1. Introduction:
Brief historical review of the development and uses of the product, in addition to specifying the relevant factors that directly influence its consumption.
2. Background:
Provide details of the constitution of the natural or legal person who is interested in the project, as well as the study must be located in the economic and social conditions prevailing at the time of its realization.
3. Objective:
It synthesizes the aims of the project, both generally and specifically.
4. Market study:
Study of supply, demand, price, product, place and competition, among other factors. It is used to know a sales forecast.
5. The technical study:
Based on the results of the market study, it will be decided what infrastructure will be necessary to carry it out.
6. The administrative study:
It is the administrative structuring of the new entity so that it can function and be able to fulfill its objective.
7. The financial study:
The evaluation of costs and expenses against income and based on the result, the most convenient decision is made.
8. Evaluation:
Study the effect of a new project on society and on the employer. It aims to determine the way to distribute economic resources in such a way that their use is optimal, so it is necessary to measure the relationship between the resources used with the results or estimated benefits.
9. Conclusions and recommendations:
Most important aspects arising from the possible execution of the project, as well as from the recommendations on the viability of the proposed financing and on all relevant aspects of the project.
Chapter II.
Market study.
It is the collection and evaluation of all the factors that directly influence the supply and demand of the product. Among its objectives is to determine the segment of the market to which it will focus, and the quantity of the product to be sold.
2.1. Concept:
In a market analysis, four fundamental variables that make up its structure are known, such as; demand, supply, prices and marketing. This study seeks different data that will help identify our market and must ensure that there really is a potential market, which can be exploited to achieve the planned objectives, either in the sale of a good or a service. It can be done in different ways, one of them is the application of surveys to potential consumers, these surveys will give us the idea of the market situation.
2.2. Structure of the market analysis.
It should include a brief description of the characteristics of the market including the area, volumes handled, distribution channels, suppliers, prices, competition, as well as the general practices of trade in the region. It is necessary to analyze both historical and current data of what is the demand and the past and current supply, to be able to see if the demand for the product is attractive and if the existing supply is sufficient or insufficient, to analyze the variations that both supply has had like demand over time.
As in any investment project, the future must be analyzed, based on the information available, creating an environment in which an image can be given of what the future demand for the good or service will be. You must consider what market share our project will have, considering the supply and demand, in the same way structuring the marketing program to use.
The research carried out must provide the necessary and sufficient information to support decision-making, which in this study should be aimed at determining whether market conditions are not an obstacle to carrying out the project..
2.3. The product.
According to William J. Stanton, “A product is a set of tangible and intangible attributes, which includes, among other things, packaging, color, price, quality and brand, along with the services and reputation of the seller. A product can be a good, a service, a place, a person or an idea. ”(2)
It is important to identify which will be our product and which or which by-products, to indicate the existence and characteristics of the products that replace those of the project in development, according to the characteristics of the products of the project, to specify if their use is conditioned to the existence of another product on the market.
2.4. The market.
According to Baca: "It is the area where the forces of supply and demand come together to carry out the transactions of goods and services at certain prices." (3)
The aim of this study is to generate a general idea of the market in which the product will be placed, in order to define its scope with some precision. It is important and necessary to have an idea of the location and magnitude of the company, seeking that it is optimal, in order to determine the specific area where the project will operate.
2.5. The demand.
A very important factor is the demand, since it is the quantity of the good or service that is requested by the client. The quantity of said goods or services to be produced depends on this characteristic.
2.6. The offer.
No less important than the previous one, the capacity that one has to satisfy that demand will be the supply. When speaking of capacity, it refers to the management of resources and the installed capacity of the competition.
2.7. The price.
In simple terms as Michael J. Etzel describes it in the book Marketing Fundamentals, "It is the amount of money or other useful objects necessary to satisfy a need that is required to purchase a product." (4)
The price will vary according to the game of supply and demand, or if it is regulated according to the provisions of the body that controls it. It will take into account the factors:
- The sales prices of the competition, The purchasing power of the consumers, The expected reaction of the competition with the introduction of our product, That the product is new in the market, That the product exists in the market but is new for the company, The promotion, The manufacture, The distribution channels used, Product versatility, Auxiliary product services (Complementary).
2.8. Marketing.
Set of actions carried out by the company to deliver a product to consumers, therefore the mechanisms and instruments that make it possible to achieve this objective must be established.
In order to market a product, the following functions are necessary:
- Physical functions.- Packaging, size selection, transportation brand, etc. Auxiliary functions.- Knowledge of prices, quality control, product preparation standards, etc.
Price is perhaps the most important element of the commercial strategy in determining the profitability of the project, since it will be the one that ultimately defines the level of income. It is also important to determine the conditions of sale, the percentage of cash collection, the credit term, the amount of the installments, discounts for prompt payment, volume discounts, etc.
Chapter III.
Technical study.
They are all those resources that will be taken into account in order to carry out the production of the good or service.
3.1. Concept.
“It consists of designing the optimal production function that best uses the resources available to obtain the desired product.” (5) That is, it is what we are going to use to be able to produce, what is the equipment to use.
3.2. Goals:
- Verify the technical possibility of manufacturing the product to be created. Analyze and determine the optimal size, optimal location, equipment and facilities required to perform production.
3.3. Elements of the technical study.
1. Product description, 2. Description of the chosen manufacturing process (with flow diagrams), 3. Determination of plant size and production schedule, 4. Selection of machinery and equipment, 5. Plant location, 6 Plant distribution, 7. Availability of materials and facilities, 8. Labor requirements, 9. Waste, 10. Estimated cost of investment and production of the plant.
3.4. Optimal size.
It is the one that ensures the highest profitability from a private point of view or the greatest difference between benefits and social costs. The size of a project is its installed capacity and is expressed in production units per year.
According to the market segment that was obtained through the market study, the quantity of products to be produced is determined, and thus the size of the plant, can also be based on both present and future demand.
3.5. Factors that determine or condition the size of a plant.
In practice, determining the size of a new production unit is a task limited by the reciprocal relationships that exist between size and demand, the availability of raw materials, technology, equipment, and financing. All of these factors contribute to simplifying the process of successive approximations, and the size alternatives from which to choose can be reduced as the conditioning factors mentioned are examined.
1. The size of the project and the demand. A very important factor that determines the size of the project is demand. By comparing project size with demand, 3 different results can be obtained;
a) That the demand is greater than the minimum project size.
b) That the magnitude of the demand is of the same order as the minimum size of the project.
c) That the demand is very small in relation to the minimum size.
The size proposed for the project can only be accepted if the demand is clearly greater than that size.
2. The size of the project and the supplies and inputs. The sufficient supply in quantity and quality of raw materials is a vital aspect in the development of a project, since the quality of the good or service to be attended to, the timely delivery of the same, as well as the image that directly depend on it. consumers will have it. This implies the search for close providers of recognized prestige.
3. The size of the project, the technology and the equipment. Currently there are certain production processes or techniques that require a minimum scale to be applicable, that below that scale the costs would be too high.
It is very important to observe the relationships that exist between size, investment, production costs, supply and demand.
4. The size of the project and the financing. If the financial resources are insufficient to meet the investment needs of the minimum size plant, it is clear that the completion of the project is impossible. Conversely, if you have sufficient resources to choose between the different sizes, the wisest course would be to choose the size that can be financed with greater comfort and security.
5. The size of the project and the organization. When a study has been carried out to determine the most appropriate size for the project, it is necessary to ensure that the personnel are available to attend to it.
3.6. Production process.
In order to reach the finished good or service, a whole process is required. It is understood as the technical process used in the project to obtain goods or services from inputs, and is identified as the transformation of a series of inputs to convert them into products through a specific function of the product.
It is necessary to systematically describe the sequence of operations that the inputs undergo in their initial state in order to obtain the products in their final state. In each type of project, the terms inputs and outputs have a precise specific meaning:
a) Initial state:
- Main inputs. Assets, natural resources or people that are the object of the transformation process. Secondary Inputs. Goods or resources necessary to carry out the transformation process, both for its operation and for its maintenance.
b) Transformation process:
- Process. Synthetic description of the phases necessary to go from the initial state to the final one. Equipment, equipment and facilities necessary to carry out the transformations. Personnel necessary to make the transformation process work.
c) Final state:
- Main products. Goods, resources or people that have undergone the transformation process. By-products. Goods, resources or people who have only partially undergone the transformation process or which are the unintended consequence of this process, but which have an economic value, albeit of a marginal nature, for the justification of the total operation.Residues.-Produced in the transformation that may lack economic value.
3.7. Methods to represent the process.
a) Block diagram- Each one of the activities necessary for the elaboration of the good or service is framed in a rectangle and joins with its previous or subsequent activity, indicating the sequence of the flow.
b) Process flow diagram- Although the block diagram is also a flow diagram, it differs from the flow diagram in that it has a very specific and international symbology, where each figure has its own meaning.
c) Analytical course - It is a more advanced technique than the previous ones, since it presents more detailed information on the process, which includes the activity, the time spent, the distance traveled, the type of action carried out and a space to record the observations. This technique can be used in the evaluation of projects, provided that you have an almost perfect knowledge of the production process and the available space. In industry, its most common use is in conducting plant redistribution studies, since it is possible to compare the time elapsed and the distance traveled with the current distribution and the proposed distribution using the analytical course.
3.8. Selection of the production process.
There are 3 types of production processes: the linear process, the intermittent and the mixed. To choose it, it is necessary to analyze the production stages as well as the characteristics of the product. In any investment project, it is important to model the transformation process and facilities, to qualify the operation, the labor force, the inputs, the possibilities of expansion of the capacity used, the new units must be justified, both equipment and of personnel and technology, analyze the capacity of expansion of the facilities and the justification of the process against the size and location.
3.9 Location.
The location aims to analyze the different places where it is possible to locate the project, in order to determine the place where the maximum profit is obtained, if it is a private company, or the minimum unit cost, if it is a project from the social point of view.
There are certain factors that determine the location, which are called locational forces, and are classified into three categories;
- For transfer costs to the freight account: Includes the sum of costs of transportation of supplies and products. Availability and relative costs of factors and inputs. Other factors.
3.9.1. Macro location. It consists of the location of the company in the country and in the rural and urban space of a region.
3.9.2. Micro-location. It is the determination of the precise point where the company will be built within the region, and in it the distribution of the facilities will be made on the chosen land.
3.9.3. The plant location methods are:
- Qualitative point method, Vogel quantitative method.
In these methods, a value is assigned to each one of the characteristics of the location, evaluating these characteristics in each area that is taken into account for the realization of the project.
3.10. Basic engineering.
It consists of defining and technically specifying the fixed factors (buildings, equipment, etc.) and the variables (labor, raw materials, etc.) that make up the system. In basic engineering it is necessary to know:
a) Good or service.- Know and describe the characteristics of the goods or services.
b) Production program.- Indicates the performance indices and the efficiency of the equipment in physical terms.
c) Calculation of production.- It can be carried out by two systems;
- Based on the market, it is based on the knowledge of the volume of the final product that must be delivered to the market. Based on the given raw material. In some cases the problem is to process a certain volume of raw material.
d) Labor and input requirements.
e) Specification of the characteristics of the equipment to be used.
f) Distribution in the plant. Once the production process and the necessary equipment have been defined, the equipment must be distributed in the building.
The maximum economy of time, materials and movements is necessary, taking into account the following principles:
- Full integration, Minimum travel distance, Use of cubic space, Safety and well-being for the worker, Flexibility.
g) Civil works. The size and shape of the buildings is a consequence of the plan layout. In the elaboration of the plans of the buildings for industrial production, administration and complementary services, and their distribution in the field, the same criteria indicated on economy of time, movement and materials must be taken into account.
Chapter IV.
Administrative study.
It refers to how are we going to do things? That is, how we are going to manage the resources that are available.
4.1. Concept.
It refers to the executive activity of your administration: organization, administrative procedures, legal aspects and environmental regulations.
4.2. The purpose of the study.
Present the analytical criteria that make it possible to better face the analysis of organizational, legal, administrative, fiscal and ecological aspects, as well as their economic consequences on the evaluation results.
4.3. Elements that make up the administrative study.
a) Background. A brief overview of the origins of the company and a tentative outline of the organization that is considered necessary for the proper administrative operation of the project are presented. The objectives of the company are reflected, as well as its main shareholders.
b) Organization of the company. An organizational chart of the institution must be presented, showing its structure, direction and control of functions for the proper functioning of the entity.
The posts created must have their respective job profiles and analyzes, in order to avoid confusion in the tasks assigned to each individual, as well as detailing the responsibility of each of the posts.
c) Legal aspect. All laws that have direct or indirect interference in the daily operation of the company must be investigated, be it the Labor Law, the Income Tax Law and other laws that could affect its operation.
d) Ecological aspect.- Regulations regarding the prevention and control of water, air and environmental impact pollution.
e) Legal framework. Within any activity in which you want to participate there are certain rules that must be followed in order to operate, which are mandatory and fair. Among the main ones are the following;
Market: • Health legislation, • Contracts with suppliers and clients, • Transportation of the product.
Location: • Real estate titles, • Environmental contamination, • Fiscal supports, • Various procedures.
Technical study: • Technology transfer, • Trademarks and patents, • Tariffs and permits.
Administration and organization: • Hiring of personnel, • Employee benefits, • Industrial security.
Financial and accounting aspect: • Taxes • Financing.
Chapter V.
Financial study and economic evaluation.
In this study, we begin to play with the numbers, expenses and income that are projected for a given period, yielding a result on which the investor will base his decision.
5.1. Concepts.
It aims to determine what is the amount of economic resources necessary to carry out the project, what will be the total cost for the operation of the plant (covering the functions of production, administration and sales), as well as another series of indicators that will serve as basis for the final and final part of the project, which is the economic evaluation. Which is very important for decision-making, since the information obtained must serve as the basis for the decision made.
5.2. Objective:
Demonstrate the economic profitability of the project, • Demonstrate the financial viability of the project and provide the basis for its economic evaluation.
5.3. Elements that compose it.
a) Identify, classify and schedule the investments to be made in fixed, deferred assets and working capital. Investments are considered the essential resources for the installation of any type of company, regardless of its line of business. These investments constitute the fixed capital, the deferred investment or deferred asset and the working capital of a project.
b) To combine the data of the production and sale program formulated in the market, engineering and administrative studies; including production and sales volumes, alternative market prices, elements to technical bases for determining production costs as well as the investments to be made.
c) Formulate budgets for • Sales or income • Production costs and expenses, • Administration and sales expenses; • Principal and interest payments.
d) Formulate the financial statements of;
- Profit and loss, • Balance sheet, • Statement of changes in financial position based on cash.
5.4. Steps to prepare the financial study.
a) All the information must be concentrated in the spreadsheet, such as the different types of investments to be made, the constitution expenses, the operating expenses, tax rates, the loan rate, the yield that the investor requests and the sale price of the good or service.
b) A table is prepared in which we must obtain the salvage value of the investments, as well as the amount of the annual depreciation or amortization of each one of them.
c) Investment budget. It is necessary to know and capture the different investments that will be made during the life of the project.
d) Production budget. A cash flow is prepared based on the previous data, to obtain the operating flow.
e) Net cash flow. A concentrate is prepared in which the net investment flow, the operating flow are integrated per year to make an algebraic sum and thus obtain the cash flows.
5.5. Steps to prepare the economic evaluation.
- With the above flows, the net present value and the IRR must be obtained, taking into account the return expected by the investor. Based on the results obtained, the return on investment and its risks will be analyzed to make a decision on a firm basis. Present the break-even point and the financial statements mentioned above.
