A business project is a series of activities that pursue a single objective in order to achieve a benefit to the organization, generally maximizing the profitability of its operations. To evaluate a project, it is necessary to analyze its viability from various perspectives, market, technical, financial and an analysis of the environment where the project is developed. As a decision tool, it is possible to use sensitivity analysis as a project evaluation tool. A sensitivity analysis attempts to assess the impact of the input data or the specified constraints on a defined model, on the final result or on the output variables of the model (Turban, 2001).
This article aims to analyze these concepts and put them into practice, exemplifying them with a simple analysis of the profitability of a real estate project that will help decision-making, as well as the mention of some systems available on the market.
Background
It is necessary to start with the definition of a project, or what do we mean by a business project, a project is "a set of temporary efforts, aimed at generating a unique product or service." (Chamoun, 2002), also a project is "… a series of economically indivisible activities related to a specific technical function and with identifiable objectives." (Florio, Finzi, Genco, Levarlet, Maffi, Tracogna, Vignetti, 2002), from the above we can infer that a business project can be defined as a series of activities that pursue a single objective in order to achieve a benefit to the organization, that in general, this is economic, that is, the purpose of a company or business organization is to ensure and maximize the profitability of its operations.
For our analysis, we will consider that a business project will be the design of a product or service that will bring an economic benefit to the organization. Said project consists of a preparation process where according to (Gómez, 2004), the economic advantages and disadvantages of allocating resources to the project are estimated, as well as the analysis of the risks that the project will bring to the company.
Feasibility of a Project
To evaluate a project, it is necessary to analyze its viability from various perspectives, market, technical, financial and an environment analysis where external variables that may affect the final result or the satisfactory fulfillment of the project objective are analyzed.
From a market perspective, variables such as product or service demand, target market, possible market competition, consumption habits and motivators, as well as marketing strategies and possible advertising campaigns are analyzed. (Gómez, 2004).
The project must also be analyzed technically, that is, from an engineering perspective, specifying the different technical alternatives, production processes, compliance with standards and alternatives to reduce costs in production or in the execution of the service intended. offer.
Financially, a business project must be viable, that is, the company must recover the investment in a given period of time. In the project, the necessary investments, cost and income budgets, evaluation of profitability and productivity, and their financing costs must be analyzed (Gómez, 2004).
From an external environment, the result of a business project can be affected by political and social factors, the microeconomic and macroeconomic environment of the country or region where the project is carried out, the company's operating policies, financial premises or some other organizational regulations that is beyond the control of project participants.
During project planning, it is important to consider all the factors mentioned as well as designing scenarios that help us make a good decision that increases the chances of success of our business project.
Sensitivity Analysis
During the design and approval of a project, one of the most relevant points for decision makers is the financial analysis of the project, that is, its profitability and the return on investment. A tool that will facilitate decision making is the sensitivity analysis, which allows designing scenarios in which we can analyze possible results of our project, changing the values of its variables and financial constraints and determining how these affect the final result.
A sensitivity analysis tries to assess the impact that the input data or the specified constraints on a defined model, on the final result or on the output variables of the model (Turban, 2001), this is extremely valuable in the design process of products or services and in their analysis of financial viability. This evaluation methodology combined with information technologies forms a very powerful tool for decision makers, that is, we would have a support system for decision making.
Application Case
The sensitivity analysis for decision-making has innumerable applications, however, to exemplify what is stated in previous paragraphs, we will consider an application case a business project related to the real estate branch, in which it is necessary to carry out the feasibility analyzes and the environment in which the project will be developed.
One of the important tasks in the process of defining the project is the design of the product based on the needs of the market; At this stage, it is necessary to consider the characteristics of the products that the competition offers and obtain a winning product, that is, a product which has superior characteristics to the competition which will facilitate its movement, however, this analysis from the point of Marketing view lacks the financial component, we can get to the design of a winning product but it may not be profitable. This is where a sensitivity analysis can help us.
The design process of any product is multidisciplinary, different branches of science and engineering come together and work to achieve the same objective. During this process, financial or profitability analysis of the product is essential. In the case of the real estate branch, it is necessary to analyze different variables such as m2 of construction, m2 of land, cost per m2 of construction, cost per m2 of land, indirect expenses and consider restrictions imposed either by the market or by policies of the company, the above should lead us to maximize the profitability of the project, that is, of the designed product. This analysis can be represented with the following model:
This model can be implemented simply in Microsoft Excel, however, there are a number of commercially available technological platforms to carry out this type of analysis; We are from specialized libraries in sensitivity analysis available for Excel, as well as more complex systems designed exclusively for the real estate industry, to mention some systems we have:
- MM Soft Personal Service: Sensitivity analysis libraries for MS Excel TrueBlue: Support System for making financial decisions PlanEASe: System for financial analysis in the real estate branch Financial @nalysis: Libraries for MS Excel for advanced financial analysis.
To carry out the sensitivity analysis in our specific business projects, it is necessary to determine what type of system or tool best suits our needs. In the references section the Internet sites of the mentioned systems are attached.
Conclusions
The design of a business project with carries a number of activities, considerations and support to achieve its final approval. In the present article, these factors were described, as well as the analysis of the viability of a project from the market, technical, financial and environment perspectives in which the project is developed. Also, we saw how a sensitivity analysis helps decision-making in a project, exemplifying this with a real estate project.
Many applications of sensitivity analysis can be thought of, such as in the electrical engineering area to the analysis of electrical circuits, in the financial area when doing a credit analysis, in the sciences for the simulation of chemical, nuclear or biological experiments. Like these, there are more examples, however, the greatest contribution of a sensitivity analysis is its usefulness as a tool for decision-making.
It is possible to consider sensitivity analysis as a tool for evaluating a model of a process, however, I consider it to be a fundamental part of any decision support system. With advances in information technology, this tool is at the hand of any executive and can be supported by virtually all existing computing platforms in companies.
Large, medium and small entrepreneurs must take advantage of such technology to drive the growth of their organizations. Technology is no longer unattainable, it is at the hand of anyone who wants to use it.
References
Chamoun, Yamal. (2002), Professional Project Management. The Guide. A Practical Guide to Program the Success of your Projects. Mexico, Ian Ediciones, Financial @nalyst. Advanced Financial Analysis in Excel or Applix.
Florio, Máximo., Finzi, Ugo., Genco, Mario., Levarlet, Francois., Maffii, Silvia., Tracogna, Alessandra., Vignetti, Silvia. (2002), Guide to cost-benefit analysis of investment projects. Department of Regional Policy of the European Union
Gómez, Giovanny E. Sensitivity Analysis in Financial Projects.
Gómez, Giovanny E. Business Projects: A Challenge Prepare them ?.
mmSensitivity - Sensitivity Analysis add-in for MS Excel. Useful Tool for Any Analyst.
PlanEASe. Comercial Investment Real Estate Analysis Software.
Quinteros, Juan J., Calculation of Investment Project Indicators with Excel.
TrueBlue Systems. Financial Modeling Decision Support.
Turban, E., Aronson, JE (2001), Decision Support Systems and Intelligent Systems, Upper Saddle River, NJ, Prentice Hall.
