the principal purpose of a ‘feasibility study’ is to determine whether a development opportunity makes good business sense, not just whether it is technically possible. The questions agitating this research effort are; how often is feasibility and viability study done by Nigerian Estate Surveyors? What formats were the report of feasibility study take at different firm’s perspective? Does one firm have access to feasibility report prepared by another firms, if yes how are they compared? Is there any need for standardization of feasibility and viability study amongst Nigerian Estate Surveying firms? Who should be involved in the setting of feasibility standards and what benefits could be derived from such standardization?

This research work is therefore set to establish the impact of feasibility/viability study on project development’ to pave way for best practice that will allow consistency in evaluation approach across a wide range of projects. This is hope to complement the initial efforts on standardizing valuation because both valuation and feasibility studies are breeds of appraisal. To achieve the aim of this research work, the work has been structured into 5 sections; section one is an introductory aspect followed by review of literature in second section. Third section is on study area and research methodology, followed by section four which is on the research findings and discussions from the findings. The fifth section was on summary of research findings and conclusion.

1.2 STATEMENT OF PROBLEM

Inspite of the unassailable and nature value of feasibility studies is to the realization of project objectives following problem are identified as a set back:

Improper identification of a business opportunity or wrong choice of project to be executed.

Timing of the proposed project. Some project are conceived at a wrong time with improper feasibility study carried out based on the project will not work. Inflation is another problem of using feasibility study for project realization. The use of quack or dubious consultant for the preparation of feasibility study can erase the importance of its use in the realization of project objective. (e) Political Interest supersede feasibility study in public sector.

1.3  OBJECTIVE OF THE STUDY

 

1. To identify the steps in project feasibility.

2. To examine stages that lead to the development of a feasibility study.

3. To determine factors to be considered when conducting a feasibility study.

4. To examine the need for feasibility/viability study before embarking on capital project development.

5. To find out the causes of development projects abandonment in Nigeria.

1.4 RESEARCH QUESTION

1. Are there steps in project feasibility?

2. What are the stages that lead to the development of a feasibility study?

3. Are there factors to be considered when conducting a feasibility study?

4. Is there any need for feasibility/viability study before embarking on capital project development?

5. What are the causes of development projects abandonment in Nigeria?

1.5 RESEARCH  HYPOTHESIS:

H0: There are no steps in project feasibility.

H1: There are steps in project feasibility.

H0: There is no need for feasibility/viability study before embarking on capital project development.

H1: There is a need for feasibility/viability study before embarking on capital project development.

1.6 THE SIGNIFICANCE OF THE STUDY:

Thus study is carried out with the hope that the following parties will benefit from it.

Government agencies will find this study useful as it shows the extent to which feasibility study is useful before embarking on any project. Researcher will find the information in this study useful as additional data for their research. Student of management will benefit from this study. Reading it will enable them to know the practical side of the topic.  Consultants can use the information in this study as additional input to their consultant jobs. Business men/Entrepreneur will benefit greatly from this study as it serves as eye opener to other essential aspect of management tool. Investors can make use of this study as a guide to any investment, to invest in any venture there is need for further plan. This can best be found in the feasibility studies.  Financial Institutions who lend money for business venture will find the information in this study useful. It will show the fact that not every feasibility studies can be relied upon for giving loans.

1.7    SCOPE AND LIMITATIONS OF THE STUDY

LIMITATIONS: The study centers on feasibility study and clothing business formation/ investment Drive. Mainly the importance of feasibility report, motives for forming or joining a clothing business society/ investment Drive and feasibility studies.

Sampled members of clothing business societies, management, and officials responsible for government departments charged with clothing business affairs were administered with questions.

The researcher in the course of this work seriously encountered financial and time constraints. Exorbitant, unreasonable, high and great transportation cost, apathy, limited clothing business books, journals, and other publications. Higher level of risk of traveling by road and the geographical spread of the data base constituted limitations in themselves.

The availability of correct and up to date information is not easy even the available ones still encounter wholly unnecessary bottlenecks due to our socio cultural milieu, bureaucracy and subterranean motive.

The researcher also encountered financial and time constraints, exorbitant, unreasonable, too high or great transportation cost, high level of risk of the data base constituted limitation themselves. This contributed to the researcher small sample size.

1.8   DEFINITION OF TERMS:

Importance: When we say something is important we mean it is of great influence, something that need to be treated seriously and having a great effect.

Feasible: When sometime can be done or can be managed and that is convenient, is described as feasible. The noun form of this is feasibility.

Study: This mean devotion of time and thought to getting knowledge of something. It also mean close examination of a subject.

Realization: This is the act of converting (a hope, plan etc.) into a fact.

Project: A project can be defined as a scientifically evolved work plan devised to achieve a specific objective within a specified period of time.

Obiective: Objective constitute the basic purpose of a firm. The aim, target or pursuit of an organisation is its objective. Objective are the ENDS toward which all activity is directed.

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